If the last few months have shown the retail world anything, it’s the driving need for a functional, dynamic e-commerce platform. At the beginning of the year, Amazon and Walmart dominated the e-commerce landscape, and the present crisis has only added to that dominance. While we live in an uncertain time, what is certain is that moving forward, online retailers will have to compete in an increasingly sophisticated space. And to compete, you must understand the competition.
Amazon, in particular, has defined what the online retail experience should be. In 2005, its free two-day shipping service for Prime members became the de facto benchmark for the entire industry. Then again in early 2019, it raised the bar further by rolling out free one-day shipping to several metro areas. With this kind of innovative customer service, Amazon is certainly king of the hill, but the crown comes with a price. The New York Times recently cited Amazon’s average order for one-day shipping as being $8.32, yet it costs Amazon $10.59 to fulfill. Clearly, this is unsustainable.
To stop the bleeding, Amazon is employing a multi-faceted approach. With over 110 fulfillment centers already nationwide, it is continuing to expand its distribution footprint. To achieve the rapid growth needed, Amazon has begun repurposing vacant shopping malls around the country. These malls are located in high density, metropolitan areas, usually in close proximity to highways. The average size of these facilities is over 100,000 square feet, and they are easily retrofitted to allow stocking large selections of Amazon’s fastest moving SKUs for reduced transit time and delivery costs. With over 20% of the country’s shopping malls projected to close by 2022, Amazon is likely to have its pick of locations.
To further drive speed to market and mitigate costs, Amazon plans to own the delivery process — literally. As gray “Prime” vans continue to proliferate, Amazon handles more of its own last-mile deliveries and is anticipated to begin chipping away at both FedEx and UPS’s market share in the future. While it’s unlikely to see Amazon as a viable contender in the domestic parcel market anytime soon, it’s clear it wants to achieve self-sufficiency – and ultimately savings.
Speed to Market
Not to be outdone, Amazon’s chief rival Walmart is making strides of its own. Walmart is America’s largest retailer, and since 2016, its online sales have grown over 75%. While that’s a big number, perhaps even more relevant is that those same online sales are currently growing twice as fast as Amazon’s. And as Amazon’s distribution network struggles to keep pace with its sales, Walmart already has a very mature supply chain to leverage.
In the age of online shopping, a brick and mortar store has traditionally been viewed as more of a liability than an asset. Walmart is changing that. With over 150 distribution centers and almost 5,000 stores, 90% of Americans live within 10 miles of a Walmart. That means Walmart has a physical footprint without parallel in the retail world. It also means that because these stores are already profitable, Walmart can reach more people faster than Amazon can, and at a much lower cost. By utilizing its stores essentially as online warehouses, Walmart can up the fast-shipping ante and deliver to nine out of every 10 people from a store that’s only a few miles away. That’s big.
How to Compete?
At first glance, many small and midsize shippers may see the bar raised to an insurmountable height. Sure, it would be convenient to start your own national delivery fleet or ship from one of your own 5,000 stores, but shockingly, not everyone has that option. So how does the rest of the retail world ensure their customers have a good e-commerce experience while not bankrupting the company in the process? The answer may not be as difficult as you think.
As the world of shipping and customer service rapidly evolves, over 90% of midsize shippers are relying on the same shipping software they have used for over four years. However, retailers are increasingly viewing fulfilment as a strategy and opting to make investments in updated shipping technologies. Transportation Management Systems (TMS) provide automation to a dynamic process, allowing retailers to rate shop between carriers and services instead of being totally reliant on one provider’s proprietary system. This multicarrier approach allows retailers to take advantage of national providers such as UPS and FedEx, while potentially utilizing regional carriers, which can realize cost savings and more timely service. A good TMS will also provide reporting functionality, facilitating a holistic view of the shipping program and driving informed decisions.
Equally important as updated technology is understanding the world of assessorial shipping charges that can have a huge impact on the bottom line. It may seem as though the list of assessorial charges is unending (and the list gets longer every year), but these charges can often cost more per package than the actual freight. Dimensional weight, Delivery Area, Additional Handling, and Peak holiday surcharges are just a few in the litany of extra fees parcel carriers can bill for. Understanding when and why these charges are assessed and how to mitigate them is a key step to saving money on shipping costs.
The desire for instant gratification is strong. Who doesn’t want their stuff sooner rather than later? One of the easiest ways to expedite transit time is to begin the shipping process closer to the customer. Not every retailer has 5,000 stores at their disposal, but more and more, they are leveraging their existing physical footprint as mini-warehouses or forward stocking locations for their fastest moving items. Utilizing your current supply chain to its fullest not only drives out costs, but also saves valuable time.
Another possibility for improving transit time is utilizing a different carrier. Each carrier has its respective network, with varying cutoff times and limitations. Reliance on one carrier is the path of least resistance but staying informed of all your options will ensure you aren’t sacrificing speed for convenience.
Even though the world is speeding up, with same-day shipping becoming reality for many retailers, it’s equally important to remember that no matter the proposed delivery time — get it there when you say you will. Most consumers still have realistic expectations, and whether it’s same-day delivery or sometime next week, if you promised it, do it. Nothing will kill a customer’s experience any quicker than being lied to.
If knowledge is power, then knowing where the competition is going provides the power for small- and mid-size retailers to adapt their current shipping patterns to meet upcoming challenges. Shippers certainly have more options than described here, but at the end of the day, from Amazon to the newest start-up on the block, the customer experience will continue to drive innovations in parcel shipping for the foreseeable future.
Andy Johnson is Project Manager, enVista. With 15 years of experience, Andy has worked extensively in supply chain and managed transportation. He is experienced in all modes of domestic transportation. His background includes sitting on both sides of the table, allowing him to anticipate what most shippers need to drive results and what many carriers are looking for in a good partner. Andy has worked with Fortune 50 companies to build networks, optimize savings, and most recently with contract negotiation.
This article originally appeared in the May/June, 2020 issue of PARCEL.