The coronavirus pandemic changed the way consumers shop. These days, many people are ordering everything from clothing to housewares to groceries online -- a habit that arose due to safety concerns when COVID-19 cases were at a high but has perhaps evolved into a more convenient way to purchase goods.
As such, retailers are heavily reliant on couriers like FedEx (NYSE: FDX) to get products shipped out to consumers. But now, FedEx is implementing price increases, which could hurt a lot of retailers' bottom lines. It could also prompt retailers to change the way they approach and manage customer orders going forward.
Shipping cost increases could hit retailers hard
Many retailers have seen their revenue take a hit in the course of the pandemic. And at this point, they can't afford to pay more to ship out goods while they're still in recovery mode.
But FedEx is moving forward with plans to increase some of its peak surcharges. Effective June 21, peak surcharges on Express and Ground shipping will rise due to high volume and tight capacity stemming from the pandemic, as per FedEx.
Of course, FedEx isn't the only shipping company in town, but it's also not the only courier that's experienced an uptick in demand over the past year. As such, other shipping companies may opt to follow in FedEx's footsteps. And that could, in turn, prompt retailers to rethink the way they distribute the items they sell.
For one thing, retailers may look to increasingly focus on curbside pickup -- an option that exploded during the pandemic, since it meant not having to take on the health risk of entering a store. Another popular system that's worked well during the pandemic is BOPIS, or buy online, pick up in-store.
BOPIS, like curbside, gives customers the benefit of not having to wait several days for items to arrive at their doorstep. Instead, they can pick up their purchases the same day they make them without having to spend time walking through different aisles looking for the things they need.
If retailers do decide to pump more resources into same-day distribution, that could work to real estate investors' benefit. Malls and shopping centers have increasingly seen stores shutter not just during the pandemic itself but well before it started. And in the wake of the pandemic, a number of retail chains are making plans to shutter stores -- locations with poor performance in particular -- to focus on digital order fulfillment instead.
But if shipping goods out gets too expensive, retailers may rethink those closure plans and instead find ways to incentivize customers to order items for in-store retrieval. Bringing customers into stores generally increases the likelihood they'll spend more, which works to retailers' advantage. And that could, in turn, give stores staying power and give malls and shopping centers the rental revenue they need to thrive.
In addition to focusing on in-store pickup, retailers can also try experimenting with different couriers, since FedEx isn't the only option available in that regard. But if competing couriers raise their rates as well, retailers will be back to square one.