In the last few years, the growth of the e-commerce industry has meant consumers’ expectations have risen. In particular, buyers are now demanding fast and free shipping more than ever before.
In fact, one study found that 9 out of 10 consumers see free shipping as the number one incentive to shop at a particular store.
But, for smaller companies, this is becoming more and more of a burden. As many retailers have been forced to close for an extended period of time during the pandemic, small to medium-sized companies could struggle to offset their losses from higher shipping costs.
In a report by Jefferies, economists have predicted an increase in postage costs for the coming years, which has been driven mostly by the COVID-19 pandemic.
This could become a huge burden for retailers, as they will struggle to compete with the free and speedy shipping service offered by e-commerce giants, and especially Amazon.
“The recent growth in shipping costs has been fueled by the surge in e-commerce penetration, which has created a significant supply/demand imbalance and left carriers capacity constrained,” Jeffries’ analyst Janine Stichter said in the report.
Can smaller businesses compete?
The e-commerce industry was estimated to be worth over $2.3 trillion in 2017. And, that figure has increased even more since. Amazon remains the leading online retailer globally, with 212 million monthly users and 150 million Prime members.
The most important reason for consumers using Amazon is, according to surveys, the free and fast shipping it offers.
For small to mid-sized retailers, competing with the giants could become even more of a struggle. Most of these companies don’t have the resources or capacity to establish a shipping strategy that would meet the same standards.
With Amazon offering free next-day delivery for Prime members, consumers have grown to expect this, even when they don’t necessarily need it.
This puts retailers in a tricky position, as couriers like FedEx and UPS have implemented price increases, and it’s believed these won’t be removed any time soon.
Some of the methods that could mitigate these losses include using alternative delivery methods, incentivizing collect in-store or curbside pickups, or using third-party delivery apps. However, it’s unclear at this stage how companies will compete in the future.