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December 18, 2012

Dan Wilson takes a look at some of the latest trends and innovations shaping the fast-moving e-commerce sector, and ponders why cross-border trade is yet to take off

Christmas 2012 will be the biggest online shopping season ever and that won’t be a surprise to anyone. Every year is bigger and better than the one before in the world of e-commerce. 2012 has all the hallmarks of being a truly remarkable year for online retailers, with analyst Forrester estimating that global e-commerce will be worth US$536 billion (£334 billion). In Europe, e-commerce sales have doubled since 2005 and are forecast to grow 65% by 2015.

In the face of global financial chaos and pressures on household finances, e-commerce has bucked the trend and grown strongly, but in many ways, the least interesting thing about it is its scale. The developments in e-commerce worthy of examination lie with the technology that underpins its rapid growth and the changing expectations of consumers.

The irresistible rise of the smartphone in the past few years has transformed how people use the internet and has had a transformational effect on e-commerce. There are one billion smartphone handsets in circulation and this number continues to grow: it is estimated that there will be two billion in use by 2015.

eBay is just one e-commerce company enjoying the surge in mobile commerce. eBay’s various apps for iPhones, Android and iPads have seen 100 million downloads and the company claims it will make £10 billion in sales worldwide via mobile devices in 2012.

“Smartphones have changed how people shop,” says e-commerce blogger Chris Dawson of Tamebay.com. “A lot of the sales that eBay is seeing via mobile are in addition to the sales it makes from buyers at home. Mobile shopping means people can use the ‘dead time’ of their daily commute. eBay is seeing consumers using their smartphones in the morning on the way into the office, and again on the commute home.

However, in the evening it is iPad and tablet use that shoots up, with the busiest time of day for tablets being between 5pm and 11pm at night.”

Click and collect
If consumers have embraced the convenience of shopping-on-the-go using a smartphone, then they also want the convenience of not having to be at home to receive the goods when they are delivered. In the UK and the USA, Amazon has started to roll out collection lockers in convenience stores and other locations so that customers can pop by to collect their parcels. Amazon has also integrated the Collect+ service into its UK checkout flow so that consumers can pick up their packages from any one of 5,000 participating local shops.

Argos and John Lewis have both pioneered the click-and-collect model in the UK with great success. Third-quarter figures from John Lewis show that online accounts for a quarter of all sales and click-and-collect is up 77% on the same time last year. For retailers, the beauty of the model is using their own distribution networks to get the goods to customers. This not only means that they need not entrust despatches to a third party, but that they are in total control of the experience at every stage of the buying journey. Buyers enjoy the flexibility of being able to pop by to collect their purchase at a time they choose.

Joost Vantomme of PostEurop argues that European postal services are in a strong position to take advantage of these new trends if they are willing to “reinvent our future”. He notes that drop-boxes or pack stations are already available in several European counties at railway stations, airports and shopping malls. And posts should look to “additional services beyond the transport of parcels”, he says. “Upstream features such as marketing, website building for SMEs, IT support, inventory management and payment cards are all opportunities.”

Same-day delivery
Most e-commerce innovations start in the USA, so looking at trends there can give us a glimpse of what might be seen in Europe in 2013. This year Amazon and eBay both announced initiatives offering same-day delivery to buyers. The proposition is compelling. Imagine heading to work on the morning train and ordering a DVD, or almost anything, and then having it delivered later the same day to your home, workplace, or even a locker in a local shop.

Amazon is investing heavily in building a same-day delivery network and has given up hefty tax advantages in several US states to do so. All the indications are that the company believes swift fulfilment is going to be a big part of its future.

Amazon has hitherto centralised its distribution hubs in a way that meant it avoided some state taxes. If goods were not being shipped from a particular state, they were exempt. However, Amazon is reported to have dropped lawsuits challenging these laws and instead started to spend hundreds of millions of dollars building new hubs close to America’s major cities to facilitate same-day delivery.

New warehouses close to Los Angeles and San Francisco are on the cards, and as many as 10 more could be built in California. Warehouses in New Jersey, Indiana and Virginia will serve New York City, the Midwest and Mid-Atlantic coast respectively. Other hubs are planned in Tennessee and Texas, meaning that great swathes of the US population will be close to an Amazon hub.

In comparison eBay is only dipping its toe in the water with a small trial centred on San Francisco. Using its Milo platform (a company acquired in 2011), registered eBay users can opt for same-day delivery from a selection of local stores including Macy’s, Toys R Us, Target and Best Buy. Deliveries cost US$5 (£3) and the service is only available for items that cost more than US$25 (£15). So where Amazon’s experiment challenges the high street, eBay may have a solution that gives it a boost.

What is not clear, however, is the extent to which these new services will be embraced by the buying public. Indeed, while same-day gratification might be possible and attractive in affluent metropolitan areas, it’s not likely to be a profitable avenue for e-commerce in other places and will not attract those customers who like to shop online to save money. There is clearly a constituency of online shoppers who are quite happy to wait a few days, and even longer, if it means they can opt for cheap or free shipping.

So there is still a place for last-mile services and posts, which provide a universal service in this brave new e-commerce world. Susanne Czech, secretary general of the European Multi-channel and Online Trade Association (EMOTA) expects same-day to be another choice in a menu of delivery options for e-commerce buyers.

“Same-day delivery is still an expensive option in Europe,” she says. “Many western European countries are densely populated, which means that in principle, deliveries should be faster as distances would be smaller. However, the same population density means that building storage and shipping facilities will prove expensive and probably too expensive if each company tries this independently. Same-day delivery is at the same time not an option for all companies as it means you most probably have to have a very good system for k

eeping a stock of products, sufficient to ensure the expected demand is met, but keeping stock is nevertheless a big risk.

This is where most universal service providers have very good potential, as they already have the facilities to use for stock and delivery, very often in good locations for effective distribution.”

Cross-border conundrum
In more mature e-commerce markets such as the UK, Germany and the USA, there remains enormous potential for retailers, SMEs and s

ervice providers to profit. In these countries, where consumers are demanding greater speed, satisfaction and convenience, posts can add value as they fine-tune the e-commerce experience. But look ahead to 2020, and overseas beyond the EU, and it is obvious that there are even greater opportunities in cross-border and international e-commerce that are impossible to ignore.

The Interactive Media in Retail Group (IMRG) estimates that there are 2.6 billion internet users on the planet and that number is forecast to increase to 3.7 billion by 2015. That means that one half of the human race will have internet access within three years. Currently one billion people are shoppers: triple the number in 2005. But it is the pace of e-commerce adoption in the newer markets that is most staggering. In China B2C online sales have increased 88% in 2012, and are up a total of 35,000% since 2007.

An emerging powerhouse of growth in the global economy and in e-commerce are the BRICs: Brazil, Russia, India and China. Those countries have seen e-sales up by 500% since 2007, according to the IMRG. Other countries to watch include the MIKT group of Mexico, Indonesia, (South) Korea and Turkey.

But historically it would seem that both e-commerce buyers and sellers have not prioritised cross-border trade and it has remained static as a proportion of e-commerce, even during the years of dramatic growth. According to EMOTA, in 2012 only 15% of European online spend will be cross-border – with two-thirds of that remaining within the European Union.

Why is cross-border trade so sluggish? One reason is that the goldrush of the e-commerce boom over the past 15 years has provided enough spoils from domestic trade – it simply hasn’t been necessary to look overseas for greater success. But as local markets mature and nascent ones bloom, the draw of overseas trade will become more attractive to many e-tailers who want to maintain strong growth.

Cross-border trade needs a helping hand. As always in e-commerce, trust, convenience and reliability are critical, but these are perceived to be more difficult to guarantee internationally. In addition, many sellers don’t want the hassle, or misunderstand the services that are available to them already. “The main barrier to overseas trade, especially for SMEs, is fear,” says Tamebay.com’s Dawson. “For many people, just thinking of the hassle of a dispute with an international buyer is a complete turn-off. There are also practical concerns – administering the VAT of a
business that’s trading internationally can be a real nightmare.”

It is in easing the process of cross-border trade that the biggest opportunity for posts might lie – 30% of parcel movements are expected to be cross border by 2020, according to IMRG.

Fast forward
To conclude, it is clear that the pace of e-commerce innovation will likely accelerate over the next few years, and it seems that the losers will be those retailers that fail to adapt and embrace mobile commerce and the increasing need for speed in fulfilment. Research from UK law firm Freshfields Bruckhaus Deringer claims that one-third of FTSE 350 retailers are currently over-dependent on physical sales and not tapping into the growth potential of digital sales. Such retailers have grown online sales by an average of 29% in the past five years, but physical sales have stagnated at 1% growth. “While physical stores will always be important, we are increasingly reaching a digital tipping point where the online growth witnessed over the past few years is having a knock-on effect on high-street brands, which are struggling to compete online,” John Isted of Freshfields explains. “Retailers that are overly reliant on bricks-and-mortar operations will struggle to maintain profitability.” 

Holiday snaps
Tesco is currently trialling an innovative grocery ordering system at Gatwick Airport. Travellers jetting off for their summer holidays earlier this year were greeted in the departure lounge by 10 screens displaying the supermarket’s most popular products. Tuning into the huge popularity of smart phones – 50% of Brits have one – holidaymakers were encouraged to scan the items with their iPhone or Android and create their own unique shopping list. The shopping list is then sent directly to Tesco and a delivery arranged for when they return home. According to Tesco, 1 in 7 online grocery orders are made using a smartphone.

Global trends
• World internet users: 2.5 billion – to reach 3.7 billion in 2015
• e-spend 2011: US$970 billion (set to double in five years)
• Global e-shoppers to reach one billion in 2012 (tripled since 2005)
• BRIC countries to lead (Brazil, Russia, India, China): e-sales up 500% since 2007
• Watch the MIKT countries: Mexico, Indonesia, (South) Korea and Turkey
• Largest e-shopper annual basket 2011: UK – US$2,956 per e-shopper
• Integration of traditional and digital media
(Source: IMRG)

December 18, 2012

 

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To read more about the training simulation, click here.

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