Retailers Must Harness Sales ‘Genie’

Retailers Must Harness Sales ‘Genie’

Dick Stead, Executive Chairman at Yodel, explains why he believes the home delivery industry needs to change.

The retail industry has some strategic decisions to make if it is to avoid a repeat of the delivery chaos caused by Black Friday and Cyber Monday. Customers deserve choice. If they want to pay for a same day delivery, the industry needs to provide affordable and profitable services that can meet those needs, be more transparent, and ensure it can be realistic about delivery abilities.

Online shopping changed forever in 2014. No one expected it. Not the analysts, not the retailers, not the parcel carriers, not the media, not consumers. It broke the mould and put immense pressure on the sector. The cause? Black Friday combined with Cyber Monday. Once seen as a fad imported from the US, Black Friday became a huge event in the retail calendar and it’s here to stay.

Over this manic sales period, customers were enticed by bargain deals, often with a promise of next day delivery. The scale of the orders taken exceeded the pick, pack and despatch capacity of many retailers and surpassed the next day delivery capacity of the UK parcel market. Inevitably, delivery target dates were missed. Headlines warned Christmas presents would not be delivered before December 25th – despite Black Friday and Cyber Monday occurring three weeks before the festive period. This was hugely damaging for the retailers and parcel carriers while causing undue concern for customers. We can’t put the ‘sales genie’ back in the bottle. The changes will continue and accelerate, so the whole industry must transform.

EDIT Genie and lamp main

WHAT HAPPENED?

Everyone in the sector had done their homework and prepared for ‘peak’ in November. Everyone felt tentatively ready for a bumper year. Christmas shopping predictions made by Experian and IMRG as late as November 25th anticipated online spend to set new records at £555 million. At Yodel, we’d started planning 11 months earlier, in January 2014. As usual, we invested heavily in a detailed Christmas operations plan, and were set to increase resources to match retail forecasts. By peak we’d boosted the workforce by more than 5,000, putting more than 700 additional vehicles on the road and procuring 13 further sites to handle the extra parcels. This had worked for the previous two years and we felt confident we could deliver another good Christmas. Then Black Friday hit. Estimated sales were exceeded by 46 per cent on November 28th. Not £555 million but £810 million was spent online – in one day. Sales for Cyber Monday (December 1st) also exceeded original forecasts by more than 10 per cent with £720 million spent, compared to estimated figures of £650 million. The economic and industry models that the whole sector trusts were smashed.

The factors behind this shift were varied, but arguably couldn’t have been anticipated. Firstly, advance notification of promotions, coupled with a mild winter, meant shoppers waited before they started buying presents and investing in winter wardrobes, resulting in low parcel volumes in November. The flash sales then triggered a huge and unprecedented spike in parcel volumes being thrown at the carriers over the Black Friday and Cyber Monday weekend.

Also, marketers kept pushing next day delivery to offer the best deal in a historically tough market despite knowing their promises couldn’t be met. This led to the consumer dissatisfaction the industry wants to avoid. Yodel kept operations going, delivering more than 15.5 million parcels between December 1st and 24th – a year-on-year increase of 11 per cent. On December 1st, more than 1.2m parcels were delivered to customers across the UK, 40 per cent more than in December 2013. Over the Black Friday weekend we took in more than 600,000 parcels over and above the forecasted level, despite operating a distribution network designed to handle forecast volumes. The size and shape of parcels had decreased dramatically, meaning vehicles which normally carried 1,000 parcels were carrying more than triple that. We transported this extra volume into our network but could not process and deliver it all in line with expectations. We took 600,000 additional parcels that could not have been delivered if we’d not stretched our network to deliver it. These would have had to be rejected if we’d said ”no” to the retailers. However, we built a backlog of parcels which we could only clear by implementing
a one to two day suspension of collections from retailers. Deliveries to consumers continued. The suspended collections were brought back into our network as soon as the backlog had cleared.

It was a bold but necessary move and we recovered in a few days. By Christmas Eve we had delivered more than 388,000 parcels, which were not due until after Christmas, ahead of schedule.

The industry’s dusted itself down, but it’s clear 2015 requires a different strategy. Carriers and retailers must work closely to predict volume and manage consumer expectation better. We also need to work with industry analysts and be honest about delivery dates.

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