SMBs and E-Commerce
How 97 lb weaklings can develop the muscle to succeed.
Sometimes the retail industry seems like the Clash of the Titans, with Amazon, Walmart, The Home Depot, and others battling for supremacy online and at the mall. But of course the retail landscape also comprises countless small and mid-sized businesses—boutiques, local chains, specialty stores, up-and-coming e-commerce sites, and every combination in between.
Smaller retailers have a tough time competing with the giants. But among the best contenders, this challenge spurs the kind of creativity that could boost a business to success.
Market Share at Any Cost
Perhaps the most obvious challenge smaller retailers face is price competition. Large companies negotiate preferential deals with suppliers and win customers with low prices, which they tout during events such as Amazon’s Prime Day and everyone’s Black Friday sales.
“The big guys are working hard to win market share at almost any cost. The small and mid-sized guys are left out,” says Steve Dowse, senior vice president of product management at Blume Global, in Pleasanton, California. Blume operates a digital platform and applications shippers, carriers, and third-party logistics (3PL) providers use to manage supply chains.
Bargain pricing isn’t the only expectation that Amazon and its kind have instilled in buyers. “The biggest challenge for any retailer right now is, at a minimum, meeting the free, two-day shipping expectation that most e-commerce consumers have,” says Sean Mueller, vice president of business development and solutions at Symbia Logistics in Edwards, Colorado.
The biggest retailers can deliver in one or two days because they can afford to place inventory all over the country. “It puts product closer to the consumer,” says Steve Congro, director, omnichannel fulfillment technology at 3PL Saddle Creek Logistics Services in Lakeland, Florida.
Big retailers also have the clout to negotiate favorable shipping rates, making it easier to offer free or inexpensive shipping. “A small online retailer might not be able to negotiate rates, because they might not have the type of volume that Wayfair or Amazon does,” notes Janet Vito, vice president of marketing and sales at Austin-based uShip, an online platform that matches shippers of large items with carriers that have space in their trucks.
The battle for market share even drives some companies to offer free shipping at a loss. For example, Amazon uses profits from its cloud-hosting service, Amazon Web Services (AWS), to subsidize free shipping for its Prime service members.
Another challenge for small and mid-sized retailers is how to gain name recognition and stand out from the crowd. Not all of them have the wherewithal. That includes many of the 100 brick-and-mortar home décor and furniture boutiques that belong to Design Kollective, an online, membership-based marketplace with headquarters in Park City, Utah.
“A lot of these boutiques don’t know how to create a website or how to send out marketing emails,” says Scot Pace, Design Kollective’s chief operations officer. Design Kollective performs those jobs for its members, helping them capture attention locally and giving them a national presence.
Smaller companies face a branding problem when they supplement their own brick-and-mortar and e-commerce channels by also selling through online marketplaces run by their big competitors. “You might move product, but you won’t build your name,” Congro says. A consumer who buys an item on the Amazon Marketplace will remember it came from Amazon, but might not know the name of the company that actually made the sale.
When Do You Need It?
To meet demand for fast shipping, some retailers get closer to their customers by spreading inventory among several warehouses, often operated by 3PLs. But retailers may also find that, despite the famous Amazon effect, not every customer needs immediate fulfillment.
“Retailers shouldn’t break the bank to chase that approach,” says Congro. Instead, they should figure out how fast their particular customers need their products. “Decide what your service level agreement will be,” he says. “But more importantly, make sure you can hit it.”
Dowse agrees. “Filling a customer’s needs is not necessarily getting the product there the next day,” he says. “It’s getting it there when they need it.”
In some categories, the prevailing delivery standard is so slow that the issue of next-day service never comes up. “Many furniture brands are able to deliver product in eight to 12 weeks,” says Ashutosh Panchang, senior manager of business operations at Burrow, a New York-based vendor of upholstered furniture. Thanks to its products’ modular construction and its use of parcel carriers, Burrow can fill an order for a sofa, loveseat, or chair in about one week, with no charge for shipping.
For customers who order large, high-value products through Design Kollective, it’s perfectly all right to receive an order in three weeks. “If they order from a boutique in California and they live in Boston, they understand that there’s transit time,” says Pace.
Design Kollective uses uShip to transport large items within that time frame. For smaller items, such as pillows or candles, the company ships via UPS.
Besides delivery as promised, customers also expect to be notified promptly if anything goes wrong. “If I’m not going to get the book that I wanted this weekend, let me know before it doesn’t arrive,” Dowse says.
Smaller retailers can address those expectations through visibility platforms such as Blume’s, he adds.
Shipping Costs, Customer Service
Although smaller retailers can’t negotiate low rates the way giant shippers do, they can save money by working with 3PLs (see sidebar). Or, if they want to provide white-glove home delivery, they can work with uShip’s platform.
“We will not be the cheapest, but the service is affordable,” says Vito. It focuses on large, blanket-wrapped items, which a carrier delivers to the consumer’s room of choice. The driver performs any light assembly needed and removes debris.
Although carriers on uShip usually bid for loads, the company has developed a pricing algorithm for the home delivery service. This calculates a flat rate for shipping an item to a particular destination. The retailer can use that figure to calculate the buyer’s shipping charge.
“Or if they want to offer free or subsidized shipping, the retailer knows exactly what it will cost ahead of time,” Vito says.
Working with uShip lets the small boutiques that belong to Design Kollective deliver to any location in the United States—a service they could not otherwise have offered.
“That was a pain point for many of these stores,” Pace says. “They were competing with the online giants that can ship anywhere in the country.” Now the pain is gone. And, if they like, members can offer “free” shipping by building the transportation cost, calculated by uShip, into the product pricing.
One competitive point where small retailers may naturally excel is customer service. Service is key to the strategy at Burrow, which works hard to give customers an easy and pleasant experience.
“At every point, we want to understand how customers are shopping and what considerations they’re making, but also their pain points,” says COO Steve Finnern.
Burrow’s supply chain supports this effort to deliver a great customer experience. Consider, for example, a customer who buys a sectional sofa and then, on seeing it in his living room, decides he’d actually like something larger, with arms in a different style.
A standard furniture company might take four to 12 weeks to retrieve the original sofa and send a new one. But the tight relationship between the customer experience team, its supply chain team, and its manufacturing and fulfillment partner lets Burrow provide a better response.
“Changes to the product can be facilitated quickly, with the same timeline as the original order, getting it back to the customer in one week.” Panchang says.
It’s important for small and mid-sized retailers to make consumers feel great about shopping with them. “It could be through over-the-top customer service,” says Congro. “Or through product personalization or customization, which the big guys are not known for.”
“From small companies to large, the customer’s experience and story is everything,” says Mueller. “It’s how you stand up to large companies and successfully sustain growth and sales.”
Pumping Up Data Density
Among the many advantages big retailers command is the volume of raw data they generate every day.
“The business of a big player like Walmart or Amazon is driven off vast amounts of data, used in deciding how to place inventory close to consumers anywhere in the world,” says Steve Dowse, senior vice president of product management at supply chain technology provider Blume Global. “They have a lot of ‘data density.'”
With fewer customers and transactions, smaller retailers lack the information needed to conduct the analytics that let big companies perceive factors such as subtle shifts in consumer demand.
That’s where a technology platform like Blume’s—which serves shippers, carriers, and third parties globally—can help. “We’re able to bring together data we’ve captured from multiple parties throughout the supply chain to assemble that data density,” says Dowse. This aggregated data gives small retailers the same basis for sophisticated analysis that large retailers get from their networks.
For example, by analyzing aggregated data, a mid-sized retailer with a load of purple sweaters bound for Chicago might discover that a sudden cold snap in the Southeast has driven up demand for sweaters in Atlanta. More data drawn from Blume’s platform can then help the retailer determine the most effective way to intercept some sweaters en route and send them to Atlanta.
“Without that knowledge, those purple sweaters are going to end up in Chicago,” Dowse says. “Then the retailer will have to route them from Chicago to Atlanta—a more costly and time-consuming exercise.”
The Skinny on 3PLs
With more resources and clout than many shippers, third-party logistics (3PL) companies offer advantages that help smaller retailers hold their own against tough competitors.
For instance, furniture purveyor Burrow plans to use a 3PL to broaden its distribution footprint as it expands its product assortment from upholstered living room seating to include rugs, other accessories, and furniture for every room.
Today, a factory in North Carolina makes the company’s modular furniture and ships it to customers throughout the United States. When its catalog expands, Burrow will rely on manufacturers in multiple locations. The company wants to deliver those products as fast as possible, and orchestrate fulfillment so a customer who orders, say, a living room suite will get a sofa, chairs, tables, and rugs all at the same time.
“We are building out a distribution network with a 3PL that will allow us to support both needs,” says Ashutosh Panchang, senior manager of business operations at Burrow in New York. “The third need is building this network in the most capital-efficient way.”
If a 3PL holds inventory in several strategically placed facilities, Burrow can shorten delivery time and cut parcel delivery costs.
However far products travel to reach end consumers or brick-and-mortar stores, a 3PL can often help a smaller retailer cut shipping costs.
“Small shippers typically don’t have the favorable shipping rates or contracts that a 3PL has,” says Sean Mueller, vice president of business development and solutions at 3PL Symbia Logistics.
For retailers trying to deliver outstanding customer service, a 3PL may provide special, value-added touches, such as wrapping a product in tissue paper and packing it in a beautiful box with the merchant’s logo, or adding a handwritten note.
A 3PL may also have analysis tools to help the retailer hone its supply chain strategy. Where should the company hold inventory to reduce transport costs? Which package design gives the customer a great unboxing experience but also can move efficiently and safely through the network?
Finally, for a small retailer trying to become a big one, a 3PL offers scalability. “We can take five pallets to 100 pallets, or take a company from a few employees to 50, or back down if the product is seasonal,” Mueller says.