News stories chronicling how e-commerce is reshaping the global retail landscape tend to overlook its huge potential impact on logistics.
In a recent study, Jean-Paul Rodrigue, professor, Department of Global Studies and Geography at Hofstra University, in Hempstead New York, concluded “In the conventional retailing system, shoppers bore the costs of moving the goods from the store to home. But with e-commerce, this segment of the supply chain has to be integrated into the freight distribution process.”
Among the various e-commerce-inspired trends, he states that spatially disaggregated retail distribution reverses the economies of scale resulting from the current practices of consolidating deliveries to larger stores and larger distribution centres.
Another one is the new system’s reliance on large warehouses located outside metropolitan areas from which vans and trucks can deliver a vast number of small parcels to individual online buyers. As if on cue, Walmart recently announced that it is planning to build an e-commerce-dedicated distribution centre in Bethlehem, PA which is 112 km from New York City and 82 km from Philadelphia, PA.
According to Rodrigue, such a change will result in more packaging and more tons-km of freight transported.
E-commerce technology has created a digital platform enabling more and more consumers to “let their fingers do the shopping”. At the same time, convenience - home delivery - has now joined cost, price and product quality as their top priorities. For logistics and transportation service providers, that creates both challenges and opportunities.
Rumours of the death of department stores have been greatly exaggerated. Although online shopping and various other social and economic upheavals have taken their toll, hardy survivors are planning a comeback. It’s based on leveraging their traditional strengths – long-time relationships with customers and their vast, strategically located real estate holdings. To lend them a helping hand, major courier companies offer services to speed up their successful transition to the digital marketplace.
Key to that turnaround is converting existing stores into distribution centres. That enables them to ship online orders to consumers or offer the option of picking up their purchases at a store near where they live or work. A recent Wall Street Journal article noted that UPS is helping about 40 US retailers to make that transition-twice as many as a year ago. For example, it provided Sears with software to show the shipping status of all its orders across the entire system along with tracking numbers.
Other tools include more muscular RFID systems that can track items more accurately in near real time anywhere in stores’ or online inventories to eliminate stock outs.
Nicolas Dorget, Burlington ON-based vice-president of Customer Solutions UPS Canada believes that tools and systems now exist to eliminate that nuisance forever. “If customers identify an item they want to buy but that is not available in that store, a sales rep can check and tell them where they are. If requested, the store can ship it to their home or office within a specific time or send it to another store for convenient pick up,” he says.
“We can help them capture the sale while the customer is in the store.”
To create an effective e-commerce fulfillment system for stores, UPS experts conduct a deep-dive analysis to identify of areas of possible improvement and offer suggestions to fill in the gaps.
Says Dorget, “We need to find out what products they sell, where they locate them, their quantities etc. at each location because they all different.
“We provide consulting but we are not just consultants because we have ‘skin in the game’- providing the necessary transportation and logistics services logistics to ship goods from mixed DCs.”
As you might expect, Walmart is leading the parade. Currently it is using 35 of its more than 4,600 US stores as e-commerce sales fulfillment centres. Such stores handle a double-digit percentage of Walmart.com orders, with most items delivered within two days or less. Some of the planned dedicated e-commerce facilities may be part of a conventional DC.
According to Jim Hendrickson, Pitney Bowes vice-president, logistics solutions, retailers adopting ship-from-store deliveries are unlikely to close warehouses or other DCs. Their main focus will be on better labour and retail-asset usage along with shipping cost management, not on adopting a fundamentally new business model.
However, he adds that the transition will inevitably change elements of the vertical logistics supply chain. Advanced concepts such as same-day delivery, more focus on cross-border shipping, and cross-store stock management will become more common. Retailers will also be looking for new services, advice and counsel to optimize and manage these processes. “Logistics companies moving in to fill this gap will find themselves in a deeper, more ‘sticky’ relationship with their clients,” he says.
In Canada, the changeover among conventional retailers has been painfully slow with some notable exceptions. Says Ashish Anand, Vancouver-based partner with the survey firm, Chasm Inc., “Many of them are just waking up to that reality now. After setting up a corporate website, executives at several major retailers are simply going through the motions. They need to set up a planned path to the future.”
Various new digital platforms including the Tulip Commerce Engine have emerged to guide retailers on that planned path. Such BFG (business-friendly giant) IT systems can be compared to the extensive capabilities found on today’s sophisticated notebook and tablet computers. It is entirely possible to run a business using the software etc. found on them.
By pulling product, customer, and transactional information into a single, cloud-based hub, the Tulip Commerce engine empowers large retailers to create seamless consumer experiences across their stores, website, and mobile storefronts.
Operationally, it creates a digital platform that can consolidate, analyze, link share and synchronize data to create a single, unified cloud-based repository. That replaces the existing hodge-podge of disconnected and scattered physical and other data repositories.
Says Tulip founder and CEO Ali Asaria, “It can display inventory data in all locations and current quantities. It is also multi-functional so employees can access training videos as well as systems and equipment user manuals, print price tags and accept credit cards payments on their tablet computers.
“By making employees staff more productive and efficient, stores can boost sales and improve customer satisfaction.
“We are targeting very large retailers. These capabilities will enable them to use their existing strengths to gain repeat business by offering customer experiences which Amazon and Google cannot - physical locations with actual products and knowledgeable staff.”
While Tulip is an early-stage IT company, its technology has been field tested by underpinning the success of Guelph ON-based Well.ca, Canada’s largest online health and beauty products store. It offers a comprehensive assortment of more than 50,000 items involving almost 3,500 different brands.
Says president Rebecca McKillican, “Our typical customers are women between the ages of 25 and 45 with families since diapers and other baby products are among the most popular items we sell.
“They come to us because we focus on selling green and environmentally responsible products, especially vitamin and supplement that large chains don’t always carry. Many of them live in smaller centre or in rural areas so they appreciate the convenience of home delivery.”
Well.ca provides free shipping over $25 on almost all orders in Canada excluding remote regions. Fulfillment occurs in a 50,000 sq. ft. DC.
However, serving outlying locations creates opportunities for smaller couriers since the giants are not interested owing to the low volumes. However, to succeed there, Claude Germain, Aurora, ON-based Managing Partner, Rouge River Capital suggest that carriers must focus on specific service offerings. The first is speed- same-day deliveries within a close-density zone - downtown, urban region etc. that do not have pass through a hub.
The second are agent runs or covering peripheral areas such as Vancouver Island, Northern Canada etc. where major players do not want to invest in setting up their own networks. And finally, over-dimensional items such as TVs, large appliances etc. Such items also open up other service offerings beyond delivery that include set-up and take-away as well as repair and maintenance.
Other innovations are emerging to eliminate some of the frustration of e-commerce home deliveries. Throughout Germany, DHL has set up thousands of freight lockers called Packstations in accessible urban locations. Resembling sophisticated versions of Canada Post superboxes, they can receive small to mid-sized parcels to eliminate the hassles of missed home deliveries. Consumers can pick them up at any time using a credit card.
A Canadian version called BufferBox developed by a Waterloo-based start-up is more high tech. At a self-service kiosk, consumers deploy a single-use code to pick up the package. Regrettably Google, which bought the company in 2013, recently announced that it will soon close the Canadian operations and transfer it to its California head office.
Finally, Canada’s very large retailers are nervous about their US counterparts setting up shop here soon. However, UPS’s Nicolas Dorget states that most major US retailers are not too interested in coming north because Canada is such a small market with numerous challenges. As a result, there can be a bumpy learning curve as Target recently discovered.
Still, Canadian retailers need to move quickly to get their e-commerce fulfillment systems in place to scare away potential US competitors.