Amazon Effect Still a Major Driver in DTC, Ecommerce Operations

omnichannel fulfillment

The effect of Amazon on the direct-to-customer and ecommerce landscape, and the changing customer expectations it has helped to engender, continue to be a major factor as seen in the ripples throughout the world of operations and fulfillment, judging by the results of the MCM Outlook Survey 2016.

This impact is being felt in the many ways merchants are fighting back against the Seattle juggernaut, from the increasing frequency of same-day and next-day delivery offerings – and providers – to the growth in omnichannel operations, now seen as table stakes by many retailers.

While competition comes from many sources, the growing dominance of Amazon in every aspect of ecommerce is evident. Consider the fact that is now pushing into its own delivery and logistics operations, including leasing cargo jets in the U.S. and getting involved in ocean-going freight from Asia, and it becomes clear that Amazon wants to own both sides of the ecommerce equation.

In the 2016 MCM Outlook Survey, respondents told us about the impact Amazon was having on their business. The largest number of respondents, 45.3%, said it was causing pressure on them to ship faster – a reaction to Amazon Prime’s two-day delivery guarantee, as well as Prime Now same-day services in many metro areas. Almost as many of those polled (43.8%) said they felt pressure to offer free shipping, while 31.2% said it led them to be more price competitive, and 17.2% it caused them to sell their products in online marketplaces.

For Tobi.com, a pure-play seller of women’s fashion, part of the response to Amazon has been using the U.S. Postal Service’s Priority Mail and Priority Mail Express offerings. The company’s clientele has been very happy with an average delivery rate of 2.7 to 3 days throughout the U.S., said Mark Stoye, Tobi.com’s director of ecommerce fulfillment operations, and free Saturday delivery is big a plus. At present, Stoye said, same-day delivery is not a priority for his customers.

Like many other companies, Victorian Trading Co., an online and catalog seller of Victorian era clothing and gifts, doesn’t see the point of competing with Amazon’s vast resources and ability to operate in the red for quarters in a row. Ian Richardson, the company’s manager of IT and order operations, said its Midwest distribution center enables guaranteed four-day delivery to 98% of the U.S. via USPS-enable FedEx SmartPost and UPS SurePost, which is good enough for his clients. He added Victorian Trading does sell on Amazon as well.

The growth of omnichannel

The 2016 Outlook Survey gave clear indication of the growth of omnichannel operations among retailers. Of those companies with stores, 27.8% said they offer ship to store, up from 10.6% in 2015, while 41.7% said they provide ship from store, a big jump from 13.6% in the prior year. The practice of buy online pickup in store – an option that retailers love for its economy – just about doubled among MCM’s audience, from 21.2% in 2015 to 44.4%. Web-enabled kiosks were an option offered by 16.7% of survey respondents with stores, up from 4.5% in 2015. But the biggest increase was in those saying they offered in-store return or exchange of online purchases, from 18.2% to 61.1%. This last option is increasingly seen as a required option for shoppers, even though it can be tricky in terms of assigning credit between store and ecommerce operations.

While omnichannel has become an imperative in retail, many companies are still struggling to figure out how to make it work profitably. There have been a number of recent reports detailing the cost of omnichannel fulfillment. For instance, EKN Research and Aptos Inc. found that satisfying shoppers’ omnichannel expectations accounts for 18% of every sale, while another study from PwC detailed how only 19% of executives think omnichannel order fulfillment strategies improve company profitability.

The contrast in recent financial results from The Finish Line and Target give a good picture of how this is playing out. The sporting goods retailer had a brutal fourth quarter of 2015, in large part due to the failure of a new warehouse management and order management system. System issues led to difficulty filling online orders and replenishing stores, resulting in $32 million in lost sales, about 8% of revenue for the period, and the resignation of its CEO.

Target on the other hand had a fantastic Q4 2015, much of it due to its terrific omnichannel execution. The company reported a 34% increase in digital sales in the fourth quarter, well ahead of Walmart (8% growth) and online sales in general as well as Amazon (both 15% growth). Thirty percent of the quarter’s digital sales came from either ship-from-store or buy online, pickup in store transactions.

One of the biggest challenges for retailers in omnichannel is figuring out the operational and financial implications of exposing all their inventory – store and ecommerce – to every consumer touchpoint and making it available to purchase, knowing not every store or even the nearest ecommerce DC can carry everything.

If a woman shops online and finds four apparel items she wants, three of which are in three different stores and one in an ecommerce DC, what does that mean in terms of fulfillment, cost and customer satisfaction? In that scenario, you have to ship four items separately and incur that cost against whatever shipping offer you’ve made. Or do you keep stock levels higher to avoid that fulfillment nightmare, but then risk languishing inventory, added costs and markdowns? It’s a continual balance between customer need and cost, selling through product at the highest margin while meeting omnichannel’s increasingly anywhere/anyhow/anytime demands.

Partner Content

3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.
Build the Foundation for Great Customer Experiences - NetSuite
Understand how consistent, timely, relevant and personalized experiences are enabled by having the right technology foundation in place.
Strategies for Maximizing Mobile Point-of-Sale Technology - NetSuite
Learn the top five innovative ways to utilize your mobile POS technology to drive customer engagement, increase sales and elevate your brand.

Leave a Reply

Your email address will not be published. Required fields are marked *