November 2012 | Commentary | Checking In

Retailers Rebalance Time vs. Cost?

Tags: Retail, E-commerce

Keith Biondo is the publisher of Inbound Logistics magazine.

For retailers and their value chain partners, practicing inbound logistics provides two competitive advantages—the ability to keep prices low, because matching demand to supply optimizes inventory-to-sales ratios and creates other economies; and the agility to use time as a competitive advantage by serving customers faster and more completely.

In the past, retailers emphasized keeping costs down and prices low. Demand-driven practices produced a large measure of success on that score. Today, leading retailers have been so successful at it that they can offer to match online competitors' prices. In these cases, economy is no longer a differentiator. If cost was king, and that advantage is gone, what's left to differentiate? Time.

Brick-and-mortar stores and online retailers provide different returns on the time side of the competitive equation. If demand is immediate, traditional retailers have the edge, because nothing is faster than driving to the mall and buying what you need. Of course, the trip takes time, too. And at certain times of the year—the holiday season—mall visits can be harrowing. And there is the out-of-stock issue, too.

That kind of problem doesn't generally exist with an online retailer. But you are exposed in another way. Consumers can't get what they want right now, or even soon, without paying more for next-day delivery. So how does an online retailer offset the time advantage held by traditional retailers?

For more than a year, rumors spread that Google is planning to offer same-day delivery in specific markets through its retail partners. Amazon has been providing it for a while in certain markets. Perhaps the Kiva purchase provides the infrastructure to successfully expand that offering without killing the cost advantage.

Does same-day delivery by online retailers signal the end of the traditional retailer's time advantage? Walmart says no. With more than $4 billion in online sales, Walmart straddles both online and traditional retail channels, and has the logistics infrastructure to support both. Now the company is launching Walmart to Go, a $10 flat-rate charge for same-day delivery of products shipped directly from stores in certain areas. It likely won't encompass all products, just ones with high demand. Otherwise, the demand-driven logistics cost advantage Walmart worked so hard to achieve would be squandered on expedited shipping and warehousing costs.

Velocity is more important than price for some consumers, perhaps giving some retailers another component to consider as they compete. In the clash of the retail titans, Walmart vs. Amazon (and now Google), where the cost advantage has been flattened, those using time to their best advantage may have an edge.