RETHINK Delivery: Fulfillment and Delivery Strategies for the Modern Retailer
Without hesitation, most of us would agree that our expectations from online retailers have changed significantly since the advent of the digital transformation. Retail giants like Amazon and Walmart now offer two-day to same-day shipping and that’s shaped consumer expectations on a broad scale.
What’s shocking? Retail has experienced more developments made in the last five years than the preceding 50, and the pandemic has only accelerated that process. Specifically, consumers want speed and convenience when purchasing goods online—two factors that have great effect on omnichannel supply chains.
Heightened delivery speeds matter so much these days that retailers who are unable to ship their goods within two to three days will lose customers—and not just a few. 2021 numbers show that when a retailer’s delivery time is longer than a few days, up to half of consumers will shop elsewhere. Moreover, consumers appear unwilling to pay for speed.
These numbers put many retailers in an uncomfortable position. Is it worth investing in fast-delivery infrastructure when customers aren’t willing to accept a marginal increase in shipping fees? Understanding the challenges accelerated delivery has on retailers can give us clues as to where we’re headed in the coming years.
Accelerated delivery will create challenges for retailers
In the early 2000s, one could expect to receive an Amazon package in eight days or more depending on their address. By 2005 they offered two-day shipping and by 2019 same-day shipping was carried out in some locations. Not only is this a high bar, but in many respects, Amazon has acted as a catalyst across the retail space.
When most fulfillment operations need four to eight hours to pick and pack deliveries plus the time to transport packages to distribution centers, most retailers struggle to leave enough time for one to two-day deliveries. Bringing this all together takes extraordinary execution and tightened cycle times.
One of the ways retailers have fought to cut down on these initial stages of the delivery process is by using their stores as fulfillment and pickup locations. Most walk-in retail stores weren’t designed with fulfillment in mind, so preparing deliveries while managing customers at the same time comes with its own challenges.
Further, retailers who use this fulfillment model will need to consider demand forecasting. Walk-in stores typically stock for in-person customers, so they’ll need to position their inventory more like a distribution center if they want to meet demand in real-time.
With these challenges in place, the question remains: how can retailers meet accelerated delivery and customer service demands while maximizing profits? Implementing automated systems and robotics within stores and distribution centers is a start.
Retailers will seek solutions using automation and robotics
One of the most recent developments within robotics are “co-botic” solutions, or robots that work with humans to complete a given task. The solution brings flexibility, efficiency, and quality control to the fulfillment and distribution process. However, “co-botic” developments are often seen as far-fetched for retailers who operate on a much smaller scale than Amazon or Walmart.
Robot manufacturers continue to problem-solve ways humans and robots can share workspaces and if robots can adjust and respond to human behavior. For retailers who are able to take advantage of robotic technology, finding the balance between replacing human workers and collaborating with them is another challenge in itself.
2020 saw an unprecedented uptick in interest in automation and robotics due to the pandemic, and for good reason. In the last 18 months, warehouse employees dropped and consumer demand increased. This led to more robots sold to non-automotive companies than automotive companies for the first time last year and this trend has continued into 2021.
To meet consumer expectations, smaller retailers are now turning their stock rooms into semi-automated, mini-warehouses. Not only do robotics streamline fulfillment operations, but they significantly cut down on space. Companies like Fabric have built robotic warehouses that if not for the tech inside them, would take up city blocks to complete the same orders.
These robotic warehouses make up the majority of micro-fulfillment centers and are a huge step toward accelerating speed and convenience for omnichannel retailers.
Inventory analytics is key to building complex distribution systems
Outside robotics and automation, retailers are looking to refine their fulfillment centers in another key way—building more complex distribution systems. These include urban and multimarket fulfillment centers, stores, and dark stores.
As distribution networks expand, retailers will have to consider the many choices and trade-offs they’ll have in this modernized system. In a traditional system, allocating for and replenishing an inventory falls short when identifying the tradeoff between breadth and depth.
But as omnichannel inventory strategies become more sophisticated, modern tools and analytics can make up for technical liabilities. Today, retailers are learning, testing, and adopting inventory strategies that are closing the gap between fast and profitable deliveries.
When is accelerated delivery necessary?
Using technology to shorten fulfillment and delivery times is undoubtedly important across the retail space, but where exactly does speed matter? Segmenting up the retail space into categories like: “food and grocery,” “apparel,” “beauty,” and “electronics” allows us to look a little closer at who needs fast delivery and what the standards are for each segment.
These days, retailers have a pretty good idea of when their product needs to be in the hands of their customers. For food and grocery retailers, the bar is set at same-day deliveries—but for apparel and electronics, that timeframe typically gets extended to two days.
However, delivery times are headed in the same direction across the board and to be a competitor in the years to come, retailers will need to keep their deliveries south of 48 hours—and potentially quicker. In fact, many non-grocery retailers such as Sephora, Bed, Bath and Beyond, and Michaels have already teamed up with same-day delivery service providers like Instacart.
For a retailer who is unsure what their customers expect from them, A/B testing is a reliable source of insight into delivery speeds. To put this into action, here’s what a single retailer can do to optimize their delivery speeds while at the same time maintaining profitability.
First, the retailer should compile the products customers want to receive quickly in order to stack their inventory with those items in advance. Second, the retailer needs to produce a product page that shows different delivery speed promises made to different customers.
From here, conversion rates, customer satisfaction levels, and repurchasing behavior can be tracked over weeks and months. Once analyzed, this data translates to inventory placement solutions, targeted speed promises based upon customer demographics, and cross-network optimization strategies.
There certainly isn’t a one-size-fits-all solution to delivery speeds among retailers, but understanding the intricacies of customer behavior can help point businesses in the right direction.
Retailers are at the mercy of final-mile delivery
The most optimized fulfillment strategy is still at the mercy of final-mile delivery. For years, parcel carriers have been an essential part of the delivery equation while putting pressure on retailers to limit package capacity and pay surcharges. In order to ease these pressures, retailers are developing alternative strategies for the final-mile delivery.
Regional parcel carriers and modernized delivery services are at the head of the table. Regional carriers offer more affordable rates and can be used in tandem on a national scale to provide full delivery coverage. Modernized delivery services provide fast and scalable final-mile delivery options without the fixed-cost restrictions put in place by national parcel carriers.
Just this year, American Eagle Outfitters partnered with ShopRunner to offer same-day fulfillment to its customers. Although costly, the increased conversion rates brought on by accelerated delivery options made the difference for the retailer.
Further, final-mile delivery cannot be mentioned without recognizing long-term solutions offered by drones and autonomous vehicles. Both are targets of national media attention and have potential down the road.
What’s important beyond speed
As expected, building accelerated delivery solutions is a priority for most retailers—but that’s just one piece of the puzzle when it comes to staying competitive in the retail space. Omnichannel retailers will need to consider the breadth of their product selection, their return policy, reliability, payment, pickup, and delivery options, and even their promise to sustainability.
Moreover, a promise to sustainability has the capacity to make or break a business model. Customers expect retailers to share similar values and commitments as they do, and retailers need to appeal to them.
Depending on a retailer’s customer demographics, they may choose to go carbon-neutral or allow their shoppers to customize their delivery method.
Online purchases can be made with a single click these days, but what happens in-between the point of purchase and the point of contact with the customer says a lot about where the retailer’s priorities lie and how optimized their fulfillment and delivery strategies are.
Closing the gap between accelerated deliveries and profits is proving to be easier with modern technology, but there is no better starting place for retailers than listening to the consumer.