Will irrational shipping prices doom brick and mortar stores?
Dan Gilmore, Editor-in-Chief, Supply Chain Digest
Through a special arrangement, presented here for discussion is an excerpt of a
current article from Supply Chain Digest.
In 2015, just before I led a presentation on e-commerce at a supply chain forum at Penn State, a retail exec gave me an interesting take on omnichannel, which included this emphatic statement: “There is no free shipping!”
He explained: “The last time I negotiated with UPS or FedEx or the United States Post Office, none of them were talking about shipping our orders for free.”
The session inspired me to write a column, “Amazon’s Stock Price and the Fate of Omnichannel Commerce.” Its main point: In a normal world, Amazon’s lack of profitability would lead to the stock getting hammered. The presumption: soon Amazon would be forced to ease up on free shipping to shore up its bottom line.
Come 2017, I’m taking this a step further. The free/highly discounted shipping policies of Amazon, other retailers, and even UPS is accelerating the demise of brick and mortar retail at a faster rate — perhaps much faster — than would otherwise be the case.
Despite minimal profits, Amazon’s stock just heads up and Prime free two-day shipping has set the bar for retail.
How is UPS complicit? Its fourth-quarter earnings declined because its e-commerce business grew too much. UPS (and we assume FedEx) either can’t or for some reason hasn’t lifted e-commerce delivery rates to equal its B2B margins.
And it gets worse for about everyone but Amazon. For Amazon, every online order is new revenue and margin. For traditional retailers, much of their e-commerce sales (it varies) cannibalize sales at their brick and mortar stores, where profits are higher for each sales dollar, after considering order picking and shipping costs, returns, etc. required for e-commerce.
So retailers are shifting to money-losing e-commerce channels, thereby seeing a need for fewer actual stores, because they don’t charge what it costs to pick, pack and ship online orders. What would happen to ecommerce growth if they did?
In the end though, that retail exec I spoke with will finally be right, and investors will demand that shipping costs are indeed paid for by the buyer — after much of brick and mortar is gone.
- Irrational Shipping Prices and the Demise of Brick and Mortar Retail – Supply Chain Digest
- Supply Chain News: Amazon’s Stock Price and the Fate of Omnichannel Commerce – Supply Chain Digest
DISCUSSION QUESTIONS: Are the challenges at brick & mortar directly tied to unsustainable shipping price breaks for online deliveries? What would happen if retailers actually charged what it costs to pick, pack and ship e-commerce orders?