Spurred by increasing consumer demand and expectations, retailers once again raced to provide faster, better service during peak season 2015, but some may be on the verge of burning out.

According to the National Retail Federation, 2015 online sales grew 9% to $105 billion, and leading retailers mostly made it to the finish line on time, but they may soon be hobbled by two hurdles: increasing cost to serve and a gassed-out carrier network.

Kurt Salmon’s Omnichannel Fulfillment Study acts as an instant replay on retailers’ peak-season fulfillment to help identify how to train for the rest of 2016. After all, the race to please consumers is a marathon, not a sprint.


Cyber Monday, when we placed our early holiday orders, was less about speed than focusing on fundamentals like accuracy while experimenting with new moves like buy online, pick up in store (BOPUS).

For orders placed on Cyber Monday, this year’s fastest companies (see Exhibit 1) delivered in an average of 2.8 days, nearly the same as last year’s top performers, as shown in Exhibit 2. We used Cyber Monday as a benchmark for early holiday ordering since it’s the single biggest online shopping day of the year, according to Adobe. Meanwhile, brick-and mortar traffic was highest on Super Saturday, the Saturday before Christmas—beating out even Black Friday, according to Bloomberg.

zoom iconExhibit 1: Speediest retailers deliver in fewer than four days.Outside of the top 10 early performers, most retailers took longer to deliver compared to 2014. The average order-to-delivery time across all retailers studied was 6.9 days—20% slower than the average of all retailers surveyed in last year’s study. (See Exhibit 2.)

zoom iconExhibit 2: Delivery speeds slowed down in 2015.
Why? We suspect this lagging speed is a symptom of networks on the brink of collapse, carrier delays and slower shipping methods.

Although speed suffered, success improved: Better execution enabled 80% of retailers to complete orders within two weeks of ordering, up from 66% in 2014, with 9% fewer cancelled orders.

That’s thanks to big investments in in-store technology, improved inventory accuracy, and better distributed order management and ship-from-store processes.

Retailers also worked up a sweat cutting customers’ costs: A whopping 90% of retailers offered a way for customers to get free shipping, up 15% from 2014. And 64% of retailers offered free shipping on everything, up 28% from 2014.

Plus, this year, half of all retailers offered BOPUS or reserve-in-store opportunities—up 35% from last year. Additionally, many retailers who offered these services in a few stores last year have expanded them to more, if not all, of their stores. Since this is typically the fastest way to get your order, and is usually free, this is good news for consumers.

BOPUS winners—Target, Macy’s and Lowe’s—provided good communication after the purchase, had the order ready in less than two hours and made the pickup experience quick and easy. Most importantly, the experience was equally painless across all of the chain’s tested stores.

But many more retailers were passed by others when it came to BOPUS. In fact, only 40% of BOPUS transactions were error free this year, compared to 92% of delivered orders in the study and 98% of delivered orders during the rest of the year. The most common BOPUS errors included orders not being ready, incorrect orders, inadequate communication with customers and cancelled orders.

This huge service gap—especially in such a customer-facing area—trips up retailers and can leave customers booing.


When it came time to ship last-minute orders, procrastinators were in good hands this year. Saks was a standout, giving customers free shipping (with an offer code) on the 23rd for next-day delivery. Many other retailers allowed ordering up to the 22nd and successfully delivered on the 24th, including Zappos, REI, Macy’s, Bloomingdale’s and Best Buy—some familiar faces from the Cyber Monday winners’ circle.

The average last ship date for Christmas Eve arrival was December 21, a day later than last year’s average, as retailers took advantage of Christmas falling on a Friday. The extra day also helped them better keep their promises, with 95% of packages making it under the tree in time vs. 87% last year. This improved success rate was even more significant considering carrier success rates fell 2% vs. last year—a symptom of a network on the brink.

A Christmas first, 9% of retailers studied guaranteed that the item would arrive in time and, if it didn’t, it was free. On the other end of the spectrum, 14% of retailers didn’t make any delivery date promises going into the holiday.


Retailers again showed improvement in returns in 2015—the average time from initiating the return to receiving credit fell to 14.3 days, down from 16.8 days in 2014.

However, this is still far from meeting consumer expectations. A 2014 Kurt Salmon survey of 1,800 consumers found that consumers expect returns to be processed in an average of 7.3 days—even faster for consumers under 45. In reality, fewer than 20% of retailers credited returns in seven days or fewer, as illustrated in Exhibit 3.

zoom iconExhibit 3: Retailers’ return speeds are improving but still lag consumer expectations.Speedy standouts included American Eagle, Amazon, Cole Haan, Lowe’s, Coach, Best Buy, Gap and Old Navy.

Although speed still lags, for the most part, the return process got smoother in 2015, with 64% of retailers providing a preprinted return label, up 28% from 2014. And 47% of retailers let consumers ship returns back for free. But only 30% of retailers provided both perks.

Meanwhile, 92% of retailers with stores let consumers return products there, almost always for free.

For retailers who charged for any type of return, the average charge was $11.50. It seemed when it came to return speed, you got what you paid for. The average refund time for free returns was 14.7 days vs. 12.4 days for returns that cost less than $10 (excluding free returns), and 10.8 days for returns that cost more than $10.

About 10% of retailers charged for each box returned, which can add up fast, as 58% of retailers shipped a single order in multiple boxes.

Aside from cost and speed, some retailers’ return policies disappointed. For example, some had a rule that return-to-store was allowed only for “in-store items,” without any indication of what those items were, and some required the customer to call and leave a message for a return authorization and were not called back for a week. Other retailers’ customer service wait times were north of 40 minutes.


Although retailers mostly scored with consumers during the 2015 holiday season, larger performance issues are looming that could throw up major hurdles to their continued success in 2016. Two of the biggest threats are cost to serve and carrier capacity.


Retailers’ mostly impressive performance this holiday season came at a price: profitability.

One of the main culprits was an increase in distribution points, which drove an increase in the number of packages per order. Among the six-unit orders in our study, there were an average of just 2.3 units per package—vs. 2.6 units per package in 2014 and 3.1 units per package in 2013.

Also to blame: tight labor conditions and a host of other factors that are pushing wages higher at stores and distribution centers.

Paired with less revenue from shipping, with only 10% charging a fee, retailers are facing higher-than-ever fulfillment costs, especially when rising carrier costs are thrown into the mix.

The bottom line is that retailers are now beginning to confront one of e-commerce retailing’s basic issues: It’s less profitable than brick-and-mortar. When online sales made up only a single-digit percentage of a retailer’s total sales, this issue was easier to ignore, but as e-commerce sales only continue to grow, retailers will have to confront the cost issue.


Higher-than-anticipated e-commerce volumes stressed carrier networks during Cyber Monday ordering. For example, 9% of packages sent via UPS Ground encountered some type of unexpected delay in the shipping process, as did 4% of FedEx’s packages. Neither of these rates has been seen since 2013.

The problems continued during last-minute ordering. FedEx had a 10% error rate for last-minute shipping and applied caps on many retailers during peak season, leading to complaints about the carrier’s performance, according to The Wall Street Journal.

While these are typically small delays and pale in comparison to some retailer-caused holdups, they point to a larger problem—a carrier network at capacity.

You only have to look back to 2013 to find out what can happen if order volumes exceed retailer and carrier capacity. That was the year that 15% of the packages Kurt Salmon ordered at the last minute did not make it under the tree in time.

Carriers will be spending heavily in the off-season to prepare for 2016 peak and will spend billions a year to keep up with the anticipated 15% to 20% growth in direct-to-consumer shipping and higher labor costs. Of course, these costs will be passed on to retailers. Carriers may soon even turn to surge pricing to even out demand or offset peak-season costs.


With a new year comes a a new opportunity to address these two significant issues—cost and capacity—in the relative calm before retailers approach peak 2016’s starting line.

To win the race in 2016 and beyond, retailers will need to reevaluate their entire network and find a way to address cost issues through a mix of strategic inventory placement, systems improvements and network enhancements that rein in costs while keeping customers happy.

Retailers who don’t will likely find themselves struggling to cross the finish line on a successful 2016.

18 February 2016