USPS price hike may make retailers turn to omnichannel
This story was delivered to Business Insider Intelligence "E-Commerce Briefing" subscribers hours before appearing on Business Insider. To be the first to know, please click here.
The United States Postal Service proposed an increase to its rates for its Parcel Select service, which companies like Amazon, UPS, and FedEx use to handle last-mile delivery, according to The Wall Street Journal.
The Parcel Select service requires companies to pay to put sorted packages into the USPS network so that they can be delivered to customers' homes. USPS is considering raising Parcel Select’s fees by 9.3% for packages over 1 pound and 12.3% for lighter packages. And it's also looking to take the dimensions of more products into account when determining their weight and fee, which would make shipping large but light products like paper towels more expensive. These changes need to be reviewed by regulators, and could be put in place as early as January 27, 2019 if they are approved.
If the rate hikes go into effect, they would raise shipping costs for e-tailers, which may lead to higher prices for consumers. Shipping is a key and costly part of online shopping: Amazon spent $5.9 billion on shipping costs in Q2 2018 and a whopping $7.3 billion in Q4 2017 for the last holiday season. And increases in Parcel Select’s fees could cause e-tailers’ shipping costs to climb to new heights.
Further complicating matters is consumers’ interestin free and fast shipping, meaning e-tailers may lose customers if they charge for shipping or try to offer longer delivery windows to account for higher rates from USPS. This dilemma may force e-tailers to eat the new costs themselves or pass them on to consumers in the form of higher product prices.
Higher prices for online shopping delivery would emphasize the importance of buy online, pickup in-store (BOPIS) and pickup lockers. Retailers can avoid many of the last-mile processes that Parcel Select covers by having consumers pick products up in-store or at specified locations. This would help retailers save on shipping costs, enabling them to offer lower prices to consumers, as Walmart does with its Pickup Discounts, potentially attracting customers.
The opportunity to offer significantly lower prices through omnichannel initiatives would make having a brick-and-mortar network more valuable. If the price difference between home delivery and BOPIS increases significantly because of USPS’ rate changes, retailers looking to push pickup offerings would need to have a physical presence near as many consumers as possible in order to take advantage. Otherwise, the pickup process would be too inconvenient for consumers.
This potential shift would benefit retailers like Walmart that have a tremendous number of stores, but would require e-tailers to focus more on adding brick-and-mortar locations — something Amazon has already been doing by adding pickup-dedicated locations and bringing lockers to some Whole Foods stores.