SWISH! Shippers Score with Small Box Deliveries
E-commerce got game in the retail arena, driving a sharp increase in small package volumes and netting more demanding consumers. Winning retailers are playing offense to meet these new challenges...before the clock runs out.
Locally and globally, consumers have greater access and more choices than ever before. These highly empowered customers determine what they buy, regardless of where it is manufactured; how they make the purchase, in stores, online, or via smartphone; and when and where goods are delivered.
E-commerce has become a part of daily life, providing consumers with options that transcend borders. Retailers have more avenues to sell their products, significantly extending their geographic reach. The result has been a skyrocketing volume of small parcels. During the 2015 holiday season alone (Thanksgiving through the end of December), UPS estimated it would deliver 630 million packages, up 10.3 percent from 2014.
While representing less than 10 percent of total retail sales, e-commerce is big business. In 2015, U.S.-based e-commerce was estimated to reach $350 billion. These figures were boosted by the 2015 holiday season, when half of all holiday shopping was done via e-commerce, according to National Retail Federation (NRF) forecasts.
Online shopping is not just for the holidays or for U.S. residents. A number of price- and brand-savvy international consumers are also taking advantage of new channels to purchase products from locations around the world. A growing middle class in some global markets is leading to increased consumption, a trend that is expected to continue in coming years. Business-to-consumer sales share will reach 35.1 percent in Asia in 2016, compared to 28.2 percent three years ago, predicts research firm E-Marketer.
Another trend impacting e-commerce is the increased use of mobile devices by customers, whether in stores or making online purchases. Twenty-four percent of all consumers planned to use mobile applications for browsing and shopping during the 2015 holiday season, up from 21 percent during the 2014 holiday period, according to the NRF. This indicates a greater reliance on mobile devices year round.
"At mid-decade, e-commerce appears to be the key market driver and shaper for all concerned: shippers, carriers, and logistics companies," says Bruce Carlton, president and CEO of the National Industrial Transportation League (NITL), a shipper association that includes all transportation modes. "Retail is being re-invented in real time, with order fulfillment rapidly moving from fast to faster to right now."
Retailers are adopting a variety of supply chain practices that allow them to serve both brick-and-mortar facilities and an ever-increasing base of online customers. The scope of change and supply chain impact cannot be underestimated, says Corey Weekes, supply chain director for Hudson's Bay Company (HBC), one of the fastest-growing department store retailers in the world.
The HBC portfolio includes eight banners, ranging from luxury department stores to off-price stores, with 460 retail locations and 65,000 employees worldwide. In North America, HBC's leading banners include Hudson's Bay, Lord & Taylor, Saks Fifth Avenue, and Saks OFF 5th.
"E-commerce is huge, and we expect continued growth over the next several years because we live in a society that is increasing its online presence," says Weekes.
E-Commerce: a Nail Biter
HBC has several hundred thousand square feet of warehouse capacity in the United States alone, but even with those numbers, servicing a national e-commerce customer base with expanding product offerings and tremendous online purchasing growth presents exciting challenges.
How does a retailer address these challenges? "First, never think you have enough capacity, as forecasting long-term e-commerce growth and impact is an art as much as it is a science," Weekes says.
He also recommends having a good plan and supporting IT infrastructure to handle spikes in volume at any time, in addition to the seasonal shopping cycles retailers typically experience. And, "Retailers must have a robust strategy for moving product in and out of their own facilities quickly to keep expected deliveries on time and customer satisfaction high," he adds.
HBC operates several distribution centers in Canada, with one dedicated solely to e-commerce. In the United States, HBC maintains both dedicated and mixed-use facilities to fulfill e-commerce needs.
Like the rest of the industry, HBC is investing in technology—with a focus on automation—to speed distribution center processes. HBC also uses available labor pools to assist during peak periods, especially during seasonal spikes.
"Clearly, we rely on retail forecasting models to plan operations," says Weekes. "If a product is an unexpected hit or does not meet market expectations, however, we must be able to react quickly to re-supply or clear inventory." HBC uses small parcel carriers for some shipping needs, he adds.
Retailer Sears Holdings Corporation addresses the needs of multiple customer channels through an integrated retail model, which is anchored by the use of technology, strategic partnerships with transportation services providers, and integrated planning to maximize all assets.
"Our company has had a well-established home delivery infrastructure for some time, and we were among the first retailers to take some innovative steps to add convenience for our members and customers, while also creating supply chain efficiency," says Bill Hutchinson, president of supply chain for Sears Holdings Corporation.
A leading integrated retailer, Sears Holdings Corporation is focused on seamlessly connecting the digital and physical shopping experiences to serve its members—wherever, whenever, and however they want to shop.Sears Holdings is home toShop Your Way®, a social shopping platform offering members rewards for shopping at Sears and Kmart, as well as with other retail partners across categories important to them. The company operates through its subsidiaries, includingSears, Roebuck and Co., and KmartCorporation, with full-line and specialty retail stores acrossthe United States.
One example of how Sears Holdings delivers on its promise of wherever, whenever, and however is its "Buy Online, Pick up in Stores" option implemented 14 years ago. Since that time, the company has expanded its series of services designed to connect the online and in-store shopping experience. Sears offers "In-Vehicle Pick up, Return and Exchange in Five" service. To use this service, customers access Sears' "Shop Your Way" mobile app, allowing them to pick up, return, or exchange their purchases for free without leaving their vehicle. The service is guaranteed to take five minutes or less of the consumer's time.
Most recently, Sears Holdings announced a service designed to help buyers of major appliances. "Meet With An Expert" allows customers to schedule in-person meetings with home appliance experts at the Sears retail store of their choice.
Another retailer that is offering multiple options to serve both in-store and online shoppers is Kohl's Department Stores. "Our fulfillment ecosystem consists of our Kohl's store chain, distribution center, and e-fulfillment centers, as well as our direct ship partners who fulfill orders from our website," explains a company spokesperson.
Kohl's launched ship-from-store capabilities to its entire base of more than 1,600 stores in 2015. Kohl's also offers buy online and pick up in store service throughout its network. "These services enable us to leverage store inventory, local geographies, and network of associates to further support our growing e-commerce business," the spokesperson says.
In the future, other retailers are likely to embrace the strategies employed by Sears Holdings and Kohl's. A recent study of 60 leading retailers, conducted by Deloitte, indicates that 94 percent of respondents already offer, or plan to offer, an option for picking up online shipments in retail locations.
Consumers clearly find value in these types of services. In 2015, of those customers who planned to shop online during the holiday season, 46.5 percent planned to take advantage of retailers' buy online, pick up in store or ship-to-store options, according to the NRF Holiday Survey.
While these services are all designed to provide flexibility for customers, retailers can also use them to enhance supply chain efficiency, another example of challenges leading to opportunities. "Our supply chain team has been effective in partnering with our store teams," according to Hutchinson.
"It is all about using assets differently," he says, "with retail locations serving as a component of the overall distribution network." One potential benefit is the ability to access inventory from across the enterprise. With many retail distribution centers already operating at maximum capacity, store-based fulfillment offers retailers a way to handle seasonal changes in volume without the capital investment of adding or expanding warehouses.
"Proximity is key," notes Hutchinson. "We are able to fill orders closer to the customer, reduce logistics costs, and cut delivery cycle time. The difference between our supply chain and others is the process that we use to determine where our orders are filled. We use a sophisticated system that looks at our in-stock position in certain markets. It evaluates the cost- service trade-off of certain products by dimensional weight factor or freight cost, and then makes routing decisions of where to fulfill that order."
E-commerce is driving growth for retailers of all sizes, including some businesses that sell their products solely online. One example is Discover Books, an online used bookseller that sources products from donation points across the United States, as well as by purchasing used books from Goodwill. Truckload carriers ship products to two large warehouses, located in Toledo, Ohio, and Hammond, Ind. Discover Books' customers include schools and libraries; its primary market is individuals requiring home delivery.
e-Commerce: A Slam Dunk for Small Box Deliveries
Small package volume continues to rise, mirroring the growth of e-commerce.
One common factor mega-brands such as Sears and Saks and niche retailers such as Discover Books share is their use of small parcel providers to assist with final-mile distribution. Discover Books partners with DHL for its outbound deliveries. In addition to consolidating shipments, DHL forwards them to the U.S. Postal Service (USPS), which ultimately makes the final delivery.
Cost is a key driver for Discover Books and its customers, and DHL is responsible for determining the most economical way for the USPS to handle each shipment. Discover Books' customers can track their shipments on the DHL website.
Sears relies on a number of third-party logistics and transportation services providers to achieve supply chain objectives. "Parcel carriers play a huge role in our online customer fulfillment process; last-mile planning and execution are critical," says Hutchinson.
It is crucial that parcel carriers are involved in the planning process as retailers determine their volume requirements. "The earlier the retailer and the transportation provider begin the planning process, the better," says Hutchinson. This is just one dynamic impacting small parcel providers.
"Just as retailers and manufacturers find it necessary to develop omni-channel capabilities, small parcel service providers need to find the best combination of logistics resources to facilitate not only outbound to customer and consumer shipments, but also product returns that are typical of Internet retailing," explains Dr. John Langley, a professor at Penn State.
FedEx views e-commerce trends as positive, stating, "The ongoing shift to Internet shopping is fueling growth for FedEx, and we continue to invest in network growth and capacity." The company invested $1.6 billion in FedEx Ground during its 2015 fiscal year (June 1- July 31) to increase capacity and automation.
The average number of packages FedEx Ground handles every day has doubled in the past 10 years. "Thanks to strategic investments in the network, FedEx Ground is able to handle that volume while continuing to enhance on-time service levels to exceed 99 percent," notes David Payton, vice president of marketing, FedEx.
The company works with customers around the globe to develop smart solutions for growing their businesses. "We have a portfolio of tools to help with cross-border e-commerce, from international shipping services to customs and regulatory support," says Payton.
FedEx Corporation acquired Bongo International, a provider of cross-border enablement technologies, to help merchants and consumers facilitate international e-commerce shipments and orders. Bongo International complements and expands the FedEx portfolio of offerings, according to FedEx. Bongo International's capabilities include duty and tax calculations; export compliance management; Harmonized Schedule classification; currency conversions; international payment options inclusive of language translation; shopping cart management; and more.
The ability of small parcel providers to assist with global shipping is critical. "E-commerce is an excellent platform for many retailers to expand their reach," notes Jon Gold, vice president, supply chain and customs policy, NRF. "International shipping, however, requires expertise and understanding of trade facilitation, rules and regulations, and even health and safety considerations."
UPS TAKES A SHOT
UPS is also focused on serving consumers and merchants around the globe. "With the substantial acceleration of growth in e-commerce over the past five years, UPS has built a series of technologies and processes, such as UPS My Choice and UPS Access Point Network, to increase efficiency and enhance the consumer's experience," says Bala Ganesh, retail director for UPS.
"We listened to the challenges e-commerce growth creates for consumers," says Ganesh. "Online shoppers told us they want convenient delivery options to fit with their busy lifestyles. In many cities around the world, consumers do not have an easy way to accept delivery at home, which discourages online shopping.
"The UPS Access Point Network addresses the challenge by providing an alternate delivery location so consumers can pick up and drop off packages on their schedule," he adds. By the end of 2015, there were 8,000 U.S. locations and 22,000 UPS Access Point locations around the world.
While e-commerce has impacted major small parcel providers such as DHL, FedEx, and UPS, it has also led to niche providers that aggregate shipments and utilize services of a wide range of providers for delivery.
One example is MyUS, a package consolidator specializing in international shipments. After becoming a member of MyUS, consumers are assigned a MyUS address that ships directly to the consolidator's facility in the United States.
Customers enter their MyUS address as the "ship to" address when purchasing products from any U.S. store online. Merchandise arrives at the MyUS facility, where it is stored and ultimately shipped, along with other shipments destined for a specific location.
Shipments typically arrive in two to four days, according to Ramesh Buluso, CEO of MyUS. His firm serves more than 200 countries, and he notes increased consumption from the Middle East, North Africa, and Asia.
As the most dominant player in the online game, Amazon ships 5.6 million packages daily, notes Satish Jindel, founder of SJ Consulting Group. Amazon is a major user of the USPS and parcel carriers for delivery to customers, as well as less-than-truckload carriers to bring products from suppliers into more than 60 Amazon fulfillment centers in the United States, says Jindel.
Clearly, demanding and empowered consumers are shaping today's marketplace, and retailers, wholesalers, and providers are all adapting to this new business environment. "Overall, small parcel carriers have done a good job of reacting to and continuing to address the unique requirements of e-commerce," says HBC's Weekes. "They have supported the needs of e-commerce, and always try to remain ahead of capacity requirements especially during busy shopping periods."