Partner & Managing Director, New York
China, France, Germany, Japan, the UK, and the US all in ‘Wave 2’ of three-wave progression, with China and the UK leading the way in a matrix of online penetration vs. consumer expectations
NEW YORK (May 15, 2019) – Even as the “one-day free-shipping wars” between Walmart Inc. and Amazon.com Inc. are grabbing headlines today, American consumers may have already reached the point of diminishing returns regarding their expectations for speed in delivery, while consumers in five other developed nations seem all, at least eventually, to be on their way to demanding not just rapid delivery but also the same for large, bulky items as well in-home services to assemble and install such items. Those are among the findings, likely of interest in shippers and retailers alike, in a new report released today by AlixPartners, the global consulting firm.
The report, Opening New Doors for Home Delivery, has as its centerpiece a “home-delivery maturity model,” which plots on a coordinate graph online sales last year as a percentage of all retail sales for China, France, Germany, Japan, the United Kingdom, and the United States, respectively, against consumer responses in each of those countries to survey questions recently posed by AlixPartners.
Overall, the comparison unveils what appears to be divergent maturation levels among the countries, even as e-commerce undoubtedly has become a force to be reckoned with in each of them. For instance, says the report, by the late 2000s the US moved though “Wave 1” ("Give me variety, and make my transactions secure”) of the maturity model, is now deeply into “Wave 2” (“Send my items fast and free”), and is likely on the cusp of moving into “Wave 3” (“Give me convenience, control, and service in my home”).
Meanwhile, for the UK, a similarly developed market, the report finds that while consumer expectations for home delivery are similar to that in the US, e-commerce adoption is considerably higher—indeed, it’s nearly twice the US level. Specifically, UK consumers seem to have high comfort ordering large, bulky, perishable, valuable, and “complex” items for home delivery, says the report. And because the UK has seven times the population density as the US—and given that high-density populations lend themselves to easier home delivery—the report suggests the UK may be on the cusp of Wave 3 in the AlixPartners maturity model as well.
By contrast, China, says the report, has already leapfrogged over Wave 1 and landed squarely in its present spot in Wave 2, thanks to the overnight-like success of online giants like Alibaba Group Holding Ltd. jump-starting both e-commerce and e-payments at a time when bricks-and-mortar retail in China was itself under-developed. And now, according to the report, Chinese consumers now seem ready to jump again—this time into Wave 3 as well. One example the report gives: how fashion retailer Vanci has long let customers try on clothing delivered directly to their homes, and immediately return any items they’re not happy with.
Meanwhile, Japan—clearly the laggard of the countries examined, says the report—exhibits e-commerce penetration closely resembling that seen in the US market five years ago, which, posits the report, might seem surprising given Japan’s tech-savvy population, sophisticated logistics infrastructure, and the fact that the country has some of the highest-population-density markets in the world. Possible explanations given for this finding include the higher percentage of older consumers in Japan and the lesser willingness among Japanese to share personal information such as credit-card numbers online. Retailers in Japan have their work cut out for them in driving higher e-commerce adoption rates, says the report. But, it says, if they can overcome that hurdle, the density of their market coupled with a high level of logistics capabilities in Japan could lay the groundwork for that country to move ahead in the maturity model.
Finally, France and Germany show numerous similarities in the AlixPartners’ maturity model. For instance, the report finds that e-commerce adoption in those two countries has lagged behind other Western European countries and the US, while consumers in both nations in the AlixPartners survey displayed a high sensitivity to delivery costs. One key question, says the report, is whether online ordering of groceries can break through in these markets.
Digging deeper into the survey responses, the report also found interesting similarities and differences among the six countries. For instance, in key product categories often thought to be bellwethers of home-delivery maturity, there were vastly differing trends across the countries:
Meanwhile, when asked which large durable goods respondents were most likely to buy online in the next 12-18 months, 46% of Japanese consumers said “none.” For all types of large durable goods, Chinese consumers said they plan to buy more from this product category than consumers in every other country studied—with home-improvement items topping their list of expected purchases.
When asked how strongly they agree with the statement, “I prefer to browse products on a website based on the available shipping methods/options,” respondents in the countries selected “completely agree” and “mostly agree” at least 48% (in the UK) to as much as 82% (in Germany) of the time—suggesting that the array of shipping options offered by e-commerce retailers makes a big difference in how consumers browse products online.
Moreover, the survey also asked about the key issue of how available shipping options influence browsing behavior. Among the findings:
The AlixPartners report concludes with recommendations for retailers and transportation companies alike for navigating what it calls “the next frontier of home delivery.” Among them: Retailers will have to be able to offer a more consistent level of quality and service on a national basis when it comes to home delivery, and third-party-logistics (3PL) companies need to step up their game to meet rising demands from both consumers and their retailer-clients. Regarding the latter, the report goes on to starkly say that 3PL providers in the US, in particular, are currently “not up to the task.”
“The US market for home delivery of goods ordered online seems to be foreshadowing similar developments in other countries,” said Marc Iampieri, a managing director in the Transportation & Infrastructure Practice at AlixPartners. “The new baseline is ‘fast and free,’ and the next frontier is the same for large, bulky items, including those that require value-added services such as assembly and installation. Unfortunately, many if not most logistics providers today, including in the US, are hard pressed to meet these new requirements efficiently.”
“Competitive pressures for retailers will also likely change and intensify in countries, including the US, moving upward in our home-delivery maturity model,” said John Bonno, a managing director in in the Retail Practice at AlixPartners. “In the past, delivery costs steadily decreased as retailers focused on growing e-commerce market share, but that could change dramatically as retailers become obliged to offer not only delivery but also setup and installation services for free.”
The AlixPartners report, Opening New Doors for Home Delivery, was partially based upon surveys, all conducted online in the second half of January, of more than 1,000 consumers ages 18 and older in each of the following six countries: China, France