Retailers Struggle Getting E-Commerce Goods to Customers, Study Says
In-store pickups get high failure rates, undermining retailer attempts to compete for e-commerce while preserving profits
The survey authors said stores are difficult places to fill online orders, with the space often chaotic and workers busy serving walk-in customers. PHOTO: BLOOMBERG NEWS
“Buy online, pickup in store” has become an increasingly popular strategy for retailers looking to reduce delivery costs. But a new study reveals it isn’t working as well as the store owners hope.
A survey of over 1,000 online U.S.-based shoppers by JDA Software Group Inc. shows that, of 35% who opted to buy online and pick up goods in a store in the past year, 50% encountered problems getting their purchases. This is a surprisingly high failure rate of a strategy meant to offset the high costs of conducting e-commerce, said Wayne Usie, senior vice president of retail at JDA.
It also suggests that retailers will face a tough time expanding their e-commerce sales while preserving their profit margins. Offering products online may be easy, but getting the goods to consumers can be a burden on the bottom line. Some believe that having customers pick up purchases at the stores can cost less than packing and delivering goods to homes.
Retailers may be experiencing service failures because picking products from storage and packing them into unique combinations for customers is significantly easier in a streamlined warehouse than in a chaotic store, where other customers need to be helped and orders can be misplaced, Mr. Usie said.
“In the store, you’re asking store labor to do more services for the customers than they had to do before,” he said.
The finding comes as retailers from TargetCorp. to Urban OutfittersInc. and Pier 1 ImportsInc. have all reported faster growth in online sales than sales in stores, but still are struggling to manage the high costs of delivering.
Shipping fees alone to deliver clothing can cost as much as $4 to $10 per package, depending on the carrier, even including big discounts that high-volume retailers may have with delivery companies, says Gordon Glazer, director of modal optimization strategy for shipping consultancy Shipware LLC.
Investment in the technology and infrastructure to handle e-commerce fulfillment also weighs on margins. According to a survey of retailers released last December, also by JDA, only 16% said they can make a profit on e-commerce demand. “Profitability is the biggest challenge because costs are rising faster than revenue,” the report said.
Companies are experimenting with fees for home delivery and offering free in-store pickup in part to address the cost issue, analysts say. About 61% of retailers that sell goods both online and offline offer a “buy online, pickup in store” service, according to New York-based consumer research firm StellaService Inc.
“They’re struggling with managing the task and additional work that’s required without making a difference in their labor expense, and that’s affecting customer service,” Mr. Usie said. “It’s indicative of a lot of the challenges these retailers are facing.”
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Experts say it is still unclear how shopping habits will evolve over time, but pricing will be a major factor. Half of respondents to the JDA survey said cost is a key factor when ordering online for home delivery, and 60% said they opted for in-store pickup to avoid delivery fees. Asked if they would pay extra to choose a time slot for home delivery, 64% said no.
In-store pickup and other shipping strategies will be tested again during the coming holiday season. Target and Best Buy Co. have said they would give free shipping on all online orders to compete, whileWal-Mart Stores Inc. has decided to continue charging shipping fees on orders under $50.
Meanwhile, competitive offers such as free same-day shipping in some markets from Amazon.com Inc., have made shoppers less tolerant of service blunders. JDA’s study shows half of people who have had a problem with home delivery in the past year said they wouldn’t buy from that retailer during the holiday season.
“Consumers are unforgiving of service failures for online orders,” the study said.
