The true beneficiaries of e-commerce: UPS and FedEx

 

Return delivery or the return line.

 

In our readings for this week we discovered the amount of investment a company like JC Penney is willing to make in order to stay competitive in e-commerce. According to comScore in the fourth quarter of 2011 alone there was nearly $50 Billion in spending (a nearly $20 Billion increase since the publication of the article on JC Penney and a $7 Billion increase compared to the fourth quarter in 2010). [1] With such increases it appears that JC Penney was right to invest, but who else is benefiting from such a boom? Before we examine the answer, recall how the success of Zappos from last week revolved around free shipping to the customer AND free return shipping if the customer is not pleased with the product. This model has been replicated by other businesses as onlookers witnessed the success of the model. Today many companies offer the same service by default, to preferred customer, or as a promotion. The result is increased shipping to and from customers, and a lot of it.

Both FedEx and UPS projected large increases of return shipping: 7.7% increase in January of 2012.[2] FedEx and UPS had to hire large numbers of holiday workers to deal with increased shipping to customers and then the return-shipping that ensues in January following the holidays. FedEx hired 20,000, an 18% increase since 2010, while UPS hired 55,000 for a 10% increase. [3]

The cost, therefore, of shipping has increased and companies are becoming innovative at dealing with this. They are also reinventing how the brick-and-mortar buildings are used.  In our discussion a few weeks ago on IKEA, we discussed how the customer is treated as part of the supply chain since they pick up, deliver and build the products themselves. Similarly, a few big players are starting to augment their showrooms as extensions of e-commerce. For example, companies like Apple, Nordstrom, Best-Buy, Macy’s, Sears and even Walmart have transformed their stores in to “web return centers, pickup locations, free shipping outlets, payment booths, and even drive-through customer service centers for online sales.” [4] Nordstrom even allows “customers to search an individual store’s inventory via the web,” so that they can find a product, buy it, and pick it up.[5] This insures that that rare brand or specific size will be available the minute you arrive at the store.It looks like the IKEA and Zappos models have taken off.

Questions:

How do you think that the cost of this increased shipping is paid for? Do you think that retailers eat the cost or is it passed on to consumers? 

If you think that it is passed on to consumers, does this mean you are less willing to pick up a product that you purchased online at a store?

Do you think that e-commerce numbers will level out or is there still growth potential?

[1] “comScore Reports $50 Billion in Q4 2011 U.S. Retail E-Commerce Spending, Up 14 Percent vs. Year Ago.” www.comscore.com. Accessed 10/2/2012: http://www.comscore.com/Press_Events/Press_Releases/2012/2/comScore_Reports_Q4_2011_U.S._Retail_E-Commerce_Spending 

[2] Clifford, Stephanie. “Online Sales Buoy UPS and FedEx.” New York Times. January 3, 2012.

[3] Ibid

[4] Clifford, Stephanie. “Luring Online Shoppers Offline” New York Times, July 4, 2012.

[5] Ibid