Although retail demand is strong, retailers are facing a rather toxic cocktail of costs. Labor is more expensive, trucking rates are rising, tariffs are adding more expense, and now fulfillment costs will potentially be higher.

Some, but not all of this, can be offset. I suspect most retailers will ease up prices, but will do so cautiously so as not to scare off consumers and become uncompetitive. As a result, margins will come compressed.

A further dynamic might be retailers encouraging more consumers to pick up deliveries from stores rather than have them delivered. Walmart already builds in a financial incentive for consumers to do this, and that kind of thinking will likely become more common.

No one should be surprised to see shipping rates going up. E-commerce is growing at 16 percent/year, UPS/FedEx/USPS are growing in capacity at 4 percent/year, so do the math. Shippers have a constrained supply and will try to maximize revenue. Warehouse space in the U.S. is now more expensive/constrained than retail space. As cost structures change, it changes the value equation. Maybe last year I optimized my checkout funnel for maximum conversion (instead of upselling), but now I’m willing to risk losing the single SKU order in favor of cross-selling them to a more profitable three SKU order. Maybe I’ll more aggressively promote my in-store pickup service. It’s why Amazon has made a huge investment in building out its own last mile infrastructure. UPS/FedEx own between 120,000 and 160,000 vans, Amazon already owns 25,000 vans, and they are not even serious yet. Amazon Flex and Amazon Delivery Service give Amazon ways to outsource the last mile that do not rely upon traditional carriers. Cowan estimates that Amazon currently fulfills 58 percent of their demand with… Read more »

“Free shipping” is like free lunch, in a way — there’s no such thing. And the inflationary pressure on logistics costs is coming from several directions — warehouse capacity, tight labor markets, higher fuel costs and so forth.

But are retailers footing the bill for these costs or expecting their vendors to pick up the tab? At the college-level retailing class that I teach, a guest speaker in the wholesale business made clear that suppliers are bearing the growing margin burden for these kinds of expenses.

Ultimately the consumer will absorb the costs, followed closely by retailers. Reminds me of the tariffs; who do you think is going to pay for tariffs on China? No one seems to care because all boats are floating now but, at the end of the day, retailers need their vendor partners in China, just as they will need their shipping and storage partners to work with them as much as possible.

Ps: I’m sure you’ve read where Amazon has started their own shipping company and already has over 60 cargo planes in the air. Again, ahead of the game.

There was no room in the margins to absorb any new costs. And “free” delivery is almost table stakes at this point. So purchase thresholds and attending fees are certainly targets. This is a prime time for companies to take a hard look at the mechanics of their membership programs.

Everywhere we turn there are signs of inflation from cost of products (manufactured or sourced), to shipping and wages. These will make their way to consumers in higher prices, less (deeper) discounting, and rewarding of bigger basket purchases. On the retailing side, technology will continue to offer opportunities to increase productivity and redefine what people do and what robots and embedded machine learning can do to shift labor content to higher value outputs.

For now, there’s no reason that retailers can’t judiciously pass some increases in COGS while working to offset the rest via use of intelligent technology. However, once the business cycle turns negative, the companies with healthy balance sheets will be the ones to survive and invest as they prepare for the next business upcycle — this is inevitable.

For many yes. The focus on the store increases as a centralized hub to experience brand, product, and service. E-commerce is a limited channel, especially at macro scale.

So what? Costs are going up. Like that hasn’t happened before? And it’s not like it’s happening to just one company. These higher costs impact all companies. If costs didn’t go up over time, we’d still be paying what today would be referred to as “next to nothing.”

There may be a “triple whammy” of negative news that impacts e-commerce if you also consider the potential impact of broader sales tax implications on online sales. Recently, the U.S. Supreme Court in South Dakota v. Wayfair Inc. marked the end of the physical presence requirement for states to impose sales tax withholding and remittance obligations on out-of-state retailers. While it is unclear how this will impact other states, there seems to be a growing trend in legislation to collect sales tax on virtually all online sales. As state laws become more strict on sales tax collection, it will remove one of the historical advantage for consumers to buy online. If consumers have to pay taxes on things they previously didn’t, it will incent them to buy less online and drive to their local store (where they can pick-up the item immediately) or a nearby state that doesn’t charges sales tax. The increased shipping and warehousing cost will have an impact on retailer profitability, but it shouldn’t be significant. Retailers can offset the costs by… Read more »

This is a great example of market forces that will drive innovation. Consumers are demanding delivery and as traditional delivery costs increase, it opens up space for disruptive technologies, tools and practices to generate new opportunities. We’re already seeing innovations around pickup, autonomous delivery, etc. starting to be explored. I suspect the short term will see some price increases/margin decreases for retailers until some of these new models can achieve scale.

Retailers will continue to absorb increasing logistics costs to take advantage of ongoing ecommerce growth. Similar to 2017 in this survey, where only 12% of shippers were willing to raise rates, speed and delivery of shipment remain prime concerns.

Retailers are betting that volume, especially during an up-market will make up for the added costs (both long term as well as short term). Those with enough margin to take a hit will continue to look for ways to reduce these costs further or share the costs across their supply chains. CEP price changes will affect all non-palletized shipping — but an interesting twist will be shipments from abroad. With recent changes in discounting from China, we’ll see added costs for Chinese goods coming into the US — a big part of eCommerce (and Amazon).