Retail Logistics: When Fast Isn't Fast Enough
To keep customers happy, retailers play a daily game of beat the clock. For some retailers, smart supply chain management strategies and 3PL partnerships keep the orders flowing. For others, well…time may be up.
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Bricks and mortar aren't dead yet. According to Census Bureau estimates, just 7.8 percent of all U.S. retail sales in the first quarter of 2016 took place online. But that's a good deal more than one decade ago, when online sales for the first quarter of 2006 amounted to 2.8 percent of the total.
And among people who already favor online shopping, the allure of e-commerce continues to grow. That group made 51 percent of its purchases online, up from 48 percent in 2015, according to a 2016 survey of 5,000 online shoppers, conducted by comScore for UPS.
Technology continues to reshape the retail world. As more consumers click to buy, e-commerce giants such as Amazon put increasing pressure on merchants of all types to offer more flexible shopping choices—both in-store and online—and faster fulfillment. Omni-channel options? Next-day delivery? Free returns? Shoppers want it all. And successful retailers keep honing their strategies to meet their demands.
Are retailers ready to deliver? Maybe not all of them. For example, in a survey conducted by consulting firm McKinsey at the World Retail Congress in April 2016, only 21 percent of respondents said they are more confident than one year ago in their ability to deliver omni-channel experiences. Another 45 percent say they are making progress too slowly.
Another set of opportunities and challenges arises as retailers globalize their operations. Whether they open locations in new countries or use the web to reach across oceans, companies selling to consumers in international markets have to refine their distribution strategies.
What's new these days in the new world of retail? Here are some observations from the leading edge.
UPS's online shopping figures come from the 2016 edition of its annual Pulse of the Online Shopper survey. This year marks the first time that survey respondents say they made more than half of their purchases online.
UPS uncovered some significant changes in the habits of consumers who favor online shopping. Seventeen percent of respondents say they plan to do less shopping in stores in the future and more online. Shopping via smartphone has increased by 10 points since 2014; 77 percent of online shoppers now use that mode.
Also, consumers are more apt than ever to use multiple channels to complete transactions. Purchases that combine store visits with at least one online channel account for 38 percent of all purchases—two percent more than in 2015, the survey finds. Half of shoppers who buy online had purchases shipped to brick-and-mortar stores for pickup.
Same Look and Feel
Retailers are looking for better ways to respond to consumers' embrace of omni-channel shopping, and their desire for a convenient, seamless process. "Whether they're on a retailer's app, or on a website, or in a store, they want it to look and feel the same," says Louis DeJianne, director of consumer goods and retail marketing at UPS in Atlanta.
Merchants have to strike the right balance among several factors that, taken together, make up the formula for customer satisfaction. "Customers want it as fast as possible, where they want it delivered, and how they want it delivered," says DeJianne. As merchants position inventory in their distribution centers (DCs) and stores, they must consider the costs attached to holding that product. "Figuring out inventory allocations and inventory visibility is a key step," he adds.
Besides working toward the best omni-channel approach, retailers are trying to take the best possible advantage of the ship-to-store strategy. "They're trying to figure out how to drive more consumers to their stores to pick up the items," DeJianne says. Shipping several e-commerce orders to a store, using a merchant's own transportation network, costs less than shipping individual orders to consumers' homes.
"The goal is to get the customer into the store and provide a great shopping experience, with the hope that they'll make additional purchases," DeJianne says. The 2016 survey shows that 46 percent of shoppers who pick up e-commerce orders in physical stores make additional purchases on the spot.
The desire for a flexible omni-channel experience extends to returns. "The easier a retailer can make returns for consumers, the more comfortable they will feel about purchasing that product," DeJianne says.
In particular, customers hate restocking fees. And they like to avoid the return shipping process altogether. "People are gravitating toward the return-to-store option," he says.
Shoppers are also gravitating toward the notion of dropping by the corner deli, or another local shop, to pick up or return e-commerce orders. "The study shows that 54 percent of respondents have an interest in shipping to an alternative location with extended hours," says Matt O'Connor, a UPS spokesman.
Especially in urban areas, a courier working for companies such as UPS can't safely leave a package on a customer's doorstep when no one is home. If the customer is out, the package doesn't arrive as expected, which frustrates demanding consumers. "With an alternative delivery location, consumers can receive that package on the same day," DeJianne says.
UPS has developed a network of more than 24,000 stores across North America and Europe to serve as alternative access points, where customers can pick up and receive packages.
Sundip Naik, vice president, supply chain, business transformation services, for consulting firm Capgemini in Atlanta, also observes that consumers want faster and more varied delivery options. Demand for greater speed and flexibility is growing thanks to expectations set by two kinds of participants in the retail market. One is Amazon; the other is the new wave of local delivery services from companies such as Uber and Deliv.
"These newer entrants not only provide more delivery options, but also offer different services, such as delivery after 7 p.m., when consumers are home," Naik says. "In order to remain competitive, retailers are tapping partners, as opposed to building delivery and last-mile capabilities in-house." For example, he points to partnerships that Macy's and Best Buy have formed with Deliv.
"In addition, retailers are providing options beyond traditional home delivery, such as drive-through pickup, curb-side pickup, and locker pickup," Naik says.
As retailers roll out these new options, the biggest challenge they face is a financial one. "How does a retailer balance the right level of service and 'touch' to the customer with the cost to provide that service?" asks Naik.
If the retailer relies on a partner to add last-mile delivery options, along with cost the merchant must also consider how delivery affects the brand and the consumer's experience. "Given that the delivery person is the last touchpoint to the customer, it's critical for retailers that the interaction be a positive one," Naik says.
Merchants and their delivery partners must collaborate to make sure that the interaction with customers enhances the retailer's image and reputation, and encourages future sales, he adds.
Homage to LeBron
Along with ongoing pressure to deliver quickly and flexibly, a retailer may sometimes get a momentary spike in demand that makes velocity essential.
Consider Columbus-based company Homage in June 2016, as the Cleveland Cavaliers were wresting victory from the Golden State Warriors in the NBA Finals. "We had opened our Cleveland store, and carried a lot of Cleveland Cavaliers t-shirts," says Mike Sheehan, Homage's vice president of operations. "And LeBron James, bless his soul, was photographed wearing one of our tees." Demand for Cavalier-themed clothing was about to boom, and Homage had to move fast.
Founded as an eBay merchant in 2007, Homage sells t-shirts and other apparel that gives a shout-out to sports teams, pop culture icons, and other fan favorites, with an emphasis on vintage logos and designs. Today, the company operates four physical stores—two in Columbus, one in Cleveland and one in Cincinnati—with others in the works. It also runs a thriving e-commerce business.
To keep those channels filled, Homage needs to rush product from suppliers—largely located in Los Angeles—through its Columbus DC to store shelves and customers' doorsteps.
"We often get garments landing from Los Angeles, and we need to launch those immediately to fit into our marketing schedule," Sheehan says. "We may not have as much time as we would like to get them screen printed, counted, and distributed to our stores."
Timing becomes an even bigger challenge when a quality check of incoming garments reveals a mistake in some items, such as a hem that's missing a stich, or a badly sewn label. To avoid bottlenecks, Homage often sends flawed shipments to Dismas Distribution Services, also based in Columbus. The service provider sorts the shipment into good and bad items, and then makes the necessary correction—adding stitches, fixing labels, adjusting packaging, or otherwise solving the problem.
"Having a partner that can turn products typically in 24 to 48 hours—or 72 at the outside—is huge," Sheehan says.
If Homage had to ship thousands of units back to Los Angeles for correction, that would keep product out of customers' hands for far too long. "It would screw up our marketing calendar," he says. "By partnering with Dismas, quality problems delay us for only a few days, instead of a few weeks or longer."
Dismas also sometimes prepares items for sale, sorting by size and color, and doing the different kinds of ticketing and packaging needed for in-store sales and e-commerce, says Bob Parsons, CEO for the service company.
Fast on Their Feet
The Dismas operation is flexible enough to solve problems on short notice. "They're able to quickly staff up, and to throw resources at whatever issue we have," Sheehan says.
That's what happened when the Cavaliers became the NBA champs. "Nearly 8,000 shirts came through here right away," Parsons says. The Dismas staff got busy attaching tickets and otherwise prepping the product for sale, so no fan would walk out of a store disappointed. "That was one of those times when speed to market was critical," he adds.
Homage also relies on front end flexibility to deliver what customers want. For example, if a customer in a store wants an item that's not in stock, the sales associate will locate that item on Homage.com. "Then we offer to help the customer place an online order in our store, at one of our computer terminals," Sheehan says. If the customer prefers, Homage can transfer the item from another store instead.
Although Homage strives to ship all e-commerce orders within 12 to 36 hours, when things get busy, the warehouse sometimes gets backed up, Sheehan admits. Still, associates go out of their way to help customers who inquire about the status of their shipments.
"When a customer does reach out, we automatically try to bump their order to the front of the queue and get it out that day," he says. That also goes for customers who indicate up front that they need delivery fast—for example, if they're bringing a gift to a wedding. "We will do everything we can to expedite the order and get it to the customer."
Omni-channel, Southern Style
Given customer demand for flexible shopping options, it's no surprise that an ambitious new company would embrace the omni-channel philosophy from Day 1. "We are eliminating a lot of the scaling challenges and transitioning costs that pain so many retailers today," says Melissa Baird, vice president of systems and procedures at Draper James, a Southern-inspired retail brand founded by actress Reese Witherspoon.
Headquartered in New York, Draper James started selling its line of women's clothing, accessories, and home goods through an e-commerce site in May 2015. It now also operates a store in Nashville and will add a second, in Dallas, in fall 2016, with plans to expand into other southern markets as well.
Draper James manufactures most of its clothing in the southern United States and distributes it through an omni-channel distribution center in Greenville, S.C., operated by third-party logistics provider Sunland Logistics.
An efficient, well-balanced omni-channel experience is crucial to creating a great customer experience, says Baird. "Customers don't think in channels; there is only shopping," she says. "So keeping a consistent offering and brand experience across all channels becomes incredibly important."
At the same time, customer behavior is slightly different online and in the store, so it's important to fine tune inventory, selling style, and other elements for each channel.
Currently, if an in-store customer can't find the desired size or style, an associate can place an order online and have it shipped to the customer's home. "Customers can return product to the store or ship it to Sunland, regardless of how they purchased it originally," Baird says.
Ship-to-store is coming soon. "It's important that we offer as many options as it takes to make our customers' lives as easy as possible," she says. "That's just good southern hospitality."
The secret behind successful omni-channel fulfillment is listening to what customers want. "If a customer wants delivery to their seat at the Tennessee Titans game, I will figure out how to get it there," Baird says.
Because Draper James is a new company, it still makes many of its products in limited quantities. That creates a special fulfillment challenge.
"When inventory starts to run low, we need to make sure we can offer every single unit we have to all of our customers, online or in the store," Baird says. "The key for us is tight systemic integration of inventory and processes." When necessary, the company can pull inventory from the store to fill an e-commerce order, or ship e-commerce inventory to the store.
Sunland Logistics gives Draper James the flexibility to move inventory quickly across channels. "They can fulfill online orders and store orders with equal speed and efficiency, so we're never bogged down by heavy processes," Baird says.
For Sunland, the biggest challenge, especially on the e-commerce side of Draper James' business, is managing the volatile order flow that comes with special sales events, says Arch Thomason, Sunland's CEO. Say, for example, the retailer runs a big sale during the July 4th weekend. "We could walk in on Monday with hundreds of orders," he says.
Sunland, headquartered in Simpsonville, S.C., relies on Lean principles to keep pace with demand spikes. The company also works with Draper James to forecast when orders for specific items are likely to surge. "We'll forward-positon that product in the warehouse, so we can pick and ship it quickly," Thomason says.
Draper James also benefits from the fact that it's one of several tenants in Sunland's DC. Each day, Sunland can allocate resources depending on each retailer's volume, making sure that orders go out the door quickly.
"It doesn't make sense to bring in temporary labor for one day each week and think they're going to be efficient and productive," Thomason says. "The key is to flex internal labor with people who understand our processes and requirements, to make sure we can meet the demand."
Coming to America
For Stitch & Hide, a global vendor of leather accessories, the newest retail challenge involves a hop across the Pacific.
Actually, Stitch & Hide was an international enterprise from the start. Ross Smith, a New Zealand native, naturalized U.S. citizen, and apparel industry veteran, founded the company in 2013. As CEO, he runs it out of Rolling Hills, Calif., but Stitch & Hide also maintains headquarters in Byron Bay, Australia.
The company manufactures its wallets, belts, bags and other products in India, and started out marketing them in Australia. It sells its product through boutiques and small retail chains there, and operates its own direct-to-customer channel at Stitchandhide.com.
In 2016, Stitch & Hide globalized even further, launching a foray into the U.S. market. On the business-to-business side, as in Australia, it targets smaller retailers here. On the direct-to-consumer side, it's taking a two-pronged approach.
One prong calls for developing a separate e-commerce site for the United States. "We've looked at all the major retail companies, and most of them have specific sites for specific countries, for obvious reasons—cultural issues, and different seasons, holidays, promotional times, and currencies," Smith says.
The other prong involves a partnership with U.S. retailer Western Outlets, which started selling Stitch & Hide products through its Amazon store in July 2016.
That partnership gave Stitch & Hide a way to get its products into the Amazon marketplace without toiling up the steep learning curve required to become an Amazon merchant. "Using Western Outlets, which understood all the protocols, made access amazingly easy," Smith says.
Entry into the United States might prompt Stitch & Hide to reshape its distribution network. Originally, the company shipped all of its product to a DC in Australia, and then fulfilled all orders—wholesale and e-commerce—from there. That included e-commerce orders received from all corners of the globe—whether from Thailand, Russia, Europe, or the United States.
With the U.S. operation still in its infancy, Stitch & Hide uses just the Australian DC for its own e-commerce orders. But that may well change. "When we get the second website up and running, we'll probably split the world in two, because of shipping costs," Smith says. "Some orders may ship out of North America and some may ship out of Australia."
Thanks to the partnership with Western Outlets, though, Stitch & Hide has already started building a distribution infrastructure in the United States.
"We brought in two sets of inventory," Smith says. The first resides in an Amazon DC in the California area. "When the order comes in to the Western Outlets website, it is transmitted to Amazon's multi-channel fulfillment program, where Amazon then picks, packs, and ships on behalf of Western Outlets."
Stitch & Hide keeps a second, small inventory in Los Angeles, which it uses to replenish Amazon's and other retailers stock as needed. "As we grow the business, we'll increase the inventory in Los Angeles, and at Amazon to keep ahead of the curve," Smith says.
As Stitch & Hide and other smaller retailers grow, they'll certainly see their logistics strategies evolve even further, both in response to greater customer demand and to keep up with consumers' desires to get the products they want, when and where they want to receive it, without delay.