Every Start-up Online Retailer has to deal with this. An otherwise amazing seller with a brilliant range of products gets its first few orders from its newly launched website. The shipment boxes are personally packed and delivered with a lot of excitement and warmth. The customers are happy for all the personal attention and care they got. It looks like the beginning of a happy and fulfilling start to their online business.
But as the order volume goes up, subsequently one or more of the following occur:
- shipments get delayed
- customers receive damaged product
- the return rate goes up
- more people start to abandon their cart
- you spend more time on phone to handle shipment related queries and every conversation starts with a “sorry”
- customers start posting embarrassing feedback on your Facebook wall
- shipping starts to eat your profit margins and the whole customer experience starts to fall to pieces.
Shipping & Logistics, there is nothing glamorous about this part of an e-commerce business and Fashion is no exception. Most Fashion retailers who step in to E-commerce are not even equipped with the knowledge or experience to manage all of this in-house or even outsource.
So we invited Rob Martinez – President & CEO of Shipware, LLC and pick his brain on how start-up and emerging Fashion brands can turn all their logistics mess into a streamlined process and actually deliver happiness to your customers’ door steps.
Shipware is an innovative parcel consulting and auditing firm that helps e-commerce companies across the world to streamline their shipping process and reduce parcel shipping costs an average of 25% through contract negotiations, rate benchmarking, modal optimization, invoice audit and other saving vehicles.
Rob is also a popular speaker at numerous industry conference including Parcel Forum, Operations Summit, Customized Logistics and Delivery Association (CLDA), MAILCOM, Natl Postal Forum, Institute for Supply Management, NASSTRAC, National Association of Purchasing Managers, National Association of College and University Mail Centers (NACUMS), Association of Independent Mail Equipment Dealers (AIMED), Mail Expo, Postal Customer Councils and MSMA. With topics ranging from How to Negotiate Best-in-Class Parcel Rates, to How to Make Shipping a Profit Center, Rob’s presentations are frequently rated “Best in Show”.
In 2012, American Society of Transportation and Logistics (AST&L) voted unanimously to confer upon Martinez the designation of Distinguished Logistics Professional (DLP). The DLP is awarded to transportation logistics professionals who are leaders in their field providing significant and career-long contributions to the industry.
Shipware is one of the leading logistics spend management firms in the US, specializing in carrier contract negotiations and freight invoice auditing for volume shippers. Shipware services include parcel invoice audit, parcel contract negotiations and logistics optimization.
1. Pulkit Rastogi of I Love Fashion Retail: We know you have worked in various industries but let’s talk about fashion. What are the biggest unique challenges that start-up online fashion retailers face in shipping their products?
Rob: Biggest challenge is to get it right the first time. Look, start-ups have one opportunity to make a good first impression. Competition is too fierce, and consumer loyalty is fickle.
Moreover, start-up businesses don’t yet have the volume to negotiate meaningful discounts with the parcel carriers. That’s an enormous disadvantage compared with the larger ecommerce companies that have deep shipping discounts, greater package volumes and can more afford to offer free shipping, membership programs, low flat-rate shipping, etc.
2. Pulkit: To manage logistics, there is a lot that needs to be done – sourcing products, updating inventory, shipping products, accepting returns, etc. Most of the e-commerce platforms (Magento, Shopify, OpenCart, WordPress, etc) come with an in-build inventory management system. Do you think they’re good enough or do you recommend use of specialized inventory management softwares like quickbooks even at the start-up stage?
Rob: The platforms you named offer fairly robust functionality, and should be sufficient for most starting e-tailers.
3. Pulkit: In your opinion, when should a start-up business handle shipping in-house and when do you advise they should outsource it to a 3PL?
Rob: Great question. There’s no single “right” answer as there are advantages and tradeoffs to both options. CEO’s should ask themselves, what business am I in? Do we manufacture and sell products, or are we a distributor of those products? Many CEO’s understand the concept of focusing on core competencies and opt to outsource.
Businesses that consistently fail to get shipping right should definitely consider outsourcing. Other reasons to outsource include lack of qualified employees to run the warehouse and shipping operation, lack of warehouse space and equipment, inability to negotiate discounted shipping rates, etc.
4. Pulkit: We know how shipping cost can eat all your profit margins, if not kept in check. Can you share the approach that retailers can follow to keep their shipping costs down?
Rob: Yes, lots! The first concept is to analyze your distribution to really understand your costs. Shippers that identify shipping patterns, avoidable surcharges, boxes that add dimensional costs and other price factors can use the data to make operational and contract changes to reduce costs.
Packaging is important. Have you ever ordered a small item online and were surprised to see it delivered in a large, mostly empty box? Inefficient packaging leads to higher transportation and material costs, and contributes to the mitigation of carrier discounts due to oversize charges and dimensional weight adjustments.
Many shippers are overpaying for packaging and fill materials in several significant ways. Parcel carriers like FedEx and UPS charge based on box size, not weight. Simply put, inefficient packaging raises your cost profile. Therefore, design boxes that tightly configure to product with little fill. Take advantage of free packaging like Priority Mail, as well as shipping services that charge by weight like FedEx SmartPost.
Leverage competition to negotiate better discounts. Compliment FedEx and UPS services with parcel consolidators, regional parcel companies, and the United States Postal Service (USPS). The USPS offers low cost services, multiple discount levels, free packaging, no surcharges, free Saturday delivery and other advantages.
Finally, be sure to audit your invoice and apply for credits where due. Each year, more than $3 billion in guaranteed service claims are not refunded because claims are never filed. Shippers that take the time to audit invoices can tap into this often overlooked source of cost savings. In addition to late shipments entitled to money-back guarantees, shippers should audit for missing discounts, incorrect fuel surcharges, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices.
5. Pulkit: What are the things that Fashion Retailers should keep in mind as they create their Shipping & Return policy?
Rob: Create Shipping & Return policies with your customers in mind. What relationship do you want to have with your customer, and how does shipping — and returns — play into that? One of the biggest advantages of a web-only retailer is that it avoids the cost of brick-and-mortar stores. But it’s also its weakness since customers cannot try on fashion items, feel the fabrics, compare colors and sizes, etc.
Therefore, fashion e-commerce companies are wise to offer a very generous Shipping & Return policy to allay consumers’ concerns inherent with e-commerce. And don’t overlook returns. A hassle-free returns policy – according to the comScore research — leads to customer loyalty, recommendations to others, and less focus on price. 82% of online shoppers said that the ability to return an item for free – either to the store OR using a pre-paid label – would enhance their likelihood to complete a sale.
Frequently survey your customers to find out what’s most important to them, and what would motivate them to shop with you instead of your competition.
6. Pulkit: Talking specifically about fashion e-commerce, can you share your thoughts on consumer’s attitudes about shipping & returns policies?
Rob: For starters, customers want choice in shipping options: choice in shipping options, delivery alternatives, even choice in carriers. More importantly, almost every consumer survey I’ve seen points to the conclusive fact that shoppers want free shipping, and they are willing to wait multiple days in order to get it. Therefore, e-tailers should limit low cost or free options to deferred services only, and charge adequately to cover costs for premium delivery services.
7. Pulkit: Shipping costs are one of the biggest reasons why customers leave the checkout process without completing their purchase. Can you share some tips on how online retailers can charge shipping without shocking their customers or making them abandon the cart?
Rob: Absolutely. In fact, the perception that shipping costs are too high is the number one reason for cart abandonment. In another study, Boston Consulting Group found that shoppers actually want free shipping MORE than they want lower prices on the products they are buying! Let customers know early in the process about shipping fees. Offer variable cost choices based on transit days — free/cheap for deferred delivery, and higher costs for premium services like same day/next day.
Consider offering free shipping if the dollar value exceeds a set threshold. It’s another page out of the Amazon playbook. If you’re NOT an Amazon Prime member and still want free shipping, Amazon says “no problem.” Just increase your order size to more than $35, and we’ll throw in the shipping. In fact, 76% of shoppers will actually ADD items to their cart to qualify for free Shipping.
Next, here’s a simple strategy that’s proven effective for thousands of online merchants. Simply build shipping charges into the product cost. Let’s say the target product price at desired margins is $90. Sell it at $95 and include Free shipping. Companies like Zappos are able to collect close to 100% margins — in an extremely competitive and in many cases, low margin shoe industry – in part by offering free shipping & returns.
Offer free shipping only on those products in which it makes the most economic sense. Stay away from those items in which you’ll incur dimensional or oversize charges, assembly, high insurance fees or other costs. Or offer it only on higher margin products that can absorb the additional shipping expense. According to Baird Equity Research, only about 10% of Amazon’s physical items are available for Prime.
8. Pulkit: Great. Let’s talk about global shipping. What are the implications related to shipping globally?
Rob: Well, it’s certainly harder to ship globally than it is within the domestic U.S. Today’s global parcel agreements are more complex and conditional than ever. In general, rate charts are multi-dimensional, based on service level, package weight and/or dimensions as well as regional zonal pairings (to/from). Pricing can be based as discounts off published rate schedules, net rates, and/or package contents (i.e. documents versus non-documents). The structure of incentives is often tiered and based on service levels and rolling revenue bands. And of course, most carriers change pricing tariffs annually.
But there are additional complexities. The measure of weight can be listed in either Kilos or Pounds, and there are often huge rate jumps between increments. Your rates are also affected by package characteristics, dozens of special handling charges, duties & taxes, commodity restrictions that vary by country, as well as important terms and conditions that vary from provider to provider. Shippers need to work with global parcel carriers to facilitate the process, assist with import compliance regulations and documentation, and negotiate meaningful shipping discounts.
9. Pulkit: Holiday season is the craziest time of the year when order volume goes up and managing shipping in those days can become a pain for a retailer. Can you share some tips on how retailers can be better prepared as far as order shipping is concerned.
Rob: Sure. Three primary suggestions:
- Collaborate with Shipping Partners – By now, leading e-commerce businesses have developed product sales forecasts for the holiday season. (Hint, if you haven’t, you are already very behind!) UPS and FedEx started planning for the 2014 holiday volume surge several months ago. The largest e-commerce shippers will see parcel carrier representatives request volume forecasts much more proactively this year. These discussions will include operational planning, allocation carrier assets, cutoffs, contingencies, and potentially volume restrictions.
- Set Clear Customer Expectations – The 2013 holiday shipping failures were precipitated by a shortened selling season, inclement weather and unrealistic calendar cutoffs that encouraged last minute shopping. Leading retailers will influence customers to shop early by offering product discounts and free shipping incentives early in the holiday shopping season. Shoppers need to believe that the best deals will be offered early, and that discounts, free shipping and other promotions will not be available closer to Christmas. That message should be reinforced and prominently displayed in product catalogs, websites, packing lists, advertisements, etc., along with clear cutoff dates for guaranteed delivery by Christmas.
- Contingency Planning – Retailers are wise to develop contingency plans. Consider adding the regional parcel carriers and/or the USPS – which offers 7 day/week delivery – to your core carrier mix. Keep in mind that UPS and FedEx operate Ground networks 5 days a week. Products like Priority Mail are delivered 6 days a week at no additional charge. That’s 4 additional delivery days between Thanksgiving and Christmas in 2014!
10. Pulkit: You mentioned during our pre-interview discussion that there were some critical changes in the rules and regulations of the shipping industry. Can you briefly share these changes with our readers?
Rob: Both FedEx and UPS have announced major pricing changes for Ground products in 2015. Each will apply dimensional weight pricing to all Ground shipments with no dimensional exception. Currently, dimensional weight only applies to packages measuring three cubic feet (5184 cubic inches) or greater.
Shippers, make no mistake about it – this is a huge rate increase. The majority of Ground packages are less than 3 cubic feet. Some shippers are estimating the change could almost double current charges.
Shippers first need to analyze the financial impact of these changes, and then meet with carrier representatives to amend contracts with a customized cubic inch threshold and/or dimensional factor. Note: Shipware has established a review and action plan for shippers concerned about this rate change. Interested shippers should email [email protected] to get details.
11: Pulkit: We know that FedEx & UPS are the biggest shipping solution providers and obvious choice for most retailers. What are their best alternates for UPS & Fedex?
Rob: Many shippers sole source for convenience or to maximize revenue based incentives with carriers like FedEx and UPS. However, you could realize service improvements and cost reduction by adding additional service providers to your carrier mix.
The United States Postal Service (USPS), postal consolidators (FedEx SmartPost, UPS SurePost, UPS Mail Innovations, DHL Global Mail, OSM Worldwide, Newgistics, etc.), as well as regional carriers (OnTrac, Eastern Connection, Spee Dee Delivery Service, LaserShip, Pitt Ohio, and Lonestar Overnight to name a few) offer multiple shipping solutions and benefits to compliment parcel giants UPS and FedEx.
The top 8 regional parcel carriers cover more than 85% of the U.S. population and specialize in short-haul delivery (typically up to 500 miles). Regional carriers maintain a low cost of operation through their regional focus, direct loading and transportation primarily via truck. With significantly lower operating costs than the “Big Two”, regional carriers are often 10% to 40% less expensive than UPS and FedEx.
Many regional carriers offer discounted pricing through simple contracts that often carry no volume commitments, include better pricing, improved dimensional divisors and far fewer surcharges than FedEx and UPS. Consider the fact that 3 of the top 6 regional carriers don’t tack on surcharges for residential deliveries!
12. Pulkit: Let’s talk about Ship-to-store and ship-from-store strategies. What are your thoughts on it and what are the benefits?
Rob: Offering free Shipping-to-the-Store is a great strategy. Having multiple orders consolidated and shipped to a single location is significantly cheaper than shipping individual, lightweight packages to multiple residences.
Here’s how ship-to-store strategies work: The customer makes a purchase on the retailer’s website and chooses to pickup their order in-store; the retail location is notified of the incoming order, and fulfills it using in-store inventory; Alternatively, if an item is unavailable at the local store, it can be shipped directly from a distribution center, another store, or even a vendor location. Lastly, the customer picks up the item at their convenience.
And it’s a another great way to increase order value. In a study of Shop-a-Tron merchants, once in a store, more than 40% of in-store pickup orders resulted in additional sales. According to Forbes, In-store pickup is emerging as one of the most prominent ways to blend the online and offline shopping experiences. More and more retailers are beginning to launch in-store pickup programs as a way to boost sales and increase online conversions: 70% of the top 10 retailers offer in-store pickup of online orders. However, only about one quarter of the remaining 30% provide the same option.
By the way, Ship-from-Store allows brick-and-mortar retailers an opportunity to better compete with Amazon and other web-only businesses. Retail store locations become mini-distribution centers, using their own inventory to fill online orders placed by customers nearby, rather than have the items come from a distant warehouse. Take Kohl’s department stores as an example. Last year, only 200 of Kohl’s 1,158 department stores were set up to handle ship-from-store orders. This year, Kohl’s is increasing that number 2-and-a-half fold to at least 500 stores.