The real cost of online delivery …

The competition for ‘etailers ‘ delivery contracts is intense and very aggressive.

I am very aware, that there are some big online players, within our market, who have some extraordinary deals on parcel rates. The question is how long will this continue?

December 2014 saw the demise of City Link. Yodel despite increasing volumes is still unable to make a profit( or make their customers happy!)Amazon has just doubled the order value that a customer has to buy to get free delivery. This , of course, is one way to move customers to Prime, but there is evidence in the U.S. that Prime is yet to make any money.Ocado took ten years to make an operating profit. The company’s entire ‘raison d’être ‘ is logistics. 

The consumer is beginning to expect ‘free’ delivery. Within every market, when a critical mass is achieved , aggressive players enter the market to achieve market share. Some succeed and of course some fail. As more fail, the remaining players can increase their margins. The question will be , can free delivery be sustained?

Perhaps, more relevant in the party market is will the online players be able to sustain their current delivery options or will they have to consider reduced margins. A third option is looking at the products they sell and eliminating those that do not fit into the costing model. For example , currently there are many party items that have a too lower retail value for them to be sold online as the courier cost, plus market place commissions and VAT make the selling price prohibitive. I believe Amazon now have a minimum charge of £0.40p . If you include operating costs, distribution and VAT this makes any item retailing under £2.50 very difficult to sustain. Should shipping costs increase substantially then this will push up the sustainable retail price point. Some High Street retailers might cheer at this, assuming they can survive on products at this price level.

This may not be a question that has to be considered now, as the current climate attracts aggressive courier pricing. But there will be a point in the not too distant future, where this element of the complex structure of online costing will have to be reconsidered. One possible outcome, is that more players will look at click and Collect options as this would reduce multi point deliveries. However, the other side of this coin would be that the courier market would shrink, leaving less players offering higher costs !

Some consumers would say click and collect is a bit like going to a shop…..something for the independent party retailers to think about…..

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