Thursday, April 19, 2012

Internet and Mail Order Costs Are Rising Too!

We often hear about the constant cost pressures on the High Street and the claims that brick and mortar retail is at a cost disadvantage. Perhaps realty is not as clear cut as many think.

Mail order has been under constant cost rises which are forcing the traditional catalogue online. It is not the consumer switching to digital that is driving this as much of the constant rising cost of paper and postage. We may moan about the number of printed catalogues we receive, but each one is costing at least 10% more to produce than it did last year and in the UK, thanks to some exceptional steep increases from Royal Mail it is costing some 25% more to deliver. As mail order operators look to find new ways to get their inventory in the homes more catalogues are now being inserted with other materials and catalogues in an attempt to share costs. However it’s the weight the determines the price paid so sharing is more about speculation for new customers than reducing costs on existing ones. A catalogue doesn’t guarantee an order and even regular customers can often become irregular but they all still need to be mailed. Without the catalogue the retailer is not reminding his customer that he is there and showing them new products and offers.

We live in an increasingly mixed marketing environment. Research from Marketing production form Charterhouse suggests that 70% of marketers use printed media to interest audiences in online content and to drive extra web traffic. Catalogues4Business claims that their recent research highlights that businesses still see catalogues and direct mail in general as an important part of their marketing mix. Their MD Ian Simpson says, ‘While many customers place their order online or by tablet or smartphone, the trigger is very often a catalogue or piece of direct mail.’ Clearly Google Ad words only goes so far and is great for search and discovery of specific products but doesn’t create spot buys or cover the items the customer didn’t know the retailer had on offer.

However, once the customer has bought online or offline, the goods have to be picked, packed and shipped to them. Here we find another urban myth, that shipment is ‘free’. Sadly it isn’t and increasingly this cost is rising far greater than any inflation benchmark.

Yodel, which distributes 25% of the market in the UK, handles some 1.2 million parcels a day at peak times and its contracts include the likes of; ASDA, Amazon, TESCO and Littlewoods. Yodel has some 55 depots and employees 14,000 staff. Two years after buying up the competitive DHL Domestic parcel business is now seeking a “double digit per cent” hike in its fees. Their pressures are many but they claim the sheer volumes alone are making their current model unprofitable. They state that the UK infrastructure is not developed sufficient to handle the current explosion in online shopping. They also see the need for thousands more local collection points, the introduction of six days a week delivery and the choice of morning or afternoon deliveries and customer text updates.

It’s a sobering thought that each order is today exposed to potential service cost increases of some 30%. The lower the value of the order the higher the margin impact and books are in the main not expensive items. So as we listen to increased cries of unfair from the High Street remember the direct mail and internet channel is also experiencing cost increases and not everyone is 100% virtual.

Cartoon with kind permission of

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