Amazon and other major retailers want their customers to help bring down their shipping costs.
Despite pouring money into new fulfillment centers this year, Amazon in particular is encouraging buyers to choose nontraditional shipping options during the holidays. Those include picking up items in-store at an Amazon Books location, bundling orders into a single-day delivery called an “Amazon Day” or — in exchange for a discount — opting for no-rush shipping.
Although Amazon told CNBC that these options are not about saving it money — “it’s about providing more choice for customers,” the company said — the cost savings they bring are difficult to ignore. And Amazon isn’t the only retailer playing around with a cash-back, slow-shipping option. Retailers like Macy’s and Target have each offered no-rush options this year. Timberland recently launched its own version; instead of a direct financial incentive, Timberland said it would plant a tree for every no-rush selection.
Companies are gearing up for a 33% jump in online orders during the holidays, which will lead to a rush of deliveries that some have dubbed “Shipageddon.” To beat back a nightmare scenario — and to ease the logistics pressure for non-timely items — retailers are offering increasingly high cash-back rewards. One shopper who spoke to Modern Retail said she received $10 off from Macy’s in exchange for selecting no-rush shipping — higher than any no-rush incentive she’d seen before.
No-rush delivery is not new, but 2020 is proving to be its breakout year. Back in the spring, Amazon also encouraged customers to choose no-rush for inessential items, saying it was a way “customers can help others.”
It’s a somewhat ironic phenomenon. At the same time as retailers are racing to perform ever-faster shipping times, with Walmart removing even its cost minimum for free next-day delivery, they also appear to be upping the incentives for slow delivery. And that split might signal a changing mindset for some retailers — rather than focusing on speed at all costs, some are taking a more nuanced approach to logistics. They’ll still rush-ship the items that need to be in by the holidays, but to offset that cost, they want the non-urgent items to wait.
A more complicated shipping war
Recently, in the race to win the delivery wars, Amazon, Walmart and others have built out warehousing networks to minimize the distances that their orders need to travel. But Ayalla Ruvio, a marketing professor at Michigan State University, said that this strategy is becoming more complicated. “For the longest time, we’ve seen that switch to a shorter and shorter delivery time,” said Ruvio. “I think now they’re switching to the state of mind of, ‘How can we regulate it better?’” With respect to shipping distances, “It’s not just making it shorter, but making it more efficient.”
While Amazon’s no-rush delivery option has been around for close to a decade, this year, the incentives — which are usually between $1 and $2 — reached an upper-bound of $3 off because of the strain of the pandemic. Amazon also streamlined the way it doles out those discounts. Instead of giving money back through a complicated credit system that basically required customers to buy more items in order to spend their credits, Amazon now subtracts the $3 from the item’s cost — making it much more appealing.
That phenomenon happened all across the retail sector. “Retailers were trying to find an alternative at least for the time being in order to handle this massive surge in demand that they’re seeing online,” said Ruvio. “This is where those no-rush shipping programs started to evolve more than they were before Covid.”
Pushing customers toward a no-rush option with higher incentives makes sense for retailers dealing with record e-commerce sales. “Now you can logistically plan your delivery better. When the truck leaves the warehouse, now you can make sure it’s full,” said Ruvio. “You can make sure the delivery route is much more economic, so you can use less fuel.” For example, in order to meet same-day or next-day shipping demands, most delivery trucks might be only leave a warehouse at, say, three-quarters capacity, because the trucks can’t wait around for more shipments. With no-rush shipping, “Now you have the time to plan that this truck will leave the warehouse full and will maybe not travel that much,” she said.
Adding time, saving money
The potential cost savings for an Amazon or a Macy’s are significant. Last year, a paper from MIT attempted to simulate the cost-benefit of no-rush delivery orders. Though the researchers limited their study to fashion accessories, they said they had no reason to believe the savings would differ significantly if they included other retail goods.
The exact savings for the retailer depended on the percentage of orders that were listed as “no rush,” but retailers saved anywhere from 3% to 32% on logistics costs. To put that into perspective: when 5% of items “no rush,” the delayed shipping time saves retailers $0.14 per order, according to the study. But when 80% of items are no rush, the savings jump to $2.06 per order.
Of course, Amazon — though it has the most prominent slow-shipping option — is also a bit of an exception. Even with no-rush shipping selected, its shipping times are still quite fast. As Miguel Jaller, co-director of the Sustainable Freight Research Center at UC Davis, told Modern Retail, “No-rush means something different to different companies. No-rush for Amazon may be four days. No-rush for another company might mean another week.”
The rise of no-rush delivery may prove to be a blip of 2020, brought on by the coronavirus. But Ruvio said that there’s plenty of reason to think retailers will keep the incentives in place, if not expand them, in the coming years. As they begin to take more nuanced approaches to shipping times, no-rush might become an important cost-saving tool.
“It will stay because, regardless of the initial pressure they needed to ease, it’s still a really effective tool for managing demand,” said Ruvio. Put simply, “As long as companies benefit from it, you’ll have it. The moment they will not, you won’t.”
Photo via Claudio Schwarz