The customer is always right, and it’s killing the bottom line

Hello, and welcome to this week’s edition of Straight Talk. Inside, we discuss:

• Managing the last mile
• U.S. leads the AI race
• Peak season predictions
• Sennder, Knight-Swift make acquisitions

The customer is right, and expensive

The old adage that the customer is always right has served thousands of businesses well for generations. But it’s time may be coming to an end, and it’s all because customer demands are not profitable for businesses anymore.

Thank you, e-commerce.

Ever since Amazon changed the way we shopped, first with the ability to buy items online, then to deliver those items the next day, consumer demands on brands have been increasing. It is no longer acceptable to order an item and wait 7 to 10 days for it to arrive. Customers wanted their items tomorrow, if not today.

Bu, it turns out that doing that is expensive unless you have the logistics might of Amazon. And it is hurting retailers.

AlixPartners has released the results of a survey of over 1,100 U.S. consumers and 110 North American transportation, logistics and supply chain executives at companies with more than $100 million in revenue to take a pulse of the U.S. delivery market. The 2024 U.S. Consumer & Executive Home Delivery Survey has been conducted nearly every year since 2012.

Divergent opinions

Not surprisingly, consumers and executives have differing views on the home delivery market. Consumers expect their items to arrive within 3.5 days and 25% said they will shop elsewhere if the retailer can’t meet that expectation. Almost half of executives (47%) said they can’t meet that timeline and 72% don’t believe home delivery is accretive to their profitability.

In fact, nearly 80% of executives reported rising delivery costs; if home delivery is not profitable now, it’s going to be challenging to make it so in the future. The execs listed several tactics including optimizing delivery networks, positioning inventory and diversifying carrier networks, among the paths to address these issues.

Consumers, though, don’t seem to care. A delayed order affects a consumer’s next purchase 92% of the time, the survey found, and they want more than just communication that the order is delayed—they want to be compensated.

“Thriving in e-commerce requires companies to pull off a complex balancing act as they seek to satisfy customers who increasingly take for granted free, fast, and convenient home delivery and product returns,” said?Marc Iamperi, global co-leader of AlixPartners’ Logistics & Transportation practice. “The definition of home delivery success is rapidly evolving because it is no longer enough to simply help customers avoid going to the store. Winning now requires a combination of operational improvements and continuous adjustments by executives.”

What the consumer wants

Consumers were quite clear on what they expect. Speedy and free delivery. Ninety-two percent of respondents said free shipping impacts their purchase decision and 79% said their preference of free shipping trumped a scheduled delivery window. Only 11% are willing to pay for expedited shipping.

“Customers are sending a crystal clear message: if retailers can’t deliver for free within 3.5 days, customers are increasingly likely to find somewhere else to shop,” said?Chris Considine, a partner in AlixPartners’ Retail Supply Chain practice.

Returns are also expected to be simply, with 42% preferring a drop-off point at a store within a 30-minute drive, and 35% wanting free drop-off at a delivery service.

How executives are responding

These demands are increasing costs for businesses. Whether that is shipping costs, warehousing costs, or added inventory costs. Still, the executives are trying to meet customer demands. Half of respondents said their goal is a free shipping service level of 3 days or less, even as 76% said their per-package delivery cost increased since last year. Almost half (49%) increased the spending minimum required to qualify for free shipping.

As those costs have increased, 85% said reducing them is their top last-mile delivery priority. Forty percent have shifted volume away from UPS and FedEx.

While the consumers want compensation, that doesn’t appear to be a priority for executives. More than three-quarters (78%) said they only communicate delivery delays and do not offer any further compensation. Just 4% of companies offer a discount on the next purchase in cases of delay.

“The pressure is clearly on retailers to offer compelling e-commerce experiences—from simplified online shopping to fast and free delivery,” Considine said. “Unfortunately, executives haven’t made the business case for home delivery nearly as clear.”

Full survey responses are available here.

World leaders

Most U.S. businesses, 90% in fact, believe they have a responsibility to promote and support innovation in society, according to new research from BSI. Two-thirds of business leaders in the U.S. also said it is a high priority to inform employees about AI use compared to just 24% in Japan and 36% in the Netherlands that said the same. The standards company BSI conducted research on AI and business sentiment, and it found the U.S. and Germany place a high importance on involving employees in testing and trialing new AI tools. Only India, at 71%, ranks higher than the U.S.’ 59%. U.S. businesses are also investing in AI tools at a higher rate than the rest of the world, 55% to 49%. The results are part of BSI’s Trust in AI global survey and clearly show the U.S. is ahead of the world. You can see the full results on this interactive dashboard.

Hitting the peak

Peak season could be shaping up well for logistics organizations this year, with 48% of those responding to a Logistics Management survey expecting it to be more active, compared to 35% saying the same last year. Among the reasons cited were increases in order volumes for holiday-related products; higher volume projections; steady sales and consistent annualized growth. Thirteen percent expect peak season to be less active, citing election year uncertainty, a slow housing market, and rate pressures as concerns. Read more of the survey results here.

What I read this week

High interest rates haven’t hurt the ability of supply chain firms to finance long-term strategic activities. … The rapid pace of AI adoption is increasing with more boards pushing organizations to explore the tech. … European digital freight forwarder Sennder has acquired C.H. Robinson’s European Surface Transportation operations, creating one of the largest full truckload providers in Europe with revenues of $1.5 billion. … FedEx is cutting the number of daytime domestic flights in its operations once its U.S. Postal Service contract expires on Sept. 29. … Pitney Bowes has sold its e-commerce fulfillment unit to Stord, a warehouse logistics provider. … Knight-Swift Transportation has expanded its presence in the less-than-truckload space with the acquisition of Dependable Highway Express. … Former Kansas City Southern President and CEO Patrick J. Ottensmeyer passed away, according to a statement issued July 29 by Class I railroad carrier Canadian Pacific Kansas City Southern.

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Thank you for reading,

Brian