Spring 2009

The parcel arrives, but the consumer is out. It's an age-old problem, but viable solutions are at last sweeping into the mainstream. Peter Rowlands reports

Between ten and twenty per cent of first-time home delivery attempts fail. The figure differs widely according to product type and value, but this seems to be a fairly typical measure.

It may not sound much until you consider how many deliveries this means in absolute terms, and the price of failure in money and wasted resources. A couple of years ago, IMRG (the e-retailers' organisation) put the total national cost of failed home deliveries at around £2 billion a year. There is little evidence to suggest that things have improved dramatically since then.

And even that is only the tip of the iceberg. It takes no account of the ill will caused to shoppers whose goods don't turn up at the right time, or the number of potential online customers who are never converted into actual online customers in the first place because they simply can't be sure their goods would ever reach them.

A ten per cent failure rate adds up to a ten per cent uncertainty rate: that's the pernicious reality underlying the home delivery problem. Even people whose goods are usually delivered first time can seldom be quite sure that this is always going to be their experience. The delivery lottery undermines the whole online proposition.

All kinds of ideas have surfaced for solving the home delivery problem, ranging from wildly ambitious (a national network of drive-in collection points) to relatively modest (a lockable steel box outside your front door).

Yet despite the best efforts of a succession of entrepreneurs, few of these ideas have really picked up momentum and gained mainstream support. Industry watchers might be forgiven for thinking nothing would ever change.

Well, if that's what you think, it's time to think again. This year is looking increasingly like the year when the tide has finally turned in favour of viable national delivery solutions.

It's not just that convincing new products and services are emerging; there's also a promising project under way at IMRG to create a set of standards for home delivery solutions, hopefully enabling retailers to offer more options with confidence. The progress of the project is described in a separate feature article in this issue of the magazine.

Certainly no one would claim that one single delivery solution has emerged as the definitive one – it's more that a range of ideas are gaining critical mass at the same time. For instance, high-street pick-up points at convenience stores, which seemed to die a death when Collectpoint closed down its consumer operation several years ago, now seem set for a revival. ParcelPark is so far setting the pace, having quietly created a network of over 200 outlets in convenience stores around the country since its low-key launch last year.

Now it faces a challenge from Drop & Collect, a large-scale initiative backed by Home Delivery Network and PayPoint. Initially handling only returns for HDNL's sister-company Shop Direct, it is expected to launch a pick-up service for home deliveries this summer, and to introduce a despatch facility for sending outgoing goods.

Royal Mail of course already runs the grand-daddy of collection point operations – Local Collect – under which consumers can pick up goods that couldn't be delivered from their nearest post office. Dan Hewett, who heads the organisation's recently-formed small business fulfilment division, admits that the scheme does have some drawbacks – notably the fact that the opening hours of most offices are limited to the working day. But he says there are hopes that Royal Mail's enquiry offices might play a bigger role in the scheme in future.

Although still in its early stages, the emerging ByBox consumer delivery service is now looking as though it could open up a new battle front. The decisive moment came in March, when the company finally unveiled its first consumer box bank at a mainline railway station (Victoria in central London). More are expected to follow quickly in other major cities.

The clever aspect of this system is that a relatively small number of box banks will be in a position to serve many thousands of commuters every day, offering a 24-hour, unattended pickup facility without requiring users to make a special trip to visit it, or even to deviate more than fractionally from an existing journey.

Box banks have already emerged as mainstream delivery options in some countries – notably Germany, where DHL has built up a large network in high-profile public locations, buying most of the equipment from Keba. Other initiatives are also under way in places such as Sweden and Estonia (where a company called SmartPOST has designed its own box system).

Stuart Miller, founder and head of ByBox, remains quietly confident in the prospects for his system. He has proven over ten years that he is prepared to play the long game, and it looks as if his patience could now be about to pay off.

Beguilingly simple

Meanwhile, the modest doorstep drop-box is in line for a high-tech makeover, which could revive general interest in this type of solution. The impetus has come from a new company, ParcelPal, which has announced a scheme under which the consumer's front door entry phone will be used to generate a phone call from their land line to their mobile phone.

The idea behind this is beguilingly simple. The delivery driver presses the bell push at your house in the normal way; your phone rings wherever you are in the world (in the office, on the beach); you answer the call and have a real-time conversation with the driver via your land line and the entry phone; and you explain to him where to leave your parcel. As far as he's concerned, you could be inside the house – maybe in the kitchen or having a bath.

As if that wasn't clever enough, you can also press one of the keys on your phone to send a signal that unlocks the door of a drop-box next to your front door. The driver puts the parcel in, swipes a barcode inside your box if necessary, then shuts it. You can check via the system whether he's done it right. (More details in News Update, page 5)

While this system represents the most sophisticated end of the drop-box market, much simpler boxes without inbuilt intelligence are still claiming their own market share. Two of the front runners, Giraffe Marketing (of Hippo Box fame) and Parcel Safe, both report steadily increasing sales. Eddie Riby of Parcel Safe says over 9,000 units are now out there in the market, and Charles Gallichan of Giraffe says lately the larger models of Hippo box have been selling particularly well.

More developments

Behind the scenes, other developments are also bubbling along, promising to flesh out the range of options further. For instance, under new owner DX, the ParcelXchange box-bank parts delivery network (similar in many ways to ByBox's) is still seen as having potential for consumer use. The drop-box division has been regrouping since it was acquired from Business Direct, but Ian Cummings, who was appointed managing director of the operation late last year, says the ParcelXchange network is still firmly a part of its portfolio.

'We put the B2C project on hold while DX assessed the whole operation,' he told us, 'but all options are still being considered.' In the meantime, the company has been quietly adding new-generation boxes to its network, which now runs to around 6,000 lockers at 350 locations.

Cummings accepts that to offer a viable consumer service, the company might need to add further locations. 'People want something they can access easily, perhaps on their way home from work.'

Royal Mail might eventually come up with a box-bank solution, too. Dan Hewett points out that the organisation has a long history of providing conventional PO boxes at its delivery centres. 'In principle, box banks are like big PO boxes,' he says, adding that he can envisage having such boxes installed outside delivery offices, providing 24-hour access.

Hewett emphasises that no such plan is on the immediate horizon, but adds: 'It's absolutely worth exploring.' With the possibility of commercial partners taking a stake in the organisation, 'there are clear signals that Royal Mail is looking actively at a wide range of possibilities.'

These are by no means the only solutions out there. Other schemes are still bubbling along at varying stages of development, and certainly can't be discounted. MyParcel, for instance, has been working on creating an improved network. Having offered its original service as a premium delivery option, locating its outlets at a limited network of staffed self-storage warehouses around London, the company is now researching alternative high-street locations. It has run trials with Mail Boxes Etc, which managing director Hugo Rose says 'ticks nearly all the right boxes', but he is also investigating other possibilities.

He says the only constraint with MBE was the relatively modest extent of its network. Whilst it has more than 100 UK locations, he points out: 'The major retailers tend to want to hear about drop-off networks with national coverage and a high density of outlets.'

Parcel Country is still under development too. This is the imaginative scheme set up by two former John Lewis executives to galvanise individuals and small businesses to set themselves up as 'community' parcel reception bases. The idea is to create a very dense network, meaning only fairly short collection journeys by online shoppers.

A trial was launched last year, but the company has remained relatively silent since then. However, we are told that rival ParcelPark is now hoping to acquire the business. John Allen says there would be merit in applying some aspects of the ParcelPark model to the operation.

Kiala, the major international drop-off point operator based in Belgium, tells us it still has its sights firmly set on a UK launch. It has had a presence here for several years, and mounted an extended trial in the North West, handling returns traffic for retailer Next. Reportedly this was a success, but it has been suspended while the company explores the best way to proceed.

Kiala's key proposition is that it doesn't just operate franchised pick-up points; it also manages the carrier operation behind them. Essentially it acts as a consolidator, receiving (and preferably also collecting) consignments from retailers and delivering them in bulk to the collection points – typically convenience stores.

Since it is not a carrier in its own right, Kiala sets up relationships with third-party operators. In the UK it has had discussions over the years with various carriers including Lynx (later acquired by UPS). It was reportedly well down the path of signing up another carrier for the UK business (we have been asked not to name it, but you may know its identity). However, that company has now decided to go its own way in the solutions market – no doubt to Kiala's frustration.

However, Kiala is already in discussion with other possible carriers, and is emphatic that its UK service will go ahead. It has recently completed its Austrian network and is now rolling out its service in Spain, and seems unlikely be deterred from persevering with such a major market as the UK.

Which carrier?

One issue that the Kiala experience highlights is the distinction emerging in the delivery solutions market between carrier-neutral systems such as ParcelPark's, and carrier-specific services such as Kiala's.

To consumers, this may be barely relevant; they simply want to be able to order goods and choose a delivery method that ensures they will receive them. However, if a solution is bound up with the retailer's choice of carrier, it involves at least a degree of strategic commitment to that carrier.

If the carrier is Royal Mail, arguably that organisation has such a universal presence in the home delivery market that using it is almost a no-brainer for the retailer; but if the choice is between independent carriers, there may be some hesitancy on the retailer's part to reshape its logistics policy purely in pursuit of an unattended delivery solution.

Several of the emerging solutions either require or at least imply commitment to a specific carrier, at least for those consignments channelled to the unattended solution. They include the new Drop & Collect Service (which uses HDNL exclusively), and even the ByBox system, since this company is hoping that many of its B2C clients will use its own in-house delivery network (but more of this later).

However, if the retailer uses a standard carrier selection system such as MetaPack's, which allocates each consignment dynamically to one of several nominated carriers according to various pre-set criteria, then presumably the unattended delivery requirement could be included easily enough as one of the criteria. It just becomes an additional option on the list.

Retailer fears

If the requirement to use a specific carrier need not be a major obstacle to use of these delivery solutions, what else is stopping retailers from endorsing them more enthusiastically? Well, nothing in theory, but various things in practice. First, some retailers fear backing the wrong horse by supporting a solution that later ceases to exist.

In the past, this worry may have had some justification. Most delivery solutions have been the work of entrepreneurs, usually without substantial financial backing. That's why so many have failed over the years. But some of the current systems are very different. ByBox, for instance, is a multi-million pound company, and chief executive Stuart Miller has said that he is willing to put 'serious investment' into its consumer network.

The Drop & Collect service has the might of HDNL behind it, plus PayPoint, and both companies have said they are ready to spend up to £4 million to make it work. And of course Royal Mail is a vast organisation whose future in some form seems assured, no matter what comes of current plans to inject private investment into it.

Another concern among some retailers is that if they support any final delivery solution, it will need to be integrated with their e-commerce web site. For them that spells cost and complexity – which they will be doubly wary of making if there is any doubt about the long-term prospects of the chosen solution provider.

The fear that integration will be necessary is valid up to a point, but there are ways round it. ByBox, for instance, is developing a system called MyByBox, under which online shoppers will simply specify ByBox's national sortation hub as their delivery address. From there ByBox itself will deliver the parcels to each user's nominated box bank. No integration needed at all.

ParcelPark, the independent pick-up point network, operates on similar lines, except that it doesn't get involved in the transport aspect. Users simply name the address of their local ParcelPark outlet as their delivery address. In theory this approach should work with any drop-off service, providing that some system is set up to match up recipients and parcels at the reception point.

Out of hours deliveries

One other option for solving the home delivery problem is to do the deliveries in the evening or at weekends, when more consumers are likely to be at home. Several carriers have tried this, and some still offer it, but Parcelforce Worldwide withdrew its version several years ago, blaming high costs and service complexities. However, Royal Mail revived the idea last Christmas, providing out-of-hours deliveries on a relatively ad hoc basis when there was enough volume of traffic to justify the extra resources.

Dan Hewett says this was just a seasonal initiative, not an ongoing across-the-board service, but adds: 'We're looking again at the implications, and considering how we might commercialise this kind of service on a year-round basis.'

Consumer surveys tend to produce conflicting findings about views of out-of-hours deliveries. Some shoppers seem keen on the idea, but others say they don't like being disturbed in the evenings or on Sundays. Those who can't receive deliveries any other way would probably take the positive view, but surveys don't always single them out.

Pick up at store

In the past couple of years a vogue has arisen for a new kind of home shopping, where you buy online but collect your goods from the supplier's high-street store. Retailers offering this have talked in glowing terms about its popularity, and there seems little doubt that for some consumers it presents an ideal solution. No queuing in the shop, no question of the goods being unexpectedly out of stock – and above all, no delivery problems. Yet consumers still get the pleasure of the familiar 'retail experience'.

However, some analysts question the motives of retailers promoting this option, arguing that it's really just a slightly transparent attempt to stem a mass exodus of consumers from the high street to the internet.

Certainly it fails to address the needs of consumers who buy online for the very reason that they don't want to go to the shops: which by most accounts is the vast majority of them.

A delivery standard: could it be the solution?

Overall, the message seems to be that consumers need choices, not a prescriptive approach to home deliveries. But retailers understandably don't want to have to offer a diffuse range of sometimes ill-defined delivery options; they want to present simple, clean-cut choices that are reliable, predictable and easy to manage.

Which is where the initiative by IMRG (the e-retailers' organisation) could prove the decisive factor. IMRG is hoping to develop a set of standards describing the whole delivery process – and crucially, this should include a reference framework for unattended delivery solutions. (See full article on page 22.)

There has been nothing like this before, and if it achieves general industry acceptance, it could at last provide the catalyst that encourages retailers to offer consumers more delivery options.

Now that home delivery is a de facto mainstream strand of the overall retail market, it can't come a moment too soon.