How E-Commerce Retailers Can Save On Logistics

Founder and CEO of Avasam, changing the face of DropShipping, one automated step at a time.

Of all the costs associated with running an e-commerce business, two of the biggest costs incurred are shipping and returns. In an industry where profit margins can be razor-thin, even a fraction of a penny on each order being shipped can make a huge difference—and the cost of returns can make a dent in profits, too. So how can e-commerce retailers refine their logistics to optimize these costs and their profits? Here are a few options to consider.

Free Shipping

Customers have become very used to Amazon Prime, which has made “free shipping” the norm. The benefits of free shipping are easy to see from customers’ perspectives: The price they will pay is clear, with no need to calculate extra shipping costs, and so they perceive that they’re getting a better deal. Both of these reasons mean that in the majority of cases, customers are much more likely to complete their purchases where they see free shipping.

Having said that, Amazon Prime isn’t truly giving customers free shipping since customers pay for their subscriptions. However, for customers who order regularly, that yearly fee with all the added benefits makes it feel like shipping is free—and customers know they will have access to pretty much whatever they need the very next day, with no additional shipping costs.

Fashion powerhouse BooHoo and other retailers have been able to build on the success of the Prime subscription model by implementing their own subscription model of free next-day shipping for a nominal yearly fee. The fee is so small that the cost of shipping isn’t truly covered, but customers are more likely to become loyal to the brand. They’re also more likely to buy from the retailer for future purchases since they have already paid for their shipping and want to shop more where shipping is “free.” The additional purchases end up covering the cost of shipping.

Research suggests that a massive 76% of customers look for free shipping when they want to place an order on a retail website. Despite this, an increasing number of retailers—especially those with a brick-and-mortar presence—are experimenting with offering a mix of different shipping strategies to give customers the best options and to manage costs most effectively. These include free standard shipping, expedited shipping, free collection, same-day delivery and live rates from different carriers. Even Amazon offers customers a choice of shipping options—especially when products aren’t available with Prime or are coming from overseas.

Reverse Logistics

Of course, it isn’t just sending out orders that costs retailers. The cost of returns can have a huge impact on the bottom line of businesses, too—and it isn’t just smaller businesses that are impacted. That’s why H&M is currently testing paid returns in Norway and the U.K. It will be interesting to see how customers respond to this move, but they are repeating what Zara has done in several European countries. Retailers such as Boohoo charge customers for returns if they don’t subscribe to their Premier service, which means that customers are even more likely to subscribe and, as I mentioned earlier, become repeat customers since they know that they will have the cost of returns covered.

As with shipping costs, it may benefit retailers to investigate and experiment with returns options, as well. For some businesses, absorbing the cost of returns may be the right approach in order to not isolate their customers. With types of products like fashion and footwear, where return rates will inevitably remain consistently high due to the nature of the product, passing those costs back to customers may help to reduce the number of returns that customers request.

Understanding why customers request returns on their orders can help retailers identify ways to reduce them. For example, in the area of fashion, this can be as simple as adding a note to listings that identifies whether items run true to size, small or large. Allowing customers to leave reviews about their experience with the item can help to minimize returns (download). Amazon has already implemented this as a feature. And as customers return to shop with you again, you can offer more personalization options—such as through your mobile app—to make better recommendations based on size, related products and so on. In the longer term and with more investment, AI technology may even allow customers to picture what a fashion item will look like on their body, further helping you reduce return rates.

Shipping Directly From Suppliers

Increasing inventory and the number of orders can pose significant challenges for retailers, such as having enough capital to invest in stock, the risk of whether customers will buy those products, having sufficient storage space and shipping costs. Dropshipping can help minimize these issues for the retailer since the dropshipping supplier takes on these issues instead.

Having products delivered directly from the supplier can allow retailers to stop worrying about transferring shipping costs to the end customer, which is particularly valuable if they are adding larger and heavier items or have orders that are going overseas. High-volume suppliers will have arrangements with shipping companies, so they can include shipping in the price of the item, making it simpler for retailers to establish whether the product has a good-enough margin.

Dropshipping isn’t always the answer to reducing logistics costs, just like relying on a single shipping provider isn’t, but it does offer another strategy that you can use to your advantage, especially as you work toward scaling your business.

Final Thoughts

It is unlikely that a one-size-fits-all approach will emerge that solves every difficulty with shipping and returns in every situation. However, establishing which options best suit your customers and being prepared to adapt your strategy when necessary can ensure much higher levels of success.

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