2020 was an unprecedented year for the retail industry. Prior to the pandemic, retailers were already struggling with rising e-commerce sales, bankruptcies and store closures, which were only further compounded when COVID-19 hit. Experts credit the virus with accelerating e-commerce growth by five years, with this shift in shopping behavior expected to remain even after the pandemic subsides.
While the effects of COVID-19 had varying impacts on the industry, no retailers were completely immune from the ramifications. From inventory and labor shortages to delivery delays, retailers faced various obstacles at every step of the supply chain.
Drastic Changes in Distribution Profiles and Volumes
The increase in online ordering and brick-and-mortar closures has resulted in more companies shipping directly to consumers. This is a radical change for retailers that built their operations to support case quantity deliveries to stores — or more drastically — manufacturers that are used to supplying retail distribution centers (DCs). In addition to dealing with growing volumes, companies are also having to redesign their distribution operations as they transition from processing pallets of a single item for hundreds of stores to a handful of different items for thousands of customers.
Unfortunately, many DCs are not equipped to deal with this massive change in order profile and volume. As a result, many companies have had to add extra shifts to accommodate the growth and are increasing labor at a time when it is already scarce and safe social distancing is a necessity.
Added Headaches for the Holidays
Despite the economic uncertainty stemming from the pandemic, 2020 holiday spending was still up from the previous year, with online holiday sales in the US jumping more than 32% over 2019, according to Adobe Analytics.
While the increased holiday sales were a bright spot for retailers’ revenues, the additional volume further amplified existing warehousing and shipping challenges. Attempting to avoid delivery delays and overwhelming their logistics operations, many retailers, including Amazon, Walmart, and Target, kicked off their holiday season even earlier in 2020, offering major deals and discounts starting in October.
Despite their best efforts to circumvent these challenges, retailers still met many struggles during the holiday season. Some Amazon sellers got an added dose of distribution troubles when the e-commerce giant began enforcing stricter shipping limits on third-party sellers using Fulfillment by Amazon (FBA). Amazon wasn’t the only company putting pressure on retailers this season. After adding peak surcharges just a few months earlier, UPS and FedEx started imposing volume caps on major retailers after Black Friday. Desperate to ensure on-time delivery and preserve customer satisfaction, many retailers turned to alternative last-mile providers such as Shipt and Instacart, while others offered discounts or other perks for customers using buy online pick up in store (BOPIS) or curbside pickup services.Similarly, with increased online sales came a record number of returns, prompting retailers to implement new return policies and methods to accommodate customers and reduce the cost and labor associated with processing returns. Retail giants Amazon, Walmart, and Target even went as far as to offer customers refunds without asking them to return their purchases. Some retailers also struck partnerships with carriers that enable customers to drop off returns at FedEx, UPS, and USPS locations or even arrange for home pickup, such as Walmart did with its “Carrier Pickup by FedEx” service launched in late December.
Leveraging Brick-and-Mortar Locations
As online orders continued to put pressure on already strained warehouse operations, retailers began looking for creative and lucrative ways to utilize their brick-and-mortar locations. When government restrictions forced many stores to close their doors, many retailers began exploring ship-from-store models. Transforming brick-and-mortar locations into micro-fulfillment centers enables retailers to cut delivery times and costs while also improving the customer experience. In addition to ship-from-store, more retailers are now expanding their in-store fulfillment offerings, including BOPIS and curbside pickup, to avoid delivery delays and minimize contact.
With social distancing still a must, many retailers are also embracing automation to help increase speed and capacity while also limiting human interaction. Previously requiring a large investment and lengthy installation process, solutions utilizing autonomous mobile robots (AMRs) can be deployed in as little as a few weeks with minimal capital expenditure. AMR solutions are also growing in popularity due to their flexibility and scalability, enabling retailers to utilize them in a variety of different applications and environments, and expand and relocate them as needed to address changing volumes and requirements.
Going into 2021, retailers and manufacturers must look at modifying their current DCs and adding new DCs and alternative fulfillment methods to accommodate the volume growth and change in order profiles. The increase in online sales volume over the last few years has put a lot of stress on material handling equipment (MHE) manufacturers, and the effects of the COVID-19 have only made matters worse. Processes like BOPIS and in-store fulfillment have also caused considerable stress on the system. When these services were first offered, the volume was low and typically managed by one employee. However, as COVID-19 spread, many retailers rushed implementation of these services, which often resulted in a plethora of operational issues as well as a negative customer experience.
With 2020 now behind us, retailers and manufacturers must immediately start preparing their distribution operations, focusing on improving their MHE and fulfillment processes to ensure business success and customer satisfaction in the next normal. While online shopping saw huge spikes during the pandemic, studies show these trends are here to stay, with many consumers still opting for BOPIS, curbside pickup, and other quick and convenient delivery methods. Therefore, the future of retail is going to require a hybrid approach between brick-and-mortar and online stores to offer customers a truly omnichannel experience and continue to meet changing demands.
Steve Simonson is Vice President of Supply Chain Consulting Services at Tompkins International. He can be reached at firstname.lastname@example.org.
This article originally appeared in the March/April, 2021 issue of PARCEL.