From left to right: Jason Goldberger, Michael Tobin, Helen Vaid, Mark Lore – Photos: James Tenser
Shoptalk recap: Fulfillment’s faster, freer finale
In the frictionless world of online retailing, getting the order is easy. Delivering on the promise is hard.
At Shoptalk last week, retail thought-leaders shared insights about the fulfillment challenge. Their consensus: it’s not going to get any easier.
“My bet on shipping is faster and freer,” said Jason Goldberger, president, Target.com and Mobile Target, in a panel on The Changing Role of Stores in Ecommerce Fulfillment.
“It used to be that our guests just wanted free shipping,” he added. “Now they demand overnight delivery and same-day store pickup.”
Michael Tobin, SVP strategy & innovation at Macy’s, said effective fulfillment now requires a sophisticated algorithm that balances the ship-to address, units on hand, units to ship, location capacity, combinability of items in an order, and more.
“A couple of years ago it might have been driven by a business rule. Now it’s multi-factor, with settings that can be tweaked,” he said.
Online increasingly includes a store or curbside pickup option. In this realm, being big is not always the key to price competitiveness, said Helen Vaid, VP digital store operations & experience for Walmart Global ecommerce. “Some costs go down as you scale; others go up.”
One of the lessons from Walmart’s click-and-collect experiment is that staffing costs increase, for example. The added investment may prove to be justified, however.
“Customers don’t like waiting,” said Ms. Vaid. “Anything that helps improve that is worth considering.”
Jet.com keeps costs in line by persuading shoppers to build larger orders delivered in a single shipment, said founder and CEO Mark Lore. The startup builds excitement into the online experience in real time with “Smart Cart Savings” that accrue each time an item is added to the virtual basket.
“We currently average about six units per order,” Mr. Lore said. Jet.com has a free shipping and returns policy with two-day delivery on most consumables, so highly efficient fulfillment is essential to its bottom line.
That intention is now about to be tested harder, as Jet.com launches a fresh products delivery business, beginning in the New York metro and soon to cover the eastern seaboard.
Discussion Questions
DISCUSSION QUESTIONS: Which delivery benefit should online retailers focus on in the next few years to be most competitive — faster, freer or more flexible? How will retailers manage to meet more demanding fulfillment expectations and still make a profit?
Poll
BrainTrust
Chris Petersen, PhD.
President, Integrated Marketing Solutions
Tony Orlando
Owner, Tony O's Supermarket and Catering
Omnichannel is the new normal for consumer shopping AND where, how and when they take delivery of the purchase. James Tenser has nailed one of the top issues retailers must solve to remain profitable.
Logistics and delivery are now at the forefront of winning strategic advantage for omnichannel consumers. For traditional brick-and-mortar retailers it means tweaking algorithms between shipping to home versus click-and-collect at store. There will need to be new metrics focused on “cost to sell through” to the endpoint of the consumer taking possession.
The real challenge in terms of profitability is the last mile. Delivering the last mile to the hands of the consumer can exceed 40 percent of the total delivery costs, which is why click-and-collect strategies of making consumers go the last mile seem appealing. But as the Walmart data has shown, click-and-collect requires infrastructure and staffing.
The elephant in the room that no one is talking about is inventory. The cost of carrying inventory in multiple locations can be as significant as shipping costs. When consumers have the options of store vs. home, where do you stock the inventory … distribution centers or stores?
It is a great time to be a consumer. A very challenging time to be a profitable retailer!
Thanks, Chris, for mentioning inventory. It is the elephant in the room and has always been the sustainable competitive advantage for the future of online versus brick-and-mortar. If you focus on the best way to optimize inventory, eventually the problem for the retailer will be solved. The problem for the consumer has already been solved, they use which ever option is CONVENIENT.
Retail has been scrambling in recent years to give their customers everything they want just to save the sale. And with Amazon setting the standard it has been a downward spiral. Folks let’s not forget that Amazon is still not profitable in the retail business. Should they be setting the standard?
Yes, it’s time to rein in the inventory, logistics and fulfillment but it won’t happen over night and the costs are high. James hit the nail on the head and retailers must determine what works best for them and their customers. You can’t be all things to all people.
But that’s just my 2 cents.
This subject has been a number one discussion for several years, and all the algorithms and logistics gurus will not persuade me that “free shipping” is free. As I have said before, I studied this intensely for three years with a startup in California, and after all the number crunching and logistics were analyzed, there is simply no way home delivery on fresh foods could be done for under $10.
I know that some here will disagree, but I wasn’t factoring in raising the price of the goods to make up for the losses or charging annual fees, which is fine if you can get at least $350 to $400 per customer, and maybe you might turn a profit.
Add in the fact that most of our country is very rural, and you have much higher costs reaching the customer.
I can speak only from a full-service grocer delivery system. Unless you are in a highly dense city, this simply cannot be profitable unless the fees go up. There are other factors, such as the vans which should be properly fit with multiple-temperature storage and shelving to separate the products and keep integrity of delivery, which is critical. The government is currently weighing in on this, and the old days of two guys and a truck will not work, which again makes the cost of delivery much more expensive.
Traffic problems aside, I do believe that non-perishable foods, and department store-type products aka Amazon can do well, as nothing is going to melt and they can combine orders for efficiency. So I agree — this can continue to grow. I am just speaking about how I run my business. Adding cost to the product and trying to deliver the goods, for me, is something I will not do, as it goes against my business philosophy. But I will charge a fee to get it to them, and some do not mind. Thanks and I hope everyone has a great holiday weekend.
Fulfillment and supply chain are the next battleground for retailers — they must be able to make good on the promise of retailing without channels. Consumers expect flexible fulfillment options, free shipping and free returns. Advanced analytics and cognitive computing can help to optimize core business processes such as inventory, logistics, advanced planning and staffing to curb costs.
More and more price checks provide product plus shipping costs combined. I think the future here is that the “to my door price” is competitive, rather than just presenting a lower product price and hoping that the shopper doesn’t notice shipping is extra. There may be a place for a surcharge for “fast” shipping if someone wants to pay more for next-day delivery.
I believe that retailers, particularly those that cross many categories like Amazon and Walmart, will need to offer faster and free shipping to stay competitive. The ability to have pickup and/or delivery will make speed important, especially with perishables. Others may be able to have a more flexible program. Department stores for example may not have to offer next-day service to remain competitive but may need to offer free fulfillment. The ability to use technology to change your offerings will remain the most important way to profitably fulfill customer orders.
Fulfillment is everything today and for the foreseeable future. I believe shoppers look at the cost of shipping first, and then the timeline to receive it. Categories vary in service level expectations, however more and more products will have demands for free and fast shipping. Even major appliances are getting into the free and fast arena, so category of product is no longer an excuse.
What’s a retailer to do? Focus on every element of the supply chain and see where cost can potentially be extracted. This may sound obvious, however I still see huge opportunity whenever I evaluate supply chain efficiency.
The data that we’ve tracked at Slice Intelligence on this (we’re actually working on exactly this for a presentation in a few weeks at the Internet Retailer conference) shows that few retailers other than Amazon (and more recently Jet) are trying to do both fast and free. Most are focused on free shipping, typically with constrained order sizes.
My bet is that merchants with highly differentiated product offerings (companies like Bonobos, Warby Parker, etc.) have the ability to get away with free, but slow shipping. However, any merchant that is selling an assortment of products that can be purchased at a wide array of competitors’ sites are going to have to figure out how to do both fast and free. For brick and mortar competitors of Amazon, it is critical that they figure out how to more effectively leverage the inventory at local stores. Easy to say, very difficult to do in practice.
The whole issue of click-and-collect revolves around the bricks model of retailing being delivery of PALLETS to stores, for shelf stocking. THEN unpaid stock-pickers, aka shoppers pick their own stock from the store shelves (their “warehouse”), taking it through checkout and delivery to wherever they are going.
Retailers SELF-competing with this century old super-efficient (for the retailer) system by now moving to single ITEMS to either a delivery zone at the store, or elsewhere, is insanely complicated for the traditional bricks operation. This is because the focus is on ITEMS, not PALLETS, and the transition from pallets to items is no longer managed by the “free” labor of shoppers, but must now be integrated into what is at heart, a pallet-thinking organization.
The disaster for the bricks retailer is the transfer of “free” individual item stock picking by the shopper, to either the retailers supply chain at a warehouse, or as a totally new, costly, inefficient in-store operation.
You just can’t square the circle without at least understanding what the problem is!
To be competitive, retailers will need to focus on all three delivery options: faster, freer and flexible. Consumer expectations are escalating — they used to be happy with the free two-day delivery that Amazon pioneered, but now they are getting spoiled by delivery times as short as 2-hours in some large metro areas. Oh, and by the way, they still want it free, but the “free” may actually be only available to customers who pay for premium membership.
This is definitely putting a squeeze on retailers as faster delivery times will necessitate leveraging stores as distribution centers which will increase in-store labor costs. As consumers expect to buy online and pick-up in the store or have the product shipped to their home for same day delivery, retailers need to find creative ways to deliver these services as cost effectively as possible. An added complication is ensuring the in-store processes are efficient and effective. Retailers will need to train, motivate and compensate store associates to fulfill cross-channel orders.
According to a recent BRP survey, to be published next week, more than half of the retailers surveyed do not offer their store employees any incentives or encouragement to fulfill cross-channel orders. This is a little disconcerting. To create true world class customer service, retailers need to solve the compensation challenge to meet the customers more demanding fulfillment expectations.