Covid-19 provides a costly boost to home delivery as click and collect falls out of favour

GlobalData Retail 2 November 2020 (Last Updated November 2nd, 2020 10:14)

Covid-19 provides a costly boost to home delivery as click and collect falls out of favour

Covid-19 has sparked a change in the type of fulfilment methods used by shoppers, with home delivery being used more frequently than alternative options, such as click and collect, due to consumers working from home. This will prove costly to retailers due to the inefficiency of the last mile as consumers have become conditioned to the norm of low-cost, high-speed delivery established by online pure-plays, in particularly Amazon.

Last-mile delivery eats away at retailers’ margins, and will this will be an even more important issue in 2020 as shoppers use home delivery more frequently and consumer expectations of delivery speed continue to rise, despite social distancing measures in warehouses, due to improvements made by retailers such as Amazon and ASOS. This problem is heightened for food and grocery retailers due to low unit prices, expensive order picking and pre-arranged timely deliveries.

As well as last-mile delivery being financially costly to retailers, it also has high environmental costs due to the carbon emissions generated. Some actions have been taken to mitigate this, for instance, DPD is rolling out its electric vehicles to more UK cities, but with such a vast array of couriers used by retailers, this will not be an easy problem to address. Retailers could make consumers pay a carbon offset for their deliveries (Etsy and Farfetch offset emissions on behalf of shoppers) or offer an option to schedule a delivery when a courier is already going to be in a shopper’s area (Sainsbury’s offers this), increasing the delivery efficiency. However, this may mean longer wait times which many shoppers will be reluctant to accept, so retailers may need to offer incentives for such options, such as a lower threshold for free delivery.

As working from home negates the need to collect parcels from elsewhere and footfall to shopping locations is decimated, spend via the click and collect channel is forecast to fall by 12.0% in 2020. This is unlikely to be a short-term change, as 71.6% of consumers who are currently working from home at least some of the time plan to do so more in the future*. Click and collect is more beneficial to retailers than home delivery as it is less expensive, allows for instore returns to be made upon collection, and provides a chance for additional purchases. Because of this, click and collect is often the cheapest and fastest delivery option available at multichannel retailers.

Retailers that have invested in click and collect at the expense of their home delivery propositions will lose out to those with better fulfilment options, especially multi-brand retailers where it is easy for shoppers to purchase the same product elsewhere. However, many retailers are still investing in their click and collect propositions to help manage heightened demand for online services and social distancing, with some such as Dunelm and Currys PC World introducing kerbside collection and grocers increasing their capacities.

In the lead-up to Christmas, retailers need to ensure that they can meet the demand for home delivery without significantly compromising delivery times as more consumers will avoid physical stores due to a rise in Covid-19 cases and local restrictions. A potential solution for this is to pre-book deliveries in advance to manage courier capacity, providing shoppers with a financial incentive of cheaper delivery when they book further in advance. As consumers will be more likely to order items earlier than usual so they can send presents on to family and friends they may be unable to see, this could be attractive to consumers and help retailers manage delivery capacities.

*Data is from GlobalData’s October survey of 2000 nationally representative UK consumers.