FT Connected Business: Delivery charges cost online retailers dear

Stuart Higgins comments on the delivery costs facing retailers in a special FT report: Retail’s third phase of digital evolution as it explores the challenge facing UK supermarkets who could potential lose up to £300m a year carrying goods to customers’ doors.

Supermarkets are a special case, argues Stuart Higgins, a partner at LCP Consulting, a management consultancy specialising in supply chain management. The big supermarkets, after all, typically pick, pack and deliver orders using their own employees and their own vans.

And, because the average online grocery shop tends to comprise a larger number and wider range of products, they achieve a lower number of deliveries per van when compared to couriers delivering, for example, toys, books or clothing on behalf of more specialised online retailers.

That said, the economics of online delivery should be a matter of concern for all online retailers. The average cost to them of sending a delivery through a third-party carrier’s network, says Mr Higgins, is about £3 to £3.50. That is fine for higher value items, but it starts to get tricky for shipments of individual books or CDs, for example. 

Either way, he adds, “online fulfilment is fundamentally more expensive for retailers than fulfilment to store and, as more sales volume goes through the online channel, many, many retailers are suffering margin erosion.”

Not all are even aware of the problem, he adds, because they do not have the robust back-end systems and reporting capabilities in place that would help them identify it in the first place. And even when they do, they consistently prioritise customer satisfaction over economics. 

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