Consumers Feel Shipping Costs Take Them for a Ride

Mixed in among all the good news for online retailers in Ernst & Young’s “Global Online Retailing” report was the fact that consumers still hate shipping costs and blame them for most abandoned shopping carts.

The report is based on research done among consumers and retail companies in 12 countries around the world, and it compares the current online retailing market to a baseball game in its second inning: there is plenty of transformation yet to come.

Among the good news for online retailers:

  • Of the consumers participating in the study, almost two-thirds worldwide have purchased items online in the past 12 months. More than three-quarters of German and U.K. respondents bought online in 2000, as did 74 percent of U.S. consumers.
  • For 97 percent of participating consumers, the number of online purchases has either increased or stayed the same. For 96 percent, the total dollar volume of online purchases either stayed the same or increased compared with one year ago.
  • Books, CDs, and computer equipment remain the top-selling products online, but consumers are moving into different categories as well. Clothing now ranks in the top five online purchase categories in both the U.S. and Canada. Categories such as health and beauty products, sporting goods, flowers, and toys have become more popular with online shoppers.

But when it comes to negatives, nothing can surpass shipping costs. Shipping costs remain the biggest concern of online shoppers, the factor that most discourages online shopping, and the number one reason for abandoning shopping carts. More than half (55 percent) of the consumers interviewed by Ernst & Young said that free shipping costs would get them to visit a site more often; 53 percent said lower shipping costs were an improvement they would like to see; 46 percent cited shipping costs as the biggest factor discouraging online purchases; and 42 percent of abandoned shopping carts owe their fate to high shipping costs.

Shopping Carts Abandoned
Due to Shipping Costs

Percent of all abandoned carts
US 45%
non-US 41%
Australia 38%
Brazil 49%
Canada 45%
France 41%
Germany 40%
Israel 23%
Netherlands 45%
South Africa 28%
Spain 35%
Switzerland 32%
UK 45%
Source: Ernst & Young

Despite their unpopularity with consumers, Ernst & Young’s report found that 89 percent of the retailers interviewed still charge for delivery. Eleven percent of the retailers said they use their delivery service as a profit center. Even more unbelievably, the report found that many e-tailers increase their shipping costs based on the value of the purchase, which effectively penalizes those who buy more.

All of the retailers surveyed by Ernst & Young in Australia, Brazil, Canada, France, The Netherlands, South Africa, Spain, and Switzerland charge for delivery. As do 90 percent in the U.S., 82 percent in the U.K., and 33 percent in both Germany and Israel.

Ernst & Young called for retailers to find “creative solutions” to the problem of shipping costs, which may include outsourcing shipping and fulfillment with suppliers and passing the savings on to consumers. Thirty-three percent of online retailers will outsource shipping to drop shippers in the next year, according to a report by Jupiter Media Metrix, which found that 44 percent of online retailers lose money on shipping and handling.

Jupiter analysts said they believe merchants can drastically reduce labor costs and processing times by using Internet fulfillment networks that connect them with manufacturing and distribution partners. Internet “fulfillment nets,” a type of private trading network, can be used to automate drop shipping processes — including order routing, performance monitoring, and real-time inventory checks. Jupiter analysts believe this approach can save up to 25 percent in labor costs.

“Retailers online and off are realizing that the Internet not only affords new ways of interacting with consumers, but more efficient ways of interacting with suppliers,” said David Schatsky, research director and senior analyst at Jupiter. “Merchants that deal with numerous drop-shipping suppliers are finding that fulfillment nets offer huge advantages over the traditional and widespread use of telephone and the fax. With set-up costs typically in the low five figures, and transaction fees typically in the $1 range, Internet fulfillment networks offer a clear economic advantage.”

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