Delivery on the House

March 7, 2016  by in Business Strategy, Industry   

Free delivery. This phrase will trigger shivers from many retailers since, over the last 25 years, traditional retailers have been charging for delivery.

It has been the norm in the industry for a quarter of a century. From a financial perspective delivery income adds between 1 percent and 2 percent to a retailer’s bottom line.

Traditional furniture retailers are challenged to control their pricing multiplier to allow for discounting that will maintain an acceptable margin level. Offers to the consumer of discounts along with free financing have become a science to find the sweet spot of attracting buyers while maintaining margin.

Unfortunately, traditional furniture retailers live in an echo chamber listening to their perceived direct competition—other traditional furniture retailers. While traditional retailers still represent 40 percent of the industry, the marketing practices of other channels are ignored for the most part.

However, at times the noise from the other competitive channels becomes too loud to ignore. This is the case with the fast-growing channel, the Internet (15 percent of the total industry), when it shouts free delivery. Promises of big pieces ship free can’t be ignored. Consumers coming into traditional brick-and-mortar retailers have the promise ringing in their ears, and any delivery charge becomes an irritant. While free delivery for e-tailers means placing the product in the first dry area still in its carton, the consumer doesn’t read the fine print. It is only when placing an order that they discover what they want is white glove service, the level of service that traditional furniture retailers provide.

Should traditional furniture retailers match the e-tailers rather than allow the consumer struggle with self pickup?

A hard analysis may find the consumer would select the white glove service level. The 20 percent to 30 percent of consumers using customer pickup would obviously decline, and the cost of providing that service would also decline. Even though the policy states otherwise, costs of damages resulting from customer pickup are often incurred to retain good customers. The obvious solution to offsetting free delivery is to include it in the product pricing. However, the prospect of improving margins by 1 percent to 2 percent is daunting in the minds of typical furniture retailers.

Retailers can’t ignore marketing practices of their competitors in all channels. However, they also can’t ignore eroding profit margins. I suggest a side-by-side comparison of the alternative channels’ marketing practices could produce some interesting opportunities.

All distribution channels have the same objective—sell to the consumer. Maybe some of the things offered by furniture retailers aren’t necessary in today’s environment.