E-Commerce: The Great Retail Equalizer

Tags: Logistics I.T., Retail, Distribution, E-commerce, Transportation, Logistics, Fulfillment, Supply Chain

From small, local businesses to national giants, merchants fashion e-commerce strategies to attract and delight consumers in an ever-more competitive market.

E-commerce continues to redefine the way people shop. Online retail sales in the United States totaled $394.86 billion in 2016, representing a 15.6-percent increase over 2016, according to the U.S. Department of Commerce. Excluding sales of fuel and cars, 11.7 percent of retail sales in the United States in 2016 were e-commerce sales, according to Internet Retailer calculations.

It's getting harder to define "e-commerce," as merchants blur the distinction between buying online and buying in a store. Crossover moves—such Amazon's foray into brick-and-mortar bookstores and its plans to acquire the Whole Foods chain, and Walmart's purchase of Jet.com and Bonobos—make the picture especially fuzzy. For consumers today, buying a product online for in-store pickup, or whipping out a phone in the store to order an item that's out of stock at that location, is just part of the everyday shopping experience.

One thing is certain, though: e-commerce and omnichannel retail leaders have trained their customers to expect more options and better service. "People want convenience," says Daphne Carmeli, founder and CEO of same-day delivery service Deliv, in Menlo Park, California. For instance, they want to order a product this morning and receive it this evening. "Fifty-six percent of millennials say they won't buy if there's not a same-day option," she adds.

As new models emerge, industry leaders set new standards, and competition continues to heat up, retailers that include e-commerce in their strategies are racing to stay out front. Here's a look at how three merchants—one small, one mid-sized, and one large—deal with the logistics and fulfillment challenges associated with e-commerce.

Vin Chicago: Same-Day Sipping

When wine merchant Vin Chicago first tasted e-commerce about nine years ago, the initiative was small and the process was simple. Periodically, the company sent an email to its customer list announcing the arrival of an especially interesting wine. Customers followed a link to a secure site, where they filled out a form to place an order. Then, in 98 percent of cases, customers visited a Vin Chicago store to pick up their purchase.

"With the email-based ordering, we didn't even offer delivery, because the method we were using couldn't scale up," says Peter Schwarzbach, owner of Vin Chicago. "If we had received a lot of delivery orders, we couldn't have serviced them properly."

A family business founded in 1934, Vin Chicago currently operates four stores in Chicago and its suburbs. About four years ago, it built a new website that offers a full assortment of wines, a checkout process using a shopping cart, and three fulfillment options: in-store pickup, local delivery, or shipping within Illinois via UPS.

In 2017, Vin Chicago added another innovation. Rather than use a conventional courier service for local deliveries, it started working with Deliv, a crowdsourced last-mile logistics network built for same-day deliveries.

Founded in 2012, Deliv is doing for same-day product delivery what Uber and Lyft have done for personal transportation—using the Internet to mobilize large numbers of independent contractors, driving their own vehicles, to serve customers.

Deliv started out delivering product for large omnichannel merchants from their stores in shopping malls. It has since added same-day delivery for e-commerce merchants of all sizes, entered a partnership with UPS, and launched a grocery delivery service.

Alcohol retailers are Deliv's latest market. For Vin Chicago, part of Deliv's attraction is its web-based platform. In the past, the process of arranging a delivery took five or 10 minutes to make plans with the customer and then with a courier company, all by phone. "We could handle five or six deliveries every day, max," Schwarzbach says. "Even that was taking up a lot of time."

Scheduling a delivery through Deliv's website takes only about one minute. This faster, simpler process lets Vin Chicago handle a lot more same-day deliveries. So does the extra capacity that the crowdsourcing model offers.

The greater speed and expanded capacity should make local delivery a more viable option for Vin Chicago. It's certainly becoming a more important option. "With the efforts that Amazon has been making to improve the convenience factor, the market is inevitably going toward delivery, and quickly," Schwarzbach says.

Two other factors also make same-day delivery from local inventory attractive to merchants who sell wine or spirits. "One is that alcohol is generally heavy and fragile," says Carmeli. It also requires temperature control. All that makes alcoholic beverages expensive to ship via parcel carrier—as much as $20 for a bottle of wine shipped from a vineyard. "Being able to pick up locally and deliver becomes a huge benefit," she says.

Also, the transportation service must understand and comply with local regulations for alcohol. That means, for example, verifying the age of the person who receives the delivery, and making sure not to deliver to addresses in "dry" counties. "The system has to be smart enough to understand what is or isn't possible," Carmeli says.

"Deliv lets us compete with Amazon," Schwarzbach says. "We're able to offer same-day, temperature-controlled service with a quality driver, with carding—and our wine selection holds up to anyone."

No Same-Day Chardonnay

One situation that Vin Chicago currently can't accommodate with same-day delivery is a purchase of inventory held at more than one store. "State law does not allow us to transfer wine between stores," Schwarzbach says.

So if the case of chardonnay you want is available only in Highland Park, and your favorite cabernet is available only in Barrington, you'll have to make two separate purchases online. "And then we'll arrange for your purchased wine to be consolidated and delivered," he says. Currently, the company can't arrange that quickly enough to get you your wine the same day.

For customers in the City of Chicago, however, same-day delivery from Vin Chicago could soon become a run-of-the-mill event. Vin Chicago is working on a mobile app that will give customers access to inventory held just at that store, the company's largest.

"Customers can see exactly what we have in inventory in our City of Chicago store, place an order, and schedule delivery online," Schwarzbach says. "If they order before noon, they can pick a 4 p.m. delivery window and have the wine that night."

As Vin Chicago starts to publicize this new service, the ratio of in-store pickups to deliveries is bound to change drastically from the current 98:2. "I don't know if it will be 50:50, or if it will be 80-percent delivery," Schwarzbach says. "It'll be fun to see how it sorts out."

American Freight Furniture: Always in Stock

American Freight Furniture (AFF) is new to e-commerce. Its website has featured a browsable product catalog for some time, but if you spotted an item you wanted, you had to visit a store to close the deal. Only now is the company offering up a site where you can put a whole living room suite in your online cart, and proceed to checkout.

When it comes to deploying technology to support AFF's new omnichannel approach, that late start is an advantage. "We can leapfrog some challenges the industry has experienced over the past few years and go to the preferred platform," says Jim Brownell, chief operating officer of AFF, in Delaware, Ohio.

The challenges Brownell has in mind are the ones that arise when a traditional brick-and-mortar retailer adds e-commerce and later decides to merge the point-of-sale (POS) technology with its e-commerce technology. The goal is to gain a single view of all inventory and sales, across all channels. Large retailers are spending a lot of time and money to integrate their platforms, he says, while AFF can integrate from the start.

The company is working with technology vendor Enspire Commerce to turn AFF's existing site into an e-commerce site and also implement a new POS. That in-store system is actually an order management system—the same one the e-commerce site uses. The only difference is that the POS comes with a user interface optimized for use by in-store sales associates.

Thanks to the e-commerce-POS integration, every customer has access to all the inventory AFF holds, or that it can get from vendors. "When a customer asks, 'Do you have this item?' a sales associate can say, 'I have it in my store. I have it in the store up the street. Or I can ship it from our vendor,'" Brownell says.

AFF does not operate distribution centers; rather each retail location serves as a warehouse. Under its new business model, it will fulfill all orders—in the store or online—from any combination of store and vendor inventories it takes to do the job. E-commerce customers who don't live near any of AFF's approximately 140 stores may see different delivery options than customers who do.

"Customers not close to a store will get orders delivered from a vendor," Brownell says. "The platform has to be smart enough to display only the options that are available for that product."

If a customer comes to a store looking for four items, and only three are in stock at that site, the integrated order management system makes sure the customer walks out happy.

"It will source that fourth item, and offer delivery options—either ship from another store, ship it from my vendor, have the customer pick it up at another store, or ship it to the store and the customer picks it up later," says Jim Barnes, CEO at Enspire Commerce in Carmel, Indiana.

The order management system includes a rating engine to help AFF choose the most cost-effective carrier or carriers for the shipment.

Compensating Associates

One challenge this new model creates involves integrating store personnel into the e-commerce world. Because AFF store associates work on commission, they want to deal directly with customers. Associates might feel that e-commerce sales are "stealing" their inventory.

"Associates might say, 'I received eight of those items, six of them just went out the door for e-commerce orders, and I don't get paid for that. Yet I had to buy them, bring them into my store, unload them.' Compensation will be a big issue," Brownell says.

On the other hand, the new e-commerce/POS system gives associates the chance to sell products that aren't available on the floor, or even in other AFF stores.

Say the customer chooses a couch but wants blue throw pillows rather than the gray ones it comes with. "I don't have blue pillows," says Barnes. "But I can switch to my vendor catalog on my POS device and send the vendor an EDI message to drop-ship those pillows to the customer's home."

As it changes the sales process and creates new fulfillment options, e-commerce will also change the calculus for how inventory flows into AFF's stores.

"We put eight units of an item in a store and six are shipped out. Is that an e-commerce demand, a retail demand, or a combination of both?" Brownell asks. "Understanding the demand signal will be an important challenge for us, to make sure that we're most effectively placing inventory in locations."

Enspire's system will collect data on the source of each order, to create a history. "The challenge will be interpreting all that data," Brownell says.

Zappos: If the Shoe Fits, Ship It

Zappos was already an important force in e-commerce in 2009 when it joined up with one of the biggest forces of all, Amazon. Post-acquisition, Zappos has retained its independent identity, but the relationship with its parent has reshaped the company's options for shipping products.

"When you have the world's best fulfillment network at your disposal, you take full advantage of it," says Justin Brown, director, supply chain and liquidation at Las Vegas-based Zappos.

Founded in 1999 as an online shoe retailer, Zappos has since expanded to sell clothing, accessories, housewares, and other consumer products. The fulfillment experience is central to the Zappos brand; the company promotes its fast, free shipping and easy, free returns.

In the early days, suppliers drop-shipped most orders to Zappos customers. By 2009, Zappos was fulfilling all orders from two facilities in Shepherdsville, Kentucky. The company added new materials handling equipment to those centers several times to increase inbound and outbound capacity, but the warehouses were straining to keep up.

"Soon after the acquisition, our unit volume was growing at such an alarming rate it made sense to partner with the Amazon fulfillment network to help meet our demand," Brown says. So, in 2012, Zappos turned over the facilities and fulfillment operations to Amazon.

Balancing Act

One of the biggest fulfillment challenges Zappos faces comes at the end of each month and each quarter, when the company has to balance the needs of its suppliers with the capabilities of its facilities. The end-of-year peak shipping season also brings challenges.

"It's imperative that our fulfillment centers have accurate forecasts that feed into our labor, sales, and operational plans," Brown says. "Being off by a few hundred basis points can make a big difference in overtime hours and additional head count, which could prevent our associates from being able to spend time with their families."

To understand how operational decisions affect front-line associates, each year Brown takes a different team from the corporate organization to work on the warehouse floor. "Go pick, pack, and ship boxes for 10 to 12 hours every day for five or six days," he tells them. "That will make sure this stays top-of-mind and will force you to want to be better."

Although Zappos and Amazon helped set the standard for e-commerce fulfillment in the early 2000s, there's still a lot of room for innovation in responding to demand for a great delivery experience.

"Ten years ago, retailers such as Zappos focused solely on speed," Brown says. "But now they need to focus on the three pillars of the delivery experience: speed, quality, and personalization."