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Why have online retail sales flatlined?
Topic Started: 2 Jul 2014, 03:01 PM (2,828 Views)
Curious Non-Economist
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miw
3 Jul 2014, 06:19 PM
When things are being delivered, I get an SMS as the delivery guy leaves the warehouse. I get his mobile phone number, so I can postpone delivery if for some reason I had to step out at the time I said I would be at home (or at the office.) He has my mobile, so he will call me if for some reason he doesn't find me.

I am predicting that in the near future there will be huge numbers of jobs going for e-bike delivery dudes. It will be the new burger-flipper job.
Got a way to go yet, but the next really disruptive technology will be in last-mile distribution. It is still expensive compared to wholesale/retail, but cutting out the middlemen might just give e-tailing the bootstrapping it needs until there is some order-of-magnitude drop in the cost of drop-shipping direct. Maybe it will be drones.
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miw
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Curious Non-Economist
3 Jul 2014, 08:19 PM
Got a way to go yet, but the next really disruptive technology will be in last-mile distribution. It is still expensive compared to wholesale/retail, but cutting out the middlemen might just give e-tailing the bootstrapping it needs until there is some order-of-magnitude drop in the cost of drop-shipping direct. Maybe it will be drones.
The key to the last-mile delivery is scale in this case, I think. In Beijing these guys have literally thousands of guys on electric tricycles with a bit of covered storage on the back platform, but they are replacing thousands of shop assistants and expensive retail space fit-out and rent. Each trike only covers a small area, so I suspect they have a 2-tier distribution system from the warehouse. I imagine the parameters in Australia are different, because Beijing has a population the size of Australia in an area quite a bit smaller than Brisbane and the other cities are similarly dense.

The specialty shops use courier services and they charge A$2.50 for delivery for small packages. Even if they had to charge $5 in Australia, that's less than it costs to get to the shops and back unless you walk/cycle, not even considering the time involved. I am sure the last-mile delivery in oz would be significantly more expensive, but the travel and people it replaces are also a hell of a lot more expensive. Rent maybe not so much.

It could be drones in the future. Amazon certainly want to do it, and I am sure this is how they see themselves. They certainly have the electronic store-front down - better than JD.com.
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Curious Non-Economist
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miw
3 Jul 2014, 09:26 PM
The key to the last-mile delivery is scale in this case, I think. In Beijing these guys have literally thousands of guys on electric tricycles with a bit of covered storage on the back platform, but they are replacing thousands of shop assistants and expensive retail space fit-out and rent. Each trike only covers a small area, so I suspect they have a 2-tier distribution system from the warehouse. I imagine the parameters in Australia are different, because Beijing has a population the size of Australia in an area quite a bit smaller than Brisbane and the other cities are similarly dense.

The specialty shops use courier services and they charge A$2.50 for delivery for small packages. Even if they had to charge $5 in Australia, that's less than it costs to get to the shops and back unless you walk/cycle, not even considering the time involved. I am sure the last-mile delivery in oz would be significantly more expensive, but the travel and people it replaces are also a hell of a lot more expensive. Rent maybe not so much.

It could be drones in the future. Amazon certainly want to do it, and I am sure this is how they see themselves. They certainly have the electronic store-front down - better than JD.com.
In Beijing they probably also have the advantage of relatively cheap labour, however you are probably right that scale is the key tipping point. It is interesting that after the failure of WebVan during the dot-com boom in the US that micro distribution never really got off the ground. Although, DHS and FedEx seem cheap and fast to me as an Australian (but Americans complain about their high cost).

I think you might be on to something with a $5 delivery service in Australia. Minimum wage is $16 per hour, so the delivery trikes would have to be banging out one parcel every 15 minutes to break even on labour and running costs, otherwise it would eat into your margins. Funnily enough, AusPost, who never seem to actually deliver to my house anyway (always carded, home or not), recently increased their parcel rate, so that any decent size item would cost you more than $5 to send anyway. It is actually cheaper to send a parcel from Shen Zhen to my home in Sydney than it is to send it from the adjoining suburb. This country sometimes .....

I wonder if a city of 4 million people with a population density of 372 persons per square kilometre could reach critical mass in delivery volume to make it profitable though.
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miw
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Curious Non-Economist
3 Jul 2014, 11:26 PM
I wonder if a city of 4 million people with a population density of 372 persons per square kilometre could reach critical mass in delivery volume to make it profitable though.
Yeah. It's an interesting conundrum. Can you get it to a stage that you can send the trikes out with 10 things to deliver each time in an area they can get around in under 2 hours? And can you get it to a stage that you cover each street twice a day? What do you do about non-capitals?

BTW JD.com is not profitable yet. But they are probably like Amazon in that they are madly investing to get expansion and footprint and, while they lose money, they can stop spending on expansion and become profitable at any time.

Someday someone is going to do this, and when they do they will drive the department stores out of business.
The truth will set you free. But first, it will piss you off.
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Sober
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Curious Non-Economist
3 Jul 2014, 11:26 PM
I wonder if a city of 4 million people with a population density of 372 persons per square kilometre could reach critical mass in delivery volume to make it profitable though.
Only distant hope then for a city of 2.2M with a population density of 140 persons per square kilometre (Brisbane)...

Fortunately my wife is still ecstatic over the advent of Costco here, catching up 20 years after the rest of the planet. We almost buried Smaller Child in the back seat of the hatchback on our first trip there.

Australia has a long retail optimisation path ahead, to put it mildly.
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Curious Non-Economist
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miw
4 Jul 2014, 01:02 AM
Yeah. It's an interesting conundrum. Can you get it to a stage that you can send the trikes out with 10 things to deliver each time in an area they can get around in under 2 hours? And can you get it to a stage that you cover each street twice a day? What do you do about non-capitals?

BTW JD.com is not profitable yet. But they are probably like Amazon in that they are madly investing to get expansion and footprint and, while they lose money, they can stop spending on expansion and become profitable at any time.

Someday someone is going to do this, and when they do they will drive the department stores out of business.
That's the problem with scale, you need volume to get scale, and you can't make volume profitable without scale. I think it might be possible to find a suburb or area with a relatively high population density and a high proportion of the local population in full time employment. Singles and double income couples. Basically, people short on time but long on cash, crammed together in medium to high density housing. Maybe CBD, inner west, North Sydney or even Paramatta or Strathfield. If you offered delivery outside of standard business hours, or to the office or home, with contact by mobile, text, or email, it might work.

As for non-capitals, they are screwed as long as you have a national minimum wage. This is actually one of the goals of minimum wage, to drive people out of the country to the cities and into unions, where they vote for socialist parties. In fact, if you got rid of the national minimum wage, you could actually get something like this off the ground faster in towns than in cities. Housing as a percentage of household expenses is now absurdly high, but not so high in the country as in the cities, so you could pay people less in wages, but they would still be able to get by because of the lower cost base.

Amazon would become instantly profitable if the cost of last-mile distribution suddenly halved. There are massive economies of scale in traditional distribution channels i.e. warehouse to super mall. Shopping malls solve last-mile distribution by getting their customers to do it by driving to the mall. Very difficult to get cheaper than that. Some rail freight companies in the US can move stuff across the continent for $1 per ton.

You are right that someone is going to do this, but it is still a hard problem. Well, it is a hard problem on land driving vehicles. Once you get into the air it is a totally different story, but drones are not ready for prime time yet.
Sober
4 Jul 2014, 02:43 AM
Only distant hope then for a city of 2.2M with a population density of 140 persons per square kilometre (Brisbane)...

Fortunately my wife is still ecstatic over the advent of Costco here, catching up 20 years after the rest of the planet. We almost buried Smaller Child in the back seat of the hatchback on our first trip there.

Australia has a long retail optimisation path ahead, to put it mildly.
Maybe. Sometimes Australia comes from 20 years behind to lead 10 years in front. We are slow adopters, then we are fast adopters. We could turn our dis-advantage (small population, large area) into an advantage: open skies.
Edited by Curious Non-Economist, 4 Jul 2014, 09:07 PM.
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miw
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Curious Non-Economist
4 Jul 2014, 09:04 PM
As for non-capitals, they are screwed as long as you have a national minimum wage. This is actually one of the goals of minimum wage, to drive people out of the country to the cities and into unions, where they vote for socialist parties. In fact, if you got rid of the national minimum wage, you could actually get something like this off the ground faster in towns than in cities. Housing as a percentage of household expenses is now absurdly high, but not so high in the country as in the cities, so you could pay people less in wages, but they would still be able to get by because of the lower cost base.
Maybe, maybe not.

If you send a courier item to the town where my folks live, it does not get delivered to the door. It gets delivered to the courier depot in town. You can then either go into the depot to get it or get the contract mail delivery guy to take it out to your place if you are on an M/S number and live well out of town.

So the definition of delivery in regional areas may be different. It is still way more convenient than driving 400km to the nearest decent shopping though, and may be about the same cost per item as after-hours delivery to the door in the inner suburbs of Sydney.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Curious Non-Economist
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miw
4 Jul 2014, 09:19 PM
Maybe, maybe not.

If you send a courier item to the town where my folks live, it does not get delivered to the door. It gets delivered to the courier depot in town. You can then either go into the depot to get it or get the contract mail delivery guy to take it out to your place if you are on an M/S number and live well out of town.

So the definition of delivery in regional areas may be different. It is still way more convenient than driving 400km to the nearest decent shopping though, and may be about the same cost per item as after-hours delivery to the door in the inner suburbs of Sydney.
Yep, a depot is definitely one way to do it, especially in the country where land is cheap. The depot then becomes a shopping mall of sorts. Add in decent internet to country towns, doesn't need to be NBN, adsl2+ is fine, and you can have a media rich shopping experience and get your item delivered to the depot. It might work as long as the town is close to a decent road or has a regional airport.

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DragonGM
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Curious Non-Economist
4 Jul 2014, 09:29 PM
Yep, a depot is definitely one way to do it, especially in the country where land is cheap. The depot then becomes a shopping mall of sorts. Add in decent internet to country towns, doesn't need to be NBN, adsl2+ is fine, and you can have a media rich shopping experience and get your item delivered to the depot. It might work as long as the town is close to a decent road or has a regional airport.
Great insight. This will be the future.
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zaph
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Westfield has/is recently extended two of it's large shopping centres in Brisbane - Indooroopilly and Garden city. They obviously have confidence in bricks and sticks shopping.
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