http://www.thisismoney.co.uk/money/news ... ds-newsxml" onclick="window.open(this.href);return false;
Britain's love affair with home shopping has hit a crisis point. Online sales are booming, but the rocketing popularity of home delivery has created chaos for retailers and the delivery groups they use.
For the nation’s army of armchair shoppers the party may be over, too. After this winter’s delivery panics and the collapse of City Link, industry experts are warning we may have to lower our expectations of home delivery or start to pay more for the privilege – or possibly both.
'The marketplace seems to be demanding more and more – such as next-day delivery – and that will drive up costs,’ warns Dick Stead, executive chairman of Yodel, who found himself in a crisis last month when unprecedented demand forced him to put a hold on accepting delivery jobs from retailers.
'The industry as a whole does not have sufficient capacity to deal with short-term spikes or to deal with extraordinary sales activity. If it is to create that capacity there has to be funding from somewhere.'
Meanwhile, Natalie Berg, global research director at consultancy Planet Retail, is clear the current state of affairs cannot go on. 'Free delivery is unsustainable,' she said, 'It is causing huge anxiety.'
This Christmas more than 300 million parcels were delivered across the UK.
The majority of packages were items purchased online by home shoppers. Royal Mail has the lion’s share of the market, handling just over one third of parcels, with the rest shared between rivals such as Yodel – the second largest in the sector – Whistl (formerly TNT), UK Mail, Hermes and DPD.
Many delivery companies see the festive period as a financial liability rather than the opposite. City Link was losing £500,000 every week before going into administration just before Christmas.
Yodel is understood to have lost money on its Christmas operation, although Stead will not comment on that aspect of the business. He said his group, despite the crisis last month, managed to meet and exceed all of its promises. Every parcel due to arrive before Christmas was delivered – or at least made it to the recipient’s front door.
'If they want us to deliver three times as many parcels as we usually do then our prices will have to reflect that,' Stead declares.
Jon Moulton, boss of Better Capital, the private equity group which bought and then closed City Link, admits that getting into the parcel market had proved a poor decision. 'We knew it was not a great market when we bought City Link. It has got a lot worse,' he said.
The huge ups and downs in demand make it even harder for delivery groups to build a service that can cope with the peaks without creating huge costs that have to be carried during the rest of the year.
Self-employed delivery drivers can help cut those costs as they can be paid by the volume of work, but this exposes more people to financial losses should the company fail.
One delivery group executive, who preferred not to be named, said retailers should consider charging a premium for delivery at Christmas.
Berg, however, argues that this will be almost impossible as home shoppers have come to expect free delivery. She said: 'As consumers have been more demanding, retailers do not have a choice about free delivery. They need to do these things to be competitive.
'Online shopping has come so far over the past five to ten years. Websites have been upgraded, we have more payment options and we have click and collect. But the one area – and the most important area – where shoppers are let down is delivery.'
So have home shoppers come to expect too much? Berg said: 'There is a disconnect between shoppers' expectations and retailers' capability. And the retailers do not do themselves any favours by offering more and more – like same-day or next-day delivery. We now have some retailers doing Sunday delivery.'
Amazon’s solution has been Amazon Prime, a package of services costing £79 a year that includes free express delivery of purchases.
Supermarkets, as reported by The Mail on Sunday last year, are thought to be losing £100 million a year from home delivery. This figure represents the difference between what they charge and what it costs to put the order together and to deliver it to the purchaser’s doorstep.
Asda, Tesco and Sainsbury offer six monthly or annual subscriptions allowing customers to book regular delivery times in advance. The system allows the retailer to predict demand and to extract a regular income, which is typically between £3 and £5 a month per customer.
Berg suggests that loyalty schemes might be a partial answer to the delivery problem. She believes click and collect will prove to be the best solution for retailers in the long run – allowing customers to shop online and collect either at a store or a locker or collection point without having to queue to pay at a till.
Consumer group Which? launched a campaign to improve parcel delivery services before Christmas. Its research found that one in ten customers suffered a delay over a Christmas delivery in 2013.
Which? also discovered that 40 per cent of those who had a delivery problem last year said they would opt for click and collect in the future.
Encouraging more click and collect is in Berg’s view the way retailers will react to this year’s delivery deadlock and many already pushed such services heavily at Christmas.
Stead said: 'We need to manage consumers’ expectations all year round. It is about making sure that when they opt for free delivery they know what kind of service they are going to get.' In other words – you get what you pay for.