Retail is increasingly moving to an online platform as a new generation of techie millennials prefer to scroll for their purchases rather than browse in store. But does this trend show any signs of slowing and how can retailers and logistics providers ride the wave? Maria Highland investigates…
It is no secret that many consumers are preferring to shop online and patiently wait a day or two to have their item delivered straight to their door. The need for instant gratification is fuelled by retailers offering next day delivery as a means of staying competitive, offering customers the shopper experiences every step of the way to rival their high street counterparts.
Wayne Snyder, VP retail industry strategy at JDA, explains that “the internet has transformed the consumer experience, providing immediate access to unlimited products. The convenience of e-commerce, combined with advances in technology, is delivering significant growth every year, whether through the improvements in the mobile experience, new delivery options or personalised experiences.”
Snyder identifies three main drivers of change when it comes to retail. The first being the “generational shift among shoppers with new needs and expectations; formidable competition from the likes of Amazon, which is attacking on many fronts; and the advancement of disruptive technologies, such as AI, augmented reality, robotics and machine learning.”
Martin Willmor, UK & Ireland managing director at DHL Supply Chain Solutions, confirms this, highlighting experience and accessibility as the drivers of e-commerce. He explains that increased “mobile use, more sophisticated data-led marketing and ‘frictionless’ e-commerce websites are making it easier for shoppers to find the products they want, wherever they are, and purchase them with one swipe or click. In addition, the race to the bottom when it comes to speed and cost of delivery is making e-commerce an irresistibly convenient and affordable option.”
Likewise, “millennials – a diverse and digitally savvy demographic – are projected to spend $1.4 trillion per year by 2020 and are driving the boom in e-commerce. How millennials shop is dramatically different to how baby boomers shop,” says Snyder. “Retailers must understand this difference and respond accordingly or become marginalised in an ever-shrinking marketplace.”
And with changing circumstances and trends, come a new and very different set of obstacles. Catering to the rise of e-commerce can mean issues with storage, need for maximum efficiency within the warehouse, returns turnaround times halved to get stock back out, as well as adhering to next-day delivery expectations and providing full product visibility along the way.
Richard Cawston, XPO Logistics managing director, supply chain Europe, reflects back on the 2018 holiday season which saw “many consumers turn to online shopping and the motivation is clear: shoppers prioritise convenience,” he says.
“E-commerce can be an easy way for consumers to find exactly what they want, at the best price, and have it delivered according to their own schedule. This desire for immediate satisfaction is putting increasing pressure on supply chains to meet consumer expectations, such as a quick and easy returns process.”
And “the need for more e-fulfilment capacity is leading to an industrial property boom in the UK,” he adds. Andrew Dickman, director at MA6NITUDE logistics park, agrees, noting that “features such as click and collect, same-day delivery, and a free returns policy have become the norm, meaning that logistics companies and operations teams are playing an ever more crucial role in the running of retail businesses.”
“With 20p in every pound now being spent online, the rapid growth in e-commerce has brought with it a new set of logistical challenges,” he admits. And “to meet the rising challenge, retailers and logistics providers need to invest in high quality, flexible facilities, that are capable of dealing with the fluctuating levels of demand e-commerce necessitates,” continues Dickman.
“Whether a large distribution centre for storing huge amounts of stock, or smaller warehouse to meet rapid, short-range delivery offerings, strategic decisions such as these are key – as are those on where to physically locate warehouse facilities,” he says.
Once you have the space and all your stock, the next issue them becomes keeping track of it all. “For retailers of any size, inventories and stock management can be a difficult to manage, balancing commercial and consumer demands. Visibility of stock in real-time is the biggest challenge for e-commerce,” says Advanced Supply Chain Group commercial director Ben Balfour.
“For retailers, managing stock across multiple distribution centres, warehouses, stores and on a returns journey globally, this requires careful planning,” he explains. “The need to ensure the right stock is in the right place at the right time is fundamental in protecting the bottom line. Returns add an additional layer of complexity. Free or very low-cost returns are expected as standard by consumers, so e-commerce retailers must ensure this process is as efficient as possible to maximise profitability. These all play into how a finance department reports, forecasts and plans so it’s crucial to manage as accurately as possible.”
Get the visibility part right and your next issue becomes delivery. “Facing global competition, logistics managers must confront the double challenge of reducing delivery costs while improving customer service,” says BluJay Solutions SVP of B2B Operations Sian Hopwood.
“Consumers are becoming increasingly demanding when it comes to e-commerce – they want their goods delivered faster than ever before. But delivery is becoming a significant challenge for logistics handlers and retailers across the UK,” agrees JDA’s Snyder.
“Research shows that almost two thirds (64 per cent) of European shoppers have experienced a delivery problem over the last 12 months (including deliveries that never arrived or ‘missed-delivery’ cards being left even when someone was waiting at home for the order to arrive). It is clear customers have no reservations about taking their business elsewhere if they are not satisfied with the service they receive,” adds Snyder.
“When delivery is a key part of a retailer’s USP, it is imperative that the delivery service remains competitive otherwise savvy shoppers will go elsewhere,” states Paragon Software Systems director Wayne Holgate.
“The ability to respond fast enough to change in this rapidly evolving marketplace is a significant challenge for retailers. They must have the agile infrastructure and resources in place to allow them to stay ahead of the competition and ensure that poor customer service does not become a negative differentiator,” he says.
“The omni-channel supply chain network is more complex than a traditional bricks-and-mortar network and generates challenges with stock availability and inventory management,” adds Willmor. “In addition, the ‘anytime, anywhere’ consumer expectations require delivery models to underpin them, resulting in additional cost that isn’t always being passed on to the customer.”
The does beg the question of how sustainable next day delivery really is? This added perk has become so deeply ingrained in retailer offerings that it is now the norm meaning that retailers need to provide this service or risk falling behind – but at what cost?
“Free shipping and returns have become a standard consumer expectation when shopping online. Paying for this service can even put consumers off purchasing from that retailer – so it’s crucial they get it right,” says Advanced Supply Chain Group business and client development director Caroline Ellis.
“But this service does have a cost, so if a consumer isn’t paying for it directly, then a retailer must recuperate this somewhere else within the sale. At what point this becomes unsustainable completely depends the model of the e-commerce business. In some instances, it’s more financially viable and sustainable for the customer to keep the product rather than incur additional costs to return,” she explains.
Paragon’s Wayne Holgate points out that there is no such thing as free shipping. “A retailer will either include the delivery cost in the price of the items purchased or there will be a shipping charge. The only exception is when free delivery is used tactically as a “loss leader”. Any alternative that puts the delivery experience at the expense of profitability is simply not sustainable.”
Whereas, David Emerson, SEKO Logistics vice president, sales and marketing EMEA region, believes that the sustainability of free shipping “depends on the basket value of the merchant and their own marketing strategy. In many markets the expectation is free delivery over a certain basket value and that trend is growing (again the Amazon effect) and also comes into X Border e-commerce and not just domestic.”
Cawston points out that consumer expectations of free shipping and returns has “led consumers to change their behaviours too, ordering an item in different sizes for instance, adding complexity to the supply chain. To compete effectively, e-tailers often use these offerings to incentivise customers to buy more items – yet, this adds additional costs to the supply chain process in areas like reverse logistics.”
JDA’s Snyder draws on this and explains that the “rising costs of order fulfilment are pushing executives to rethink their strategy overall with retailers increasing charges for online orders, raising minimum order thresholds for free standard home delivery and raising the minimum order value for Click & Collect.
“However, it will be interesting to see if this trend continues with many commentators predicting that offering free delivery will become a must for all retailers, alongside additional enhanced options such as next day or timed delivery,” he muses.
“Retailers now need to balance the effectiveness and profitability of the fulfilment channels they offer with customer satisfaction. If shoppers experience a problem with home delivery or in store pickups, that is a lost sale – and customer – that retailers can’t afford in a highly competitive market,” concludes Snyder.
Yusen general manager, business solutions Benjamin Bird provides the perspective of a third-party logistics provider, and explains that “for a 3PL, it’s not really an issue other than from an expectation point of view but, from a retailer point of view, I think this standard needs to change. There’s been plenty of casualties in the carrier market and I think, to be able to stabilise e-Commerce going forward, carriers need to be able to price based on activity, not on a ‘’cheapest wins’’ basis where quality can sometimes be compromised,” he says.
So, what is the magic formula to running the optimal e-commerce operation? All signs point to tech. “The current landscape demands that retailers and their logistics partners have the right technology to support an effective and sustainable supply chain,” says Balfour.
“Bespoke technology will help against the retailer’s unique set of circumstances to streamline processes, speed up operations and maximise profits,” he explains. “Technology can analyse the flow of goods both in and out of the business and identify the buying habits of a business’ consumers. This means that businesses are equipped with data and information to allow them to better plan for future seasons and trends.”
Sana Commerce chief executive and managing director Michiel Schipperus also recommends that to “remain competitive businesses will need to use their e-commerce systems for more than just to generate sales. With constant changes to the marketplace, businesses need to improve internal efficiency. Integrating e-commerce solutions with internal systems, such as the ERP system allows businesses to keep up with the competition,” he suggests.
Technology can also cater to solving any issues associated with final mile delivery. With the explosion of cloud supply chain solutions comes the arrival of global trade networks. Leveraging the capabilities of real time Electronic Data Interchange (EDI) and automated route planning, global trade networks can empower multiple suppliers across regions to create efficient supply chain routes and itineraries quickly,” says BluJay’s Hopwood.
As deliveries and customer service come hand in hand when shopping online, technology can also address such issues. “Technology investments in the customer journey contribute to and reinforce a positive brand experience and, if implemented correctly, will reduce operational costs through reduced customer service call volumes and fewer failed deliveries,” explains Paragon’s Holgate.
“Retailers need to understand the expectations of their customers and be seen to offer the customer journey that consumers desire,” he says. “Giving regular updates to ensure first time delivery success and customer confidence; offering the means to track the progress of the delivery driver; and providing a way of amending the planned date and time of a delivery via a website, SMS or app are all examples of making this happen in practice.”
Likewise, control towers can be use to generate such order updates. “Control Towers, which act on real-time information from the entire supply chain and extended third-party digital ecosystem, are a potential way to use data to mitigate against delivery issues,” says Snyder. “These allow companies to sense unexpected events across their cross-enterprise supply chains, identify the potential impact of actual and potential disruptions – such as delivery issues – and prescribe recommended corrective action with machine learning (ML)-based guidance.”
SEKO’s Emerson rightly observes that “final mile carriers are getting more and more effective with managing the delivery window with improved communications to the consumer by way of text message and so on, but this is just one facet in the whole chain.”
And he is right, it doesn’t just end there. Digital technologies will continue to pervade and drive the e-commerce market. Sana Commerce’s research has found that “79 per cent of organisations are planning to upgrade their e-commerce solution in the next two years, and other companies are already using more advanced technology within the sales strategy,” continues Schipperus. Likewise, “39 per cent of businesses are currently using virtual reality to personalise the buying experience and 39 per cent plan to adopt fully automated ordering using the internet of things.”
Artificial intelligence appears to be gaining more traction when it comes to retail, particularly e-commerce. “There is a lot of buzz around AI at the moment and it seems to be the latest big thing in fulfilment,” confirms Yusen’s Bird. “For example, linking marketing with the items purchased and then merging them onto the invoice document or with the choice of any samples sent with the order.”
Snyder explains that “through the utilisation of AI-driven demand solutions, companies can understand projected sales and ensure stock availability in the optimum location, whether that be through shipping to locations close to the customer or through continually optimising the warehouse to enable faster, cheaper operations.”
Likewise, Willmor believes that advanced analytics and artificial intelligence will play a crucial role when it comes to shifting data and inventory between warehouses and other platforms to meet peaks in demand, especially with the mix between offline and online channels. “Here, advanced analytics and artificial intelligence will play a crucial role in such platforms, allowing logistics providers to stay agile and shift supply chain requirements as per anticipated demand,” he says.
This article first appeared in Logistics Manager, March 2019.
