(Bloomberg) -- Retailers trained us to order holiday gifts from the comfort of our couches by dangling free home delivery. Now they’re trying to convince us to get out of our pajamas and drive to the store after all. It’s not an easy sell.
Walmart Inc., Target Corp. and other merchants have built their e-commerce businesses on the shaky foundation of free shipping, which wreaks havoc on their already-thin profit margins. They did so to match Amazon.com Inc.’s vaunted fulfillment network, but have come to realize that coaxing shoppers to pick those orders up in the store or at curbside is much more economical. That process, dubbed “BOPIS” for buy-online-pickup-in-store, is certainly faster and easier nowadays than it used to be. Still, nothing quite beats the appeal of free shipping.
“Convenience is key here. It’s most ideal to have it door-to-door and have it delivered right to your door versus having to go get it,” Vivek Pandya, digital insights manager at Adobe, said. “If you have a retailer that is much further away from you, having to then drive out there and take the gasoline prices on yourself isn’t ideal.”
Web orders with free shipping attached are up an average of 18% since mid-October, the time when holiday deals started trickling out, according to retail-industry software provider DynamicAction. Free home delivery is by far the best way to convince an otherwise hesitant shopper to make a purchase, a survey from the National Retail Federation found.
Dangling Coupons
BOPIS orders have increased as well this holiday season, growing 41% so far, according to Adobe. That’s mostly thanks to more efficient inventory management and fulfillment systems. Target and others have become proficient at nudging shoppers to choose the store-pickup option over home delivery, sometimes by dangling coupons or other enticements. Other retailers place inexpensive impulse items next to the order-pickup counter, encouraging shoppers to grab an extra gift before they go.
“Retailers are getting really good at this and will continue to get better,” NRF President Matthew Shay said on a call with reporters Tuesday.
They’re getting good because it makes good financial sense. When a customer picks up a web order at the store, that costs 90% less than shipping it to them from a warehouse, Target’s Chief Operating Officer John Mulligan has said. Other retailers, like Walmart, have noted that the onerous fulfillment costs associated with e-commerce have eaten away at their profit margins in recent quarters.
They don’t want that happening this holiday season, but it might be too late. Old shopping habits die hard.
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