US consumers unwilling to pay for speed of retail delivery: McKinsey

Retail has experienced more change over the past five years than in the 50 years before that. McKinsey’s research shows nearly one in five US consumers will accept a marginal increase in shipping fees for faster shipping than standard free-delivery options.

Given the high and rising costs of omni-channel order fulfillment—roughly 10 to 20 per cent of sales in omni-channel retail—retailers are faced with tough decisions as they work toward improving delivery speeds profitably.

McKinsey estimates that Amazon’s free-delivery offering has accelerated more than 75 per cent since the early 2000s—from more than eight days to two-day shipping by 2015—with select markets offering one-day delivery by 2019.

Amazon continues to be a catalyst across retail, setting a high bar for direct-to-consumer delivery. McKinsey feels other retailers have closely followed this path, it said in a press release.

The company’s recent survey of chief supply-chain officers found the pace will continue to accelerate over the next two years. It found roughly three-fourths of apparel, hard goods and specialty retailers intend to build out network capabilities that offer two-day or faster delivery, and 42 per cent are aiming for one-day click-to-customer lead times by 2022.

As delivery times compress, the detailed physics of the supply chain becomes increasingly important, it found. Most fulfillment operations need time to pick and pack deliveries—by itself, that process takes an average of four to eight hours, though best-in-class omni-channel operations can fulfill orders within two hours of customer purchase.

To combat such challenges at least partially, most omni-channel retailers already use their stores for fulfillment or pickup. There are clear benefits to using stores, for example, enabling greater overall inventory productivity, quickening speed to customer, and avoiding markdowns.

The research also found that US stores generally have lower inventory-accuracy rates (70 to 90 per cent) than distribution centres typically enjoy (more than 99.5 per cent).

Positioning inventory across distribution centers, various store types, and market fulfillment centres remains a struggle for most retailers; in fact, of all the levers to help retailers solve for speed to customer, accurate demand forecasting and distributed-inventory placement may have the greatest impact outside of network changes.

For a majority of retailers, the cost of in-store picking is much higher—typically 1.5 to 2 times higher on a cost-per-pick basis—than picking at distribution and fulfillment centres, the research found.

Fibre2Fashion News Desk (DS)