2018 Peak Season highlights painful transition for retailers

More than a decade into the online retail revolution, retailers and their logistics partners are still coming to terms not only with the shift in consumer shopping habits, but also the huge seasonal peaks in demand.

Peak Seasons – wider and higher

In Western markets, peak season has historically appeared during the holiday season, but as retailers have used the internet to sell across borders, shopping habits have spread too. The most obvious example of this is the export of Black Friday sales to Europe from the US, which initially created a second peak for many retailers. As online retail has become more widely adopted and increased the speed and convenience of shopping, though, many retailers have come to view the whole of November and December as their peak selling season, creating huge sales volumes and huge challenges in fulfilment and last mile delivery for logistics partners.

Peak season logistics challenges aren’t only found in the US and Europe. In China, November 11th has become a national shopping event. The day has long been popular amongst China’s younger generation to celebrate their single status, but since 2009 when Alibaba launched a day of promotional sales, Single’s Day has been characterised by staggering retail sales and logistics demands. In 2018, sales via Single’s Day sales across Alibaba’s platforms topped $1bn…in the first minute and 25 seconds of trading alone, going on to total hit $30.8bn across the 24-hours. As if that weren’t enough to create significant fulfilment challenges and stretch last mile capacity, rival retailer JD.com posted sales of $23bn over its Single’s Day Shopping Festival that runs annually from November 1-11.

Amongst all the implications peak seasons have for retailers and logistics providers, perhaps two are most significant – the evidence they provide of the ongoing battle to save bricks and mortar retail as buying moves online, and that they continue to create massive challenges for logistics providers seeking to deliver not only the products but the customer experience on retailers’ behalf.   

Traditional retail is struggling

In the UK, mixed retail performance led to what’s been described by analysts as a ‘flat Christmas’. High street retailer Next is perhaps the best example of the overall dynamic – between October 28 and December 29, its online sales were up 15.2% year-on-year, while in-store sales fell 9.2%. The higher cost of fulfilling the online sales, though, squeezed margins and annual profit came in at £723m, lower than expectations despite an annual increase in total sales of 1.5% over the Christmas period. John Lewis Partnership, meanwhile, saw a 1% annual rise on total sales after a late surge on December 24 put the gloss on what had been flat year-on-year performance for the previous 22 weeks. John Lewis’ online offer was again a significant part of this positive performance – across its department stores and supermarket brand Waitrose, cut-off times for click & collect orders were extended and the delivery option was rolled out to more Waitrose stores, allowing the Partnership to fulfil 52% more click & collect orders on Christmas Eve alone, according to GlobalData. While click & collect allows the retailer to utilise store-based delivery infrastructure to fulfil online orders, a more cost-efficient process than individual deliveries to consumers, margins were still squeezed.

ONS retail sales figures for the UK showed a brighter picture for wider online sales during the 2018 peak season, however. Across all retailing (excluding fuel), online sales grew 12.9% and 13.9% year-on-year during November and December respectively, while for non-store retailing the growth figures were 13.6% and 19.1%. The numbers for non-store retailing should indicate a positive environment for the UK’s pure-play online retailers. There were mixed fortunes here too, however, especially for pure plays in the apparel market which saw overall growth of just 0.9% in 2016 and 1.7% in 2017, according to MarketLine data. Big name UK-based online retailers BooHoo and ASOS serve to illustrate how challenging it can be in retail, even online. While BooHoo raised its revenue growth forecasts for its 2018 financial year up to 43%-45% after sales totalled £328.2m over the last four months of 2018. ASOS, meanwhile, issued a profit warning after sales growth slowed and forced it to reveal that “November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations”.

While retailers experienced a bumpy ride in the UK during 2018 peak season, in the US, Black Friday sales grew 23.6% year-on-year, reaching a record point. Just a few days later, online consumers spent $7.9bn on Cyber Monday, making it the biggest online shopping day in US history, according to Adobe Analytics. Over the period as a whole, US bricks and mortar and online retailers experienced a strong Christmas season, with sales growth reaching a six-year high. This is a 5.1% rise year-on-year to more than $850bn from November 1, to December 24, 2018. The online retail industry saw a record season with 2.5bn orders. A stronger US economy has clearly boosted consumer spending power with the Conference Board Consumer Confidence Index asserting that consumer confidence in the US was at an 18-year high.

So, how does a logistics provider react to peak season?

In the UK, Royal Mail hired 23,000 seasonal staff and opened six temporary parcel sorting centres to meet demand in 2018. Yodel, a last mile delivery provider, invested in new semi-automated technology which increased handling capacity for out-of-gauge parcel by 17,000 per hour, in time for the peak period. In the US, meanwhile, estimates from ShipMatrix indicate that FedEx, UPS and USPS delivered 97.6%, 98.3% and 98.8% of peak season deliveries on time. UPS estimated that it would deliver some 800m packages over the period, as it, along with FedEx, continued investment strategies implemented in 2017. To support this, both also substantially increased peak season surcharges, passing on additional costs to retailers. FedEx has tried to keep its surcharges to unauthorised parcels (increasing these by 211% over last year) whereas UPS has applied them mostly to residential shipments using ground services (increasing these by 104% over last year).

Delivery rates in the high-90% range represents progress for last mile providers dealing with e-commerce volumes and shows evidence that progress is being made, in particular at UPS which suffered under the weight of volume and other factors back in 2013. Still, not all providers performed so well, this year. SingPost, for example, apologised to customers after it was hit by a “tremendously busy” peak season that was “beyond forecasts,” stating that while it “hired extra resources, recalled personnel and activated teams from the corporate office on Saturdays just to meet the demand…service quality still suffered.”

Globally, there is some evidence to suggest that logistics companies and online retailers are getting better at dealing with the surge of e-commerce volumes and promotional and seasonal peaks, with most of the biggest logistics providers improving their on-time delivery rates in 2018. This means that they are successfully responding to consumer expectations for speedy and timely deliveries and that competition based on service level will continue to drive the behaviour of logistics companies and retailers. In some markets, like the UK and US, the shift amongst consumers towards online channels is worrying for retailers that haven’t yet replaced lost footfall with clicks on their websites, but also causing concern about margin pressure amongst those who have. As peak seasons extend and reach new heights, not only will retailers look to their logistics partners to deliver, they’ll also be looking for cost savings as they seek to protect their own margins.

Ti is currently preparing Global e-commerce 2019, its annual investigation into developments in the rapidly changing e-commerce logistics sector. The report examines opportunities in cross border e-commerce and examines how retailers and logistics providers alike can defend and compete effectively with the likes Alibaba, Amazon and JD.com in a constantly evolving marketplace.

You can find further information here, or contact [email protected]

Source: Transport Intelligence, January 24, 2019

Author: Holly Stewart


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