The Amazon Effect: No Longer a Phantom Menace
Retailers strike back at the Amazon empire by providing e-commerce customers with same-day and faster delivery.
A long time ago, in a galaxy far, far away, online shoppers didn’t mind waiting for their deliveries. But the force awakened once Amazon raised the delivery bar with Prime Now same-day service.
Other e-commerce retailers large and small began hustling to retain online customers by matching that delivery window. Available in 32 major metropolitan markets across the country, Prime Now provides free same-day scheduled delivery for Prime account holders and one-hour delivery in certain cities for $7.99.
“Retailers are all facing consumer impatience now,” says Kevin Ledversis, sales director for Newcastle Systems, a Massachusetts manufacturer of mobile workstations that help improve warehouse productivity. “Consumers are looking for that immediate delivery option. This is especially true with millennials, who have grown up ordering on phones. They expect speed.”
In fact, the predominant same-day delivery shopper is likely to be an urban male millennial, according to Business Insider Intelligence research.
Even so, it will take time before same-day delivery is an option for most online shoppers. While 41 percent of shoppers want “hyper local “—same day or even one-hour delivery—just 24 percent of retailers offer it, reveals Temando research. And consumer demand isn’t enough to make it happen. E-tailers need three Ps and one D to provide same-day delivery options:
- Population density
- Proximity of goods to customers
- Delivery systems
Retailers are targeting regions with enough population density near distribution centers to make the effort feasible—and they’re redefining “distribution center.” Major chain retailers including Macy’s and Office Depot are using their stores as fulfillment centers in certain markets, offering same-day delivery on e-commerce orders when the purchased item is in stock at the shopper’s local store.
May the Visibility Be With You
Turning stores into micro-logistics centers introduces an assortment of challenges, however. “Retailers need the technology that gives full visibility of their inventory so that when they say a product is available for same-day delivery, it actually is,” says Daphne Carmeli, founder and president of Deliv, a company that provides delivery services to retailers in 33 major markets.
Then there’s the issue of what can be delivered profitably. Retailers need to assess what does and doesn’t make sense to deliver quickly. “The shipping cost might be the tipping point that drops the product below the line of what makes sense, but the other issue is the margin associated with specific products. There’s no way you can deliver a $3 USB stick the same day profitably,” says Toby Brzoznowski, co-founder and executive vice president of LLamasoft, a supply chain design software company in Ann Arbor, Michigan.
What’s more, stores aren’t designed as fulfillment centers. “This is the next major battleground,” says Scott Deutsch, president of North America for E+P, a supply chain software provider. “How do you improve the back of the store operation so it becomes more like a mini-warehouse?”
“Omnichannel technology lets us turn any existing facility into a shipping location,” says Sean McCartney, executive vice president of operations services at Radial, a Pennsylvania commerce technologies and operations provider that works with about 23,000 stores nationwide.
“Stores use our order management system to set rules that determine what gets shipped from where,” he adds. “The rules are usually optimized around the customer experience, cost, or efficiency, but the sweet spot is all three.”
Brzoznowski cautions against moving into store fulfillment too quickly, though. “Some retailers go too far out of the gate too quickly,” he says. “There’s additional overhead and inventory to carry. Factor in markdowns on fashion and you might quickly see a diminishing return on that investment.”
With locations within 10 miles of 90 percent of the U.S. population, Walmart is one chain that’s well positioned to leverage its stores as fulfillment centers for same-day delivery. The second-largest online retailer behind Amazon is currently providing same-day delivery of groceries in six markets—San Jose, Denver, Phoenix, Tampa, Orlando, and Dallas.
“We wanted to test what would happen when we gave customers a choice between same-day delivery and pick-up—would they gravitate toward one or the other?” says Ravi Jariwala, Walmart spokesperson. “We learned that they like being able to choose the option that fits their lifestyle at the moment.”
HighJump, a Minneapolis-based supply chain management software provider, works with grocery stores to streamline in-store order picking for both same-day delivery and pick up. The store’s staff “shoppers” use HighJump software to consolidate order picks for multiple customer orders while keeping the orders separate in their carts.
“The software is mapped out according to the store’s physical layout to make shoppers as efficient as possible,” says Jon Kuerschner, vice president of product management and consulting.
This kind of efficiency helps reduce the retailer’s cost for same-day service. “With traditional grocery shopping, the customer provides nearly all the labor in the process. With delivery, the retailer has to absorb all the cost,” says Bruce Welty, founder of Locus Robotics, the e-commerce fulfillment robotics arm of Quiet Logistics in Massachusetts.
For same-day delivery to be profitable for other types of retailers, warehouses require maximum efficiency, as well. “Retailers have to keep finding ways to take costs out because same-day delivery introduces costs to absorb,” Welty says.
In addition to strategies already in place to fill orders quickly, omnichannel retailers are leveraging distribution center equipment and technology that’s designed to improve productivity and minimize waste when filling orders.
Robotics from companies such as Locus Robotics, which claims to cut picking costs in half, as well as iWAREHOUSE fleet telematics from forklift manufacturer Raymond Corporation optimize vehicle warehouse movements. Newcastle System’s mobile workstations can power a laptop, barcode and label printer, scanner, and scale as needed, eliminating the need for employees to walk back and forth to the hardware.
The Path to the Dock Side
On the road, E+P’s Truck Driver software transfers orders recorded at the warehouse onto an app on the driver’s mobile device in real time. The app automatically guides the user through the route and documents delivery progress, sending all information back to the warehouse management system. The company’s fleet dimensioning technology is also used with crowdsourced delivery vehicles, making sure that an available driver’s vehicle has room for the package being picked up and delivered.
Last-mile delivery—getting an order to a customer within a designated delivery window—isn’t one size fits all. “In this omnichannel world, you need an optimized hybrid approach based on cost and order requirements,” says Deutsch.
While Walmart is testing having employees drop off packages on their way home from work, it also recently acquired Parcel, a same-day and last-mile delivery company serving New York City. Crowdsourcing works for Deliv, the market leader in same-day delivery services. Drivers who range from soccer moms to Uber and Lyft contractors learn about delivery gigs through a number of platforms.
Who’s paying for these delivery services? It depends who you ask.
When Locus Robotics’ parent company tested different price points for same-day delivery, the only option shoppers selected was “free.” “Customers love same-day delivery as long as they don’t have to pay for it,” says Welty.
According to the Temando study, 38 percent of the shoppers surveyed who wanted to receive an item on the same day were willing to pay for that speed.
Deliv’s research shows that free delivery can make sense (and cents) for retailers. When one national retailer eliminated its same-day delivery charge during a promotional period, it enjoyed a 600-percent increase in delivery volume. Free delivery boosted both conversion rates and basket values, as well.
Most Deliv retailers charge $5 for delivery, but about 25 percent offer it free—particularly above a specified dollar value threshold. The percentage of retailers absorbing the delivery cost is increasing, too.
E-tailers looking to keep up with Amazon need to assess their service coverage, determine which products they can deliver same day profitably, establish speedy and cost-effective fulfillment systems, and tap into or create a delivery network.
Then, Carmeli says, it comes down to in-store execution. “Retailers need to make sure an order is ready to be picked up when they say it will be ready.”
And they could consider buying a few drones.
A New Hope for Malls
The demand for same-day delivery of e-commerce orders is forcing third-party logistics providers and others to expand their fulfillment center networks so they have more facilities near large population centers.
This, in turn, is driving conversations about converting abandoned shopping malls into distribution centers.
“It’s a timely topic,” says Ben Conwell, senior managing director of the e-commerce and electronic fulfillment specialty practice group at real estate services firm Cushman & Wakefield.
The firm predicts that within the next five to 10 years, about 25 percent of the country’s malls will fail and become prime candidates for redevelopment. Within about five years, Conwell says, the industry should start to see some of them converted to distribution centers.
Why not sooner? There are currently four obstacles:
- The properties are zoned for retail, so zoning will have to be changed.
- Mall neighbors often fight redevelopment because of fears there will be a steady stream of tractor trailer traffic.
- While local officials see their malls dying, they cling to hope that the situation will change and retailers will continue to generate significant sales tax income.
- Restricted use agreements with other retailers still operating at the mall need to be addressed.
Still, Conwell says, a number of fundamentals make the properties appropriate for new life as distribution centers.
“There’s proximity to a significant population and frontage to existing roadway infrastructure,” he says. “It’s inevitable—demand will continue to push the value of those assets.”