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INTERVIEW Andrew Starkey of IMRG on the fast-changing face of delivery

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The online delivery market is changing fast, with far-reaching implications for the online and multichannel retail industries. So says Andrew Starkey, the IMRG’s head of e-logistics.

Speaking to Internet Retailing, Starkey pointed to two recent events as key to changes currently taking place within the industry, which he predicts will change the way that retailers do business.

The first of those was Royal Mail’s this spring move to raise the price of parcel delivery after it had been granted its commercial freedom from the price-limiting mechanisms of Ofcom. Many delivery companies raised their prices and limited capacity in response, says Starkey, who is himself a former director of Postcom and now lead consultant and founder of Spiral4, a postal and e-logistics consultancy.

“The rest of market instead of chasing volumes, having recognised its capacity issue and hardened prices on top of Royal Mail,” said Starkey. “Retailers suddenly found themselves in the space of a year going from the point where they could shop around the market and get good prices, but with quality of service being a little bit ropey and contingency at peak being suspect to say the least, and move to a position where carriers are being, I think, a lot more responsible. They’re trying to improve service, invest in service, and aren’t chasing volume or price.”

It’s a backdrop that has precipated that second of those two significant events, says Starkey. That’s Amazon’s recent move to rein in its universal free delivery promise. The online retailer last month announced that it would no longer deliver items that cost less than £10 for free, unless they were entertainment products such as books, CDs, games or videos. At the same time Amazon announced it had made a net loss of $7m (£4.5m) in the three months to the end of June, down from a net profit a year earlier. “I think they have no choice but to pass this along to the consumer for the first time in a long time,” said Starkey.

So what does this mean for other retailers? Starkey predicts a sigh of relief for many. “In the future, just as for a long time Royal Mail’s lower prices held the rest of the market down, the very fact that Amazon has moved away from free delivery allows all the other retailers a little bit of breathing space,” he said.

“We’re already starting to see the impact in higher prices; all the retailers have increased their free delivery thresholds. Three months ago [the threshold] was about £40 on average, now it’s about £50. All of this is starting to bubble through.

“I think if you’re a retailer you have a choice now. You either retain free delivery to compete with Amazon, or you say thank God for that and start to trade knowing that consumers can’t run to Amazon for comparison. I think consumers will end up finding they are more often asked to pay for delivery.”

Starkey also predicts a more general move towards Click and Collect, which has grown in popularity in recent years as retailers found it was a cost-effective alternative to delivery costs – and one that proved its worth in the snowfall of 2010.

“Almost by accident they have found out that yes, you are providing a competitive channel to carriers, but they also found that when customers were going into the stores they could control the consumer experience. It should be a cheaper option, and retailers can also crosssell, upsell and apply promotions to the customer in store. If the customer doesn’t like it or tries it on, they return it in store, so cutting return costs. The final thing is that when they give the customer the credit they don’t go home and put it in the bank, they spend it in store. We see a sudden upsurge as retailers say click and collect is a big thing.”

Already, he says, the collection market has broadened. Where there were three main operators in the market a year ago – CollectPlus, Bybox and Royal Mail – there are now eight, with the arrival of operators including InPost and UPS/Kiala with their Access Points service.

And as the market broadens, Starkey predicts more change to come, driven by consumers. In particular, he thinks Amazon will soon move back from charging for collection from its lockers or through its CollectPlus service. For while, says Starkey, consumers might pay for home delivery, they may well be less willing to pay if they have to go and pick their order up themselves. “Sooner or later,” he says, “I expect they’ll move the free delivery offer to CollectPlus or an Amazon locker. I’m forecasting that will be the next step they take.”

This all comes about as marketers recognise the key role that delivery plays in marketing, says Starkey. “Once upon a time delivery was the preserve of the logistics manager, but now it’s becoming a strategic board agenda. The marketing guys are being tasked with understanding the delivery offer as part of the product, price and placement offer, and promotional offer.” And that, he says, will revolutionise the online shopping industry. Right now, the future of logistics is set to be interesting.

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