April 16, 2019 • Volume 35
Congestion pricing and the future of e-commerce in cities
Ten years ago, Michael Bloomberg, then Mayor of New York City, tried to implement a congestion pricing model for access to Manhattan. The idea was that variable, or dynamic pricing could be used to motivate drivers to take less congested paths into the heart of the city and to come into Manhattan during less busy times of day. This was a smart solution that was torpedoed by the concern that this was a regressive tax that would inordinately be shouldered by working-class New Yorkers. The regressive argument never resonated with me – the only people that drive to work in Manhattan are very rich people coming in from the nearby suburbs of Westchester County, Connecticut and northern New Jersey – those that can afford exorbitant parking rates in Manhattan [the garage billed as the ‘cheapest parking in lower Manhattan’ costs $30 from 8am to 5 p.m. if one books ahead]. The working class takes the train, the bus, or the subway.
Fast forward 10 years, and New York Governor Cuomo was able to get a similar plan through the legislature, largely out of a need for revenue to fund the subway, which desperately needs it. New York City will be the first city in the U.S. to adopt this model, which has been successfully employed in London, Singapore, and Stockholm. Check out this report, written by the Fix NYC Advisory Panel, if you want to get really deeply into this subject.
Why, you ask, are we talking about congestion pricing in The E-Commerce Observer?
First, e-commerce is one of the factors contributing to increasing traffic congestion in New York and other cities. Rakuten Intelligence data tells us that more than 500 million packages were delivered to New York in 2018, up 13 percent from 2017. If we extrapolate that growth, New York will see 1 billion packages from e-commerce orders by 2024. Second, congestion pricing in Manhattan will add costs to e-commerce deliveries. Retailers and their shipper partners may need to rethink their New York City delivery strategies, depending on how this policy is implemented.
Third, and perhaps most important, congestion pricing highlights one city’s proactive effort to manage its infrastructure, which is being challenged in new ways by e-commerce. Congestion pricing will provide incentive to retailers and shippers to time deliveries when they can be made most cheaply. But New York and other large cities ought to think beyond this. Can parking spaces be made available to licensed delivery firms (for a fee) to avoid double parking that clogs streets? Can unused space on buses and trains be sold to transport packages across the city, just as airlines sell cargo space on planes? Should electric delivery vehicles get a pass on congestion fees in order to alleviate pollution? What can a city do to encourage click & carry over delivery?
It is pretty clear that e-commerce is here to stay and that volumes of deliveries will continue to grow. It is also clear that this impacts cities in negative and positive ways. It is incumbent upon cities to play a proactive role in managing this impact, rather than becoming victims to it.
Overperformance from underthings
One of my favorite Rakuten Intelligence tools is a product called Signals. When a merchant is big enough, we invest time to build and test the data to ensure the information is being accurately captured and precisely measured. We built Signals to help us identify up-and-coming merchants based upon the volume of transactional receipts, versus the precise item-level transactional detail we typically provide. This has proven to be a valuable tool for clients that want to spot the next Quip, Dollar Shave Club, Bonobos, or Allbirds. Every once in a while I commit a Friday morning to messing around in Signals to see what’s bubbling up.
With Spring in the air and The Masters golf tournament as background noise, I dove into the apparel category to see what the fashionable people will be wearing this season. The answer, it seems, might be socks.
Amongst the fastest growing apparel retailers in e-commerce, two of the ten fastest growing sell socks. Vim & Vigr (vimvigr.com) sells compression socks for about $30 a pair. The site claims that compression socks provide relief from bloating on long flights, and generally make one’s legs feel better if one is on his or her feet all the time. Thirty bucks a pair is far more than I’d ever pay for socks, unless they made claims about improving my golf game, but there are a growing number of people that will. Vim & Vigr’s count of buyers grew by more than 1,000 percent between March 2018 and March 2019.
Moving down the price scale we see another fast-growing seller of socks, Sock Fancy (sockfancy.com), which sells socks for $12 a pair on a monthly subscription model. No health claims here, just a sensible-enough sock subscription model that compelled buyer growth of more than 900 percent in a year.
Of course, the most famous online seller of socks is Bombas, with online sales in 2018 that exceeded $100 million, up 116 percent from 2017. Bombas socks aren’t cheap either, but they have employed the buy one, give one charitable model that we’ve seen from direct-to-consumer companies as varied as Casper (mattresses), Warby Parker (glasses), and Tom’s (shoes).
What is it about socks? Principally, I think, it’s about simple sizing. Socks typically come in a limited number of sizes, which makes it safer to order – consumers hate returning things as much as retailers hate having to deal with returns. The other thing about socks is that there aren’t a wide variety of good brick and mortar options. I’m sure that the Mall of America has a few specialty sock stores, but most of us are compelled to choose from a relatively dull assortment of uninspiring socks when we need socks – an afterthought in the apparel industry.
The third big driver, though, is merchant economics. Socks are undoubtedly high margin items, with low return rates, and are relatively inexpensive to ship. Socks are pretty much the opposite of pet food, the product category that causes e-commerce to wake up in the middle of the night screaming.
Ken Cassar is vice president, principal analyst at Rakuten Intelligence, where he looks at trends in the e-commerce industry armed with Rakuten Intelligence's robust set of online sales data.
Ken brings a rich online retail background to Rakuten Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.
Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Rakuten Intelligence's profile. He also has the appropriate jacket for every occasion.