Can you remember your first online purchase? Seems like forever ago. Today, for many of us, shopping online happens more frequently than in-store purchases. It’s convenient, there’s 24-7 access, and we don’t have to leave the house to do it.
But eCommerce is tricky. According to the U.S. Census Bureau, of the nearly $5 trillion spent in retail in 2016, eCommerce sales only accounted for 8.1% of it. That’s still $394.9 billion, but clearly, there’s room to improve. And it is. Between 2015 and 2016, total eCommerce sales grew 15%, while total spend in retail only grew 2.9%.
As more and more shoppers look to the World Wide Web to find what they need, eCommerce retailers will have to work harder to stand out and win that business.
In this article:
- Section 1: Learn what’s at stake for eCommerce businesses if they can’t meet customer demands
- Section 2: Find out how an optimized supply chain can increase sales, improve customer retention, and decrease shopping cart abandonment
- Section 3: Discover how to close the last mile of delivery with on-demand warehousing and fulfillment services
- Section 4: Get a free network analysis to discover how on-demand warehousing can improve your eCommerce strategy
A lot. For years, the movement to online has been a daunting business goal for many retailers. Struggling to create a seamless omnichannel experience and boost online sales has been on the agenda. If you’re purely eComm, it’s been your only agenda.
Year over year, Amazon continues to dominate the market. In 2016, the top three eCommerce retailers were Amazon, Walmart, and Apple. Walmart’s sales hit $13.5 billion and Apple’s hit $12 billion, but Amazon’s? They were $79.3 billion.
Keeping up with industry titans has forced retailers of all sizes to improve online shopping experiences—because it all plays a role in completing a purchase. From basic UX design to online checkout to loyalty programs to fulfillment and returns, everything has to change.
Retailers, of every shape and size, are faced with the threat: “Innovate or die.”
Brick-and-mortar: Rapid declines, retailers shrinking or closing
This has been happening for years. Even though eComm retailers like Warby Parker and Amazon are testing physical locations, brick-and-mortar brands and stores are closing faster than they’re opening. In 2005, department stores alone sold $60 billion in apparel; in 2015, it was half with nearly $28 billion shifting to online retailers like Amazon. This year, household names like Sears, JC Penney, Macy’s, and more, continue to close more locations—unable to maintain physical sales and struggling to transfer them to online purchases.
Big box retailers look to increase online footprint
Some industry leaders are looking at new ways to compete digitally. Target, Best Buy, and Nordstrom have invested heavily in their eCommerce platforms—making it as simple as possible to complete a purchase.
Recently, more of Walmart’s eCommerce strategy has been revealed. Despite being the second largest online retailer, it has been struggling to compete with Amazon. To increase traffic, it has been focusing on inorganic growth by acquiring small, hip online retailers with a strong brand identity and market presence. In the last three months, it acquired ModCloth, Moosejaw, and ShoeBuy. What’s interesting about this move is, despite Wal-Mart’s brand equity, it isn’t planning to rebrand these companies. Instead, the plan is to expand its online footprint by leveraging their already-established brands and reach audiences outside its wheelhouse.
e-Retailers don’t have it nailed either
Even pure eCommerce retailers—those whose brands have been built completely online—aren’t safe.
For online shoppers, the buying experience is as valuable as the product itself. If a customer is dissatisfied with either, they aren’t likely to become loyal… and that affects sales. Earlier this year, eCommerce giant, Nasty Gal, announced bankruptcy and agreed to sell to its rival, Boohoo.com. To many, Nasty Gal’s demise (it went from generating $85 million in revenue in 2014 to bankrupt in 2016) had everything to do with its distribution strategy and failure to retain customers.
Like we said, eCommerce is tricky.
In eCommerce, logistics can make or break your business. Sure, a great-looking website is a good thing, customer loyalty programs incentivize repeat business, and a frictionless checkout experience converts the sale faster. But the actual process of getting your products to your consumers and what it takes to do that can be the difference between a completed sale or an abandoned shopping cart.
In fact, in a recent Baymard Institute survey, 61% of shoppers cite unexpected costs and shipping fees as a reason they’ll abandon a purchase. That means, nearly 61 out of 100 shoppers on your site will go elsewhere if shipping costs are too high. Additionally, 16% cited delivery was too slow and 10% said return logistics were unsatisfactory. Combined, that’s 87 out of 100 people leaving your site if your logistics fail to meet their expectations.
Clearly, for eCommerce retailers, customer attrition can have as much to do with the supply chain as it does the quality of the product. Dissatisfaction of any kind is bad for business.
To compete with Amazon and other eCommerce leaders, logistics can’t be your weakest link. Today’s customers have been conditioned to expect one- or same-day shipping, which is difficult to achieve unless you have a distribution network built to do that.
That said, you’re a retailer, not a logistics company. Logistics are important, but it’s still only one part of the business. You also have to focus on customer acquisition, retention, and entering new markets. Even though logistics is an undercurrent to those strategies, it’s secondary to keeping customers happy.
Building an in-house distribution network is expensive, but so is fast shipping. Not every retailer has a comprehensive distribution network in place to afford fast shipping or the capital to absorb the steep financials it requires. One of Nasty Gal’s major downfalls was that it invested in its own distribution facility—the cost of which was too steep to manage and demonstrates that investing in fixed assets can hurt a business more than help it. Investing in your own facilities is capital that could be used to grow your customer base, not your square footage.
But how else can you improve shipping times and costs?
New technology has made it possible for retailers to expand its distribution network without traditional investments and fixed costs. And we aren’t talking about working with a 3PL (third-party logistics company).
By outsourcing your logistics, you can introduce speed and responsiveness into the supply chain and meet customers’ demands for fast, low-cost delivery. For anyone trying to compete with Amazon, this is everything.
Adding capacity: Old concept, new twist
Short-term warehousing isn’t new. But traditional methods for adding capacity have been clunky and expensive. It usually meant committing to a full-year lease and sometimes a service contract costing upwards of $250K. That fixed-cost model typically left retailers with too much space—the opposite problem from when they started.
We live in a world where consumption models have changed. Fixed capital expenditure (CapEx) models are being replaced with operating expenditure (OpEx) models, or subscription-based models. The supply chain is no different.
On-demand warehousing solutions make it possible to solve for inventory overflow and add fulfillment centers with little-to-no risk and no long-term lease agreements. With access to a warehouse marketplace, you can search for available space and leverage multiple warehouse partners to create the distribution network you need. So while short-term warehousing isn’t a new concept, on-demand warehousing is.
Instead of having to invest in fixed assets, or working with only one 3PL, you can procure the space you need, when and for however long you need it. With an on-demand solution, it’s easier to find what you need and costs a fraction of the price because there are no long-term commitments or service fees involved.
You can approach fulfillment with more agility—creating a stronger, more nimble distribution network. For example, if the manufacturing strategy changes or customer demand patterns shift, you can make real-time adjustments to your distribution network by popping up and popping down capacity.
At the speed of today’s retail industry, this is paramount. Being able to adjust warehouse space and services to accommodate peak seasons or new product promotions means you can get products closer to your customers to meet demand and cut shipping costs for both you and the customer.
With on-demand warehousing, eCommerce retailers can more easily:
- Reach a higher volume of customers with one- or two-day shipping
- Cut transportation costs by positioning inventory closer to customers
- Solve reverse logistics challenges by putting return centers close to high-density areas
- Deliver orders faster and for less to decrease shopping cart abandonment rates
- Run market promotions for same- and next-day shipping
Consider this: 16% of shoppers cite slow delivery for shopping cart abandonment.
Your business relies on fulfillment. Implementing a stronger strategy not only supports customer satisfaction, it also supports retention.
You’re in the market to grow your business. With a network analysis, you can quickly find out where to add fulfillment centers at the optimal cost for your business.
The key variables that influence fulfillment strategies are:
- Customer promises
- Manufacturing locations
- How much you want shipping costs to be
- How much inventory you want to carry
Using a network modeling tool, each variable is run through the system to calculate the optimal solution, including how many fulfillment centers you should have and where they should be located.
Making your network footprint flexible fulfillment could be the smartest decision you make. With the right strategy, you can get orders to your customers faster, reduce shipping costs, better prepare for peak seasons, and stay ahead of your competition. It’s a no-risk investment that lowers direct-to-consumer shipping costs and makes you look good.