The UPS delivery issues over Christmas point to a dramatic change in online shopping behaviours
I was reading the cover story from Bloomberg Businessweek’s December edition titled “Can UPS Save Christmas” during some downtime over the last week.
The article profiles Scott Abell (“Mr Peak”) who is in charge of the peak planning at UPS for seasonal events in the US such as Thanksgiving and Christmas. Bloomberg looks at what might happen if the peak planning team gets it wrong at the busiest time of the year.
Did the article jinx Christmas for UPS?
As we know from all of the media coverage, Amazon deliveries were severely impacted by delays in the UPS network in the days before Christmas.
One of the telling parts of the December 2013 Bloomberg story that made me wonder if UPS could cope with a late surge was the following paragraph:
“But plans can be ephemeral. Abell grows slightly exasperated talking about a last-minute decision by one of his largest customers that will dump a huge number of packages into UPS’s network on the weekend before Christmas. As a result, Abell spent five days developing a new plan allowing UPS to operate double shifts at Worldport during the final weekend before Christmas.”
While it is unfortunate that many people had their Amazon deliveries delayed, the whole episode points to an interesting change in behaviour from both online sellers and consumers, that may have implications for many other industries too.
Online Sellers – what’s changing?
For online sellers, the promise of “have it tomorrow” is fine to make if you can get all of your own logistics in order, but if you then flood a traditional delivery business (in this case UPS) with a 37% increase in packages against last year’s figures, in the days before Christmas then something is bound to go wrong.
It is not only happening around the Christmas peak though, online retailers are promising delivery times that even a year ago would be considered unbelievable as well as uneconomic.
Ebay’s recent purchase of London “rapid delivery service” Shutl will only help to feed the consumer appetite for “I want it now” as they promise delivery from a variety of retailers in under an hour when the buyer and seller are in the same area.
Some analysts suggest that Amazon needs to start their “own UPS” in order to have end-end control of the buying and delivery process.
Amazon drones aside, the company may be closer to having their own delivery network a reality.
Amazon Fresh, already available in their hometown of Seattle, Los Angeles and now San Francisco (think an Ocado grocery delivery service for those reading this in the UK), uses Amazon’s own trucks and drivers to deliver groceries the next day.
Changing Consumer behaviour
Encouraged by the “next day” promises from online retailers, consumers seem to be changing their behaviour to that of a “just in time” mentality.
This lead to many parents in 2013 leaving their Christmas shopping to literally the day before, and relying on the next day delivery promise.
Coupled with the fact that you can now track the status and location your package on an almost hourly basis, this puts incredible pressure on the retailers to ensure parcels are sent in a timely fashion.
In the days before online shopping (think mail-order catalogues), waiting many days or even weeks for your latest purchase to arrive was the norm. With no real ability to track the parcel, we simply had to “hurry up and wait”.
The events of Christmas 2013 got me thinking. Now that consumers have the taste for speedy delivery, and digital business are helping to fuel this with hyper efficient warehouse and logistics processes, will we see a shift towards these “last mile” delivery firms such as FedEx and UPS gearing up to handle next day deliveries as the default?
Online retail in 2014
Recent figures from the US Commerce Department shows that e-commerce accounts for about 6% of overall U.S. retail sales, and for the 2013 holiday season, online purchases will be nearly 14% of sales.
In the UK, leading retailer John Lewis has reported a bumper Christmas period, and echoing the trend in the US, CEO Andy Street was quoted as saying that consumers had held back spending until the final week before Christmas and that retailers who “held their nerve” by not cutting prices will have benefited.
“People were expecting it to be better, but, actually, one of the most interesting features is how trading has been a different shape from previous years. You usually see a steady uplift and then it actually plateaus, but there was a very intense, late peak.”, said Mr Street.
Mr Street also predicted that by 2020 online sales will account for half of John Lewis revenues.
“We will have national coverage, we will probably be a 50-50 business: 50pc online, 50pc in store”.
So if online retailing is the future, and we saw what can go wrong during the Christmas season, what innovations will we see in 2014 to take online shopping to the next level, and what are the implications for other industries?
Digital technologies will ultimately drive huge changes in the economy: value chains will fragment, industries will converge and new ecosystems will emerge. As a result, the mechanics of value creation and value allocation will also change. Looking five years out, 58 percent of 1,100 executives we surveyed expect new technologies to reduce barriers to entry and 69 percent expect more cross-industry competition.
So, what will this future of continual digital disruption entail? How will new convergent technologies impact organisations and industries? What can organisations start doing today to begin preparing for a vastly different business environment? In particular, which investments, priorities and actions can set the stage for success during turbulent and ongoing change?
Interesting times ahead............
You might be interested in reading more in our latest research paper: Digital reinvention: Reinventing a very different tomorrow
Andrew is an internationally renowned thought leader in the field of digital and social media networks. Currently he is a Global Partner at IBM based in London with a global remit to help drive understanding and deliver social business solutions to...