Peak season is right around the corner and experts predict holiday sales will increase by 7% to 9% this year in the US.
Are you ready for the surge in demand?
An increase in sales is certainly a good problem to have, but business owners need to be preparing shipping strategies to handle the influx of seasonal orders. This post breaks down three important industry trends creating shipping delays and other logistical challenges this holiday season. Within each trend we explain what consumers expect from your business, the associated issues and risks, and how to prepare your store to ensure your customers have the best possible shopping experience.
Trend #1: The global shipping crisis
The COVID-19 pandemic has wreaked havoc on global shipping. From outbreaks at major ports to strict government regulations, the supply chain has rarely, if ever, been in such a precarious position. And COVID is only one of the factors at play. Shipping strikes and an increase in floods, hurricanes, and other extreme weather events as a result of global warming have led to labor, material, and container shortages. This is a compounding problem—the longer this crisis goes on, the harder it gets to rebound and overcome the demand backlog, especially when ecommerce spending continues to increase year after year.
All of this has led to lengthy shipment delays, increasing costs, and inventory shortages. Since the start of the pandemic, the time it takes to ship an item from Asia to the United States has nearly doubled, and the cost has more than tripled. Meanwhile, retailers are unable to keep enough inventory to meet demand during peak periods. US retailers had an average of 43 days’ worth of inventory in February 2020. Today, they have just 33 days, a decrease of 23%.
What consumers expect
Consumers aren’t supply chain experts, nor do they care to be. They generally don’t have any expectations when it comes to how you source your products and the issues you might be facing. What they do expect is a seamless buying experience. And that makes it really hard on businesses trying to provide that positive click-to-deliver experience while dealing with a global crisis behind the scenes.
If there’s one saving grace to all of this, it’s that consumers worldwide have been experiencing the impact of the global shipping crisis for more than a year now, and they’re starting to adjust their behaviors in response.
Despite all of this, the holiday rush isn’t going anywhere.
How to prepare your business
Proactively connect with manufacturers and suppliers
Manufacturers and suppliers may be short staffed or have facilities that are impacted by COVID-19 or natural disasters. You should be proactively and frequently reaching out to them to determine inventory readiness and to begin conversations and estimates for shipping your product as soon as possible. Triple check your order details to ensure both parties are on the same page, and actively monitor shipments so you’re aware of any issues as they arise. All of this should also allow you to set more realistic expectations with your customers.
You want to enter conversations with your suppliers with a clear view on how much inventory you need. To do so, you’ll want to forecast demand well ahead of the selling season. Based on your marketing efforts, what product volume are you expecting to sell?
Tip: Use Shopify sales performance reports to help you forecast demand. This will also help you determine whether you need more warehouse capacity, more packaging, and more staff to support customers.
Prepare your back office
Merchants need to keep a pulse on global supply chains in order to prepare their back office. This entails looking at transportation times domestically and internationally across the supply chain—from sourcing to warehousing to delivering products—and padding in extra time along the way. Businesses that manufacture overseas should plan for extended freight delays, additional processing time for customs clearance, and fluctuations in costs. With costs of containers, materials, and labor increasing, businesses need to do thorough homework and then continuously monitor transit times from ports or supplier origins to where you stock your inventory.
As your inventory leaves your manufacturer or supplier, regularly check the status of its arrival and communicate tracking to your team, whether internal staff or your fulfillment partners, to prepare to receive the products. With international and domestic ports backlogged, reports of long delays of products arriving from ocean freight are becoming more common. If your products are arriving from overseas, ensure your products’ Harmonized Commodity Description and Coding System (HS) codes are up to date to avoid potential customs delays.
Encourage your customers to buy early
Some retailers are listing their holiday items weeks ahead of schedule to try and spread out the seasonal surge and overcome inventory shortages. If you’re concerned about having enough inventory during peak periods, creating campaigns or deals to encourage purchasing earlier in the season is one way to potentially increase profits while keeping customers happy. Don’t leave your loyal buyers scrambling for last-minute gifts when things go out of stock.
Trend #2: Shifting delivery expectations
Delays at the start of the supply chain inevitably lead to delays at the end of the supply chain. Not only are businesses struggling to source inventory, they’re struggling to then deliver this inventory to consumers cheaply and efficiently.
This is going to be a huge challenge for merchants and shipping carriers this holiday season. Major carriers are currently in a hiring frenzy, trying to prepare for the increased strain.
What consumers expect
Customer delivery expectations have never been higher. People expect fast and free delivery and they want to be able to track their items from the time they leave the warehouse until they arrive at their front door.
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How to prepare your business
Build out your shipping offering
Merchants have many shipping options to consider, but a good shipping strategy doesn’t mean you need to offer every shipping option possible. It’s about finding a balance between the options that are affordable, are aligned with customers’ needs, and are realistic when it comes to your ecommerce logistics. Offering too many options can put a lot of cognitive load on the buyer and actually deter them from buying.
People want fast shipping, but “fast” is a relative term that depends on factors like location and buyer expectations. Fast could include same-day delivery, overnight delivery or two-day shipping. According to one survey, 52% of merchants believe one- to two-day shipping commitments at checkout increased their conversions. These increases reached as high as 25%.
And when it comes to shipping fees, you’ll want to at least consider free shipping. This requires evaluating your margins to see how and where you can offer this option. Not all orders need to come with free shipping; you can consider free shipping with a minimum purchase amount or as a promotional or marketing tool during peak periods. A Harvard Business Review study found that shoppers spend 9.4% more on average when they’re incentivized to hit a threshold for free shipping. It might seem counterintuitive, but with the right strategy, offering free shipping can actually increase your profit margins.
Offer local delivery and in-store pickup
Both buy online, pickup in-store (BOPIS) and local delivery provide merchants with effective ways to get products to nearby customers.
Leveraging your store or warehouses as pickup locations is a cost-effective option for buyers and is essentially free for merchants. It also allows you to extend the holiday shopping season beyond shipping carrier holiday deadlines.
As brick-and-mortar retailers have leaned into building their online presence, local delivery options have become another default delivery method. Business owners can define delivery zones and multiple pricing conditions for each zone, manage and prepare orders for delivery, and create optimized delivery routes for drivers. This is one way to offer “free shipping” without having to eat any carrier costs.
Tip: The local delivery feature within Shopify is a set of flexible tools that allow businesses to offer a customizable local delivery service at checkout. Check out Shopify’s buy online, pickup in-store and local delivery tools, which merchants can use to connect with their local customers.
Outsource your fulfillment to third-party logistics provider (3PL)
Managing fulfillment is a huge time suck during the holidays when you typically won’t have much time to spare. More than half (53%) of retailers say delivery and fulfillment are a significant challenge. On top of the usual drain, de-risking your customer experience means you will want to explore a variety of shipping carriers to increase the opportunity to offer fast and affordable shipping to your customers.
A better option might be to outsource fulfillment to a third-party logistics provider (3PL). In addition to handling fulfillment during your busiest time of year, working with a 3PL often unlocks access to carrier diversification, expert guidance on fulfillment and shipping profile strategies, and seasoned operators who can get orders out of the warehouse fast to exceed customer expectations. An experienced 3PL can help you avoid shipping delays, reduce shipping costs, and meet those increasing customer expectations.
Shopify Fulfillment Network
Shopify’s own 3PL, Shopify Fulfillment Network, helps merchants scale their businesses with fast, accessible fulfillment solutions.
Whether you’re working with a 3PL or shipping from home this season, make sure products are as ship-ready as possible, and minimize additional touch points required at packout. If your product needs to have a certain packaging look, consider taking time to pre-package or kit so that when peak hits, the only job left is to send out the product to your customer.
Over-communicate on delivery
Being proactive with customer communications is never a bad idea. When a package is going to be delayed, customers expect a heads up—especially on high-value orders where establishing trust is essential for customer loyalty. This starts with calling out shipping speeds at checkout. Then, you’ll want to let buyers know when an order has been processed, shipped, and delivered. This can be done on your Shipping & Returns page, using emails, or with order notifications.
This requires business owners to be in close contact with carriers and third-party logistics providers. As you revisit your carriers’ holiday shipping speeds, ensure they’re providing customers with all the information they need, like tracking information and support.
Tip: Shopify Shipping takes on the complexity of negotiating the best rates and services from carriers so our merchants can offer simplified shipping options to their customers. We’re also integrating national and international carriers so our merchants can access a variety of partners to ensure optimal package delivery.
Trend #3: More flexible return policies
In the midst of dealing with a surge of orders, businesses are also forced to deal with a corresponding surge in returns. Cross-industry return rates vary but have been cited as 30% or more during the holiday shopping season, with the highest volume of returns coming during the first week of January. And the cost of these seasonal returns? An estimated $101 billion in the US alone.
Add in the current global shipping struggles and ongoing challenges with return fraud, and you can see why returns represent quite a challenge for businesses.
What customers expect
Returns have become an essential part of the buying experience, and many shoppers won’t even purchase from your store unless your return policy meets their expectations. What are those expectations? Fast, free, and easy returns.
How to prepare your business
See returns as an opportunity, not a problem
In an ideal world, nobody would return anything they buy from you. But in the real world, returns are inevitable.
Instead of looking at returns as a problem, shift your thinking. Treat returns as an opportunity to build customer loyalty and maximize profits at checkout. A remarkable 92% of consumers said they would buy again if the return process was easy. Once you shift that mindset, you can focus on proactive organization versus reactive mitigation.
Adjust your holiday return policy
Put together a holiday-specific return policy. This might mean making a return free or more affordable for the customer and extending the window in which they are able to return the product. Most buyers expect to return a product between 30 and 90 days during the holiday season. You’ll also want to make sure your return policy is communicated early and that it’s clear and easy to find. Consider promoting your shipping and return policy with a banner on your online store, putting it on your product pages, putting it on your FAQ page, and reminding customers of the policy in their order notification emails. Allowing people to edit an order prior to fulfillment is another great way to reduce return rates.
Prepare your back office for the surge in returns
You’ll want to have the right people, processes, and tools in place to handle an influx of returns. Hire seasonal staff to ensure you have the resources required to communicate with customers about their returns, email return labels, track and restock returned items, and manage refunds.
Start making your list, checking it twice
While nobody wants to be listening to holiday music in October, it’s never too early to prepare your business for peak season—especially in the midst of a pandemic. By taking concrete steps to mitigate the global shipping crisis and meet customer expectations around delivery and returns, you put yourself in a position to maximize profits during the holidays and set the stage for the year ahead.