COVID-19 accelerated change. eCommerce sales spiked and broke the supply chain. It demonstrated the importance of resilience, and now consumers demand more from their retailers. Looking ahead, retailers and brands must center their logistics operations around their end customers. That’s omnichannel.
This article explains:
Why omnichannel fulfillment is necessary now
What stands in the way of implementing an omnichannel strategy
How omnichannel helps reduce last-mile delivery, increase profit margins, and mitigate disruptions
All statistics in this article are from "The Omnichannel Retail Report: COVID-19's Impact on Consumer Expectations" unless otherwise cited. Download the full report to learn more about the importance of fast, free shipping to the omnichannel consumer.
The retail landscape is changing
Think back to March of 2020. Physical stores closed due to government mandates. Panic buying of consumer product goods ensued. And people were afraid to leave their homes. This combination catapulted a swift switch to eCommerce.
A quarterly report from McKinsey & Company found that in 2020, eCommerce sales increased by 68% in 10 weeks; the same amount of growth as the previous 10 years.
Consumers attest to that growth. Sixty-nine percent of consumers report their online shopping increased at the onset of the pandemic.
INCREASE IN SPEND DUE TO COVID-19
Consumers want fast, free shipping
The sustained growth of eCommerce brings heightened consumer expectations, especially around delivery promise.
Consumers expect to get their goods fast. Amazon dominates eCommerce, and sets the expectations for what fast means. Seventy-three percent of consumers say “fast” shipping is two days or less—the original, longest-standing Amazon Prime promise.
In our 2021 Retail and Logistics Predictions report, FLEXE Founder and CEO, Karl Siebrect, explains how Amazon is driving heightened expectations. “The reality is that before there was two-day shipping with Amazon Prime, 3-to-7-day+ shipping was fast enough because it was the fastest option. Now, Amazon's investment in 1,000 more suburban warehouses and commensurate promotion of next- or same-day shipping will once again adjust consumer views on what "fast enough" is.”
Amazon's investment in 1,000 more suburban warehouses and commensurate promotion of next- or same-day shipping will once again adjust consumer views on what "fast enough" is.Karl Siebrecht FLEXE Founder & CEO
Inevitably, consumers will soon expect one- or same-day delivery, and likely for free or under a subscription like Prime. Seventy-eight percent of consumers say free shipping is important when making a purchase online. And when retailers offer a two-day or less promise paired with free shipping, it exceeds the majority (53%) of consumers’ expectations.
And consumers spend more when retailers offer a compelling delivery promise. Fifty-seven percent of Amazon Prime One-Day and Same-Day Delivery users say that those offerings increase the amount of money they spend on the site.
For every other retailer and brand, now is the time to figure out how to center operations around customers and create a sustainable fulfillment strategy.
Omnichannel challenges: Capacity and costs
To center operations around customers means having a logistics network that supports the delivery promises they want. That could mean providing short, affordable delivery options, curbside pickup, buy-online-pick-up-in-store (BOPIS), and easy returns. Providing that level of optionality is omnichannel.
An omnichannel strategy is ideal. But it’s not easy. It can be complex and expensive to implement.
First, there’s the issue of logistics capacity. Industry statistics show that U.S. average vacancy rates remain below 6%, and every major market is under 10%.
Rodney Manzo, Founder and CEO of Anvyl, said it best:
Direct-to-consumer [retail] will continue to get bigger and bigger. That will put immense strain on logistics and warehousing. The dramatic decrease in physical retail when regions were locked down made shopping a major logistics problem—figuring out how to get things from point A to point B in unprecedented volumes.
Logistics networks weren’t prepared for the surge in eCommerce, and there hasn’t been a ton of opportunity to catch up since March. Transitioning to a direct-to-consumer-focused model doesn’t happen overnight. Consider the space and requirements to implement pick-and-pack operations in a warehouse. In this environment, that’s a nightmare.
Air, freight, warehousing, and trucking are strained, and that’s only going to get worse. As more and more enterprise retailers and brands shift to eCommerce, the competition increases. Capacity will come at a premium.
Then there’s the issue of cost. The majority of retailers (77%) offer two-day shipping. But only 48% optimize for one-day, and even fewer (21%) optimize for same-day. Why? It’s expensive.
TOP 5 REASONS FOR NOT OFFERING FAST SHIPPING
Businesses that center their supply chain around their customers see revenue growth 13% higher than businesses that don’t.
It pays off to prioritize customers
Omnichannel fulfillment helps meet consumers’ expectations. It also has tremendous benefit to the retailer. Businesses that center their supply chain around their customers see revenue growth 13% higher than businesses that don’t.
Omnichannel fulfillment is about convenience. And convenience positively impacts customer loyalty. showed that shoppers are more likely to return to retailers that offer omnichannel. Consumers who engaged with companies on multiple channels visited a physical store 23% more often over a six-month period. Sixty-three percent of omnichannel shoppers made two or more purchases versus the 44% of in-store-only shoppers.
It’s a hard investment to implement a solid omnichannel strategy. But it’s an investment in the end consumer. So it’s worth it.
The good companies have a common denominator; customer-obsession. Customer-obsession is often an absolute thing, not a relative thing.Harshad Kanvinde Head of Global Supply Chain Practice, Slalom
The benefits of omnichannel fulfillment
Logistics capacity and cost may present hesitations in implementing an omnichannel strategy. That doesn’t mean retailers shouldn’t prioritize it.
In the FLEXE 2021 Retail and Predictions report, Bob Spieth, Former Supply Chain Executive and Board Member, says: "Retailers and brands that want to keep up must have the logistics network to support many different methods of getting their product to the consumer: Ship-to-store, pick-up-in-store, direct-to-consumer, as well as value-added services and experiences. Cost and speed aren’t the most important elements here; curating the experience for that particular purchase is."
There are many benefits to implementing an omnichannel fulfillment strategy. Of course, the most important is meeting and exceeding customer expectations—regardless of how they want their purchases fulfilled. But, there are inherent benefits to the business.
Omnichannel fulfillment is only made possible through flexible, resilient logistics networks. It requires end-to-end visibility, the ability to act quickly, and continually test, learn, and iterate as the market shifts. WIth a flexible logistics network, you can:
- Reduce last-mile delivery times and costs. Last-mile logistics is expensive. It accounts for 41% of supply chain costs. Optimizing for more competitive delivery promises and omnichannel fulfillment options requires goods to be closer to end consumers and inherently shortens the last mile of delivery. A shorter last mile means faster, more affordable delivery options.
- Increase profit margins. Nearly one-quarter (23%) of consumers are willing to spend an extra $20 or more to meet free shipping minimums. With minimums in place, retailers don’t have to absorb the cost of shipping, but neither do customers through higher product prices.
- Mitigate disruptions. Omnichannel provides optionality when disruptions occur. Traditional logistics networks are centralized with fewer locations, which enhances the impact of disruption. Distributed networks are more shock-resistant. Distributed networks also enable faster, more affordable delivery promises—and customer attrition is one of the biggest disruptions of all.
Omnichannel fulfillment improves the resiliency of a retailers’ supply chain. As we saw with the onset of the pandemic, in-store fulfillment routes failed. But multiple fulfillment channels allow for easy pivoting to a new strategy, which can limit the effects of disruption.
Large retailers like Best Buy, Nordstrom, and Home Depot understand the importance of an omnichannel strategy. According to Digital Commerce 360, Best Buy said they fulfilled 66% of their online orders through their stores in 2020. Home Depot fulfilled 60%. Nordstrom—30%. The growth in eCommerce required retailers to get scrappy and choose alternative fulfillment methods to keep up with demand. Omnichannel helped these retailers thrive amidst disruption.