DEEPER DIVES: More Volume Can't Save Everyone

Good Morning,

First, as always, thank you for joining.

This week’s edition helps provider context for major trends happening in retail and eCommerce.

By better understanding what is happening out there, you will be able to better navigate your service offer or your sourcing strategy.

These topics are DOMINATING my client conversations right now, and it’s more of a concern than anyone wants to openly admit.

Here’s what this issue brings:

• The Canada Post strike highlights the struggles of service providers trying to balance worker demands with profitability in a rapidly changing eCommerce market.
  

• Small retailers must move away from competing on price alone. Focus on customer relationships and values as major platforms dominate budget-friendly offerings.
  

• As AI-enhanced “dark patterns” emerge in marketing, regulators and consumers face challenges in dealing with manipulative tactics used by eCommerce giants

Mo Volume Mo Problems

Big news in Canada last week was our National Postal Service going on strike as of November 15, 2024.

Like the USPS in the United States, Canada Post is the backbone of getting mail and parcels out to every corner of the country.

Both of these providers carry huge mandates to service their communities.

The USPS is required to deliver six days a week, while Canada Post is mandated to provide five-day-a-week delivery to all residential and business addresses.

The Canada Post strike happened because of the fact that the two sides cannot seem to find a compromise when it comes to balancing worker demands and the corporations performance.

Basically, Canada Post is saying there is no way they can afford what is being asked.

The company’s position today is a far cry from where it was about 10 years ago.

While never a juggernaut of profitability, Canada Post (at a time) was actually making money.

What’s hard for people to understand however is the continued decrease in profitability despite a drastic change in activity.

When you think of eCommerce and its explosive growth and correlate this with Canada Post’s activity levels, you immediately assume that they shouldn’t be in the position that they are in.

So what’s going on?

The postal infrastructures (in Canada and in other parts of the world) were purpose built for mail, not parcels.

And even though people today barely think of sending a letter, the hard truth is that mail revenue (which is actually quite profitable) was not fully replaced by the lower-margin parcel business with traditional letter mail rapidly declining.

Low-Margin eCommerce Volume (It’s Not Just A Canada Post Problem)

Whether Canada Post handled the transition well isn’t the right question.

What’s actually important is understanding the reality of parcel volume.

This is important because every shipper needs to understand exactly how fine of a line that most service providers are working with.

You have to understand this to make sure that you are making the best decision for your company and for the reliability and consistency your customers expect.

You can see from the added context of the USPS and of Pitney Bowes GEC, getting your hands on more parcel volume doesn’t mean that you profitability will follow.

A study by Digital Commerce 360 indicated a median profit margin of 4.4% for U.S. eCommerce retailers in 2020 (and cost pressure has only gotten worse since) gives important context for understanding the challenges faced by last mile parcel providers.

This is one of the major reasons why that despite the growing number of service providers and options, large retailers continue to choose relatively large service providers for their volume.

In order to be able to provide the lowest cost to service, and give retailers as much breathing room as possible on their P&L, it requires systems, processes and facilities that have been tailor made for handling eCommerce packages as well as massive levels of daily volume.

Smaller providers obviously get by.

But they are doing it by working with smaller brands with lower levels of volume and complexity (or they partner with retailers / brands in industries where the margins are healthier or there is “less” competition on pureplay pricing).

Here are things to keep in mind when it comes to parcel delivery and managing the results of the activity:

• COST
  Parcels are far more complex to handle and deliver. Parcels come in diverse shapes and sizes, requiring more handling, custom sorting, and frequently separate trips or special handling to reach individual addresses. These factors increase labor and logistics costs per unit
  

• REVENUE

  Parcels bring in more revenue (but don’t let a top-line number fool you). Increased revenue per piece is offset by higher processing, storage, and delivery costs.
  

• LABOUR
  Parcels require more labor-intensive processes, including manual handling, loading/unloading, and even “last-mile” considerations where delivery drivers may have to make multiple stops for fewer items.
  

• PROFIT
  Parcel delivery is highly competitive. Competition often drives down prices. This price pressure, combined with higher operational costs, compresses profit margins even when parcel volumes are high.
  

• NETWORK
  E-commerce has expanded the need for parcel delivery to virtually all residential addresses, including those in remote and rural areas. Serving these areas incurs high costs, especially with parcels’ larger volumes and weights, which can drive up costs by as much as 40% for rural versus urban deliveries. This reduces the average profitability of parcels when delivery requires extensive infrastructure and transportation resources.

With my clients, the things I am helping them the most with to overcome these challenges are the following:

1. Establishing a clear view on pricing and the desired target to cover costs

2. Determining capacity by depot and run so that they can maximize their revenue (and profit) opportunity

3. Defining the ICP (Ideal Client Profile) as well as the MRcP (Most Represented Client Profile) for their network

4. Strategically develop growth plans that target customers and activity that is complementary so that established systems and processes yield better revenue flow through

5. Building out broader value propositions to move away from price-only selling / value

By doing these things and having the discipline to stick to your strategy, you can avoid the problems (and bleeding) that comes with taking on high levels of volume that despite increases in revenue and activity drive your profitability into the ground.

Competing On Price Is Getting Intense, Small Brands Need A New Battle Ground

Amazon has introduced Haul, a platform offering ultra-inexpensive products under $20, targeting young consumers.

This is a direct response to the popularity of retailers like Shein and Temu (Temu's US sales grew 840% between January 2023 and 2024).

The platform copies its competitors' model, shipping products directly from overseas warehouses, often in China, to US customers.

What’s interesting is that Haul challenges Amazon's traditional focus on convenience and fast shipping, suggesting a shift in e-commerce priorities.

For years speed has been the vehicle of choice when it comes to increasing your sales.

Retailers and D2C brands used their relationships in countries like China to fill more warehouses with more stuff. Rate shopping and broad platform integrations have allowed pretty much any brand to ship from anywhere to anyone.

But in an era where consumers are being lured into purchases that max out under $20, how much room will there be for smaller retailers who have benefited from “transactional” sales?

In my opinion, not much.

Convenience and basic will be almost wholly owned by mega retailers with billions of revenue and spend.

For small(er) retailers to succeed, they are going to need a much deeper connection with their customers.

They are going to have to find ways to align and connect with the values of those customers, to create communities and to offer a way to differentiate themselves outside of price and convenience.

The good news from all of this is that popularity of slower and low cost goods shows a shift in consumer buying preferences.

They are clearly willing to make compromises based on their perceived value or for how a product or service will fit into their lives.

Small retailers and brands need to take advantage of this to give themselves some relief on the cost pressures of ultra-fast delivery.

This will allow them to be more targeted and more intentional with how inventory and product moves through their system and how it gets to their customers.

The Dark Side Of AI?

I’m always watching for new and trending ideas when it comes to eCommerce and consumer buying patterns.

I feel that understanding shifting trends and expectations is one of the best ways to keep your operations innovative and cost contained.

Whenever you can lead as opposed to reacting, you will always be better off.

There’s more information coming out every day when it comes to the “dark side” of marketing and sales tactics.

The EU for example is all over the major Chinese retailers at the moment for the gamification of their shopping apps.

This pressure is also spilling into platforms like Tik Tok.

With AI improving on a steep ramp, these “trap” type tactics will only get better, more personalized and harder for people to resist (especially if they don’t realize they are being played!).

I came across this article from Natalie Lagorce and felt it was a great segmentation of what types of gamified strategies are being used in full force these days that are quietly getting more AI savviness behind them.

Here’s a broadened frame of what she proposed:

Countdown Timers

Countdown timers create artificial scarcity and urgency, exploiting the fear of missing out (FOMO).

This tactic leverages the scarcity heuristic, where consumers tend to place higher value on items perceived as limited or running out.

Research has shown that these timers can increase conversion rates by up to 332%.

However, many of these timers are misleading, often resetting or continuing to run even after the supposed deadline has passed.

Hidden Information

This practice involves burying crucial details in lengthy terms and conditions or deep within a website.

It takes advantage of consumers' tendency to skim or skip reading extensive text. A study by the European Commission found that 97% of popular EU websites and apps employed some form of hidden information.

This can lead to unexpected charges, unwanted subscriptions, or privacy violations.

Nagging

Nagging involves persistent prompts or pop-ups that wear down a user's resistance over time.

This tactic exploits decision fatigue, where repeated exposure to choices depletes a person's mental resources, leading to poorer decision-making.

The OECD report noted that nagging was particularly prevalent on health and fitness websites and apps.

Forced Registration and Privacy Intrusions

This practice requires users to create accounts and share personal information, often with pre-selected options to share data with third parties.

The Global Privacy Enforcement Network (GPEN) found that many websites and apps use design patterns that encourage individuals to provide more personal information than intended.

In Canada, privacy policies filled with excessive text are now officially labeled as deceptive interfaces by regulators.

Cancellation Hurdles

Making it difficult to cancel a service is a common dark pattern.

The Belgian consumer protection authority (SPF Economie) found that among 13 companies' websites monitored, 69.23% made it challenging to disable automatic subscription renewals.

This practice exploits the status quo bias, where users tend to stick with the current situation rather than go through a complex cancellation process.

The prevalence of dark patterns is a global issue.

The International Consumer Protection and Enforcement Network (ICPEN) review found that 75.70% of 642 traders examined used at least one dark pattern, and 66.82% used multiple dark patterns.

These are important ideas to be aware of and to make sure that you understand where and how they can be used.

Increased competition in the market makes it harder for organizations to stay away from using anything that could give them a boost or benefit.

This can be made even worse for companies that are heavily funded or even public, as there is immense pressure to deliver returns for investors and shareholders.

That’s it for this week. Thanks for being here.