Blog postsAugust 29, 2016
One Big Lesson eCommerce can Take from Walmart's Jet.com Acquisition
Walmart seems to be looking at every angle of its business as it tries to catch-up with Amazon's giant online retail lead. Walmart’s acquisition of Jet.com has sparked an outcry across the Internet asking the question “will it” or “won’t it” help Walmart compete with Amazon. From a logistics and fulfillment standpoint, there is one big reason it’s a smart move:
The acquisition puts both Walmart and Jet.com closer to their customers, and that’s quickly becoming the name of the game if you want to compete in e-commerce.
Fast, low-cost delivery wins eCommerce customers
We’ve been hearing it for a while now, consumer behaviors and expectations have changed. 75% of shoppers said whether the store will pay for delivery “greatly impacts” their decision to buy a product online, according to a June survey by consulting group AlixPartners. Consumers have come to expect free delivery, and more than that, they expect delivery to be fast.
A national survey on consumer expectations from Dropoff states that 60% of consumers reported they have decided not to purchase from a retailer due to slow delivery speed.
The median expectation for retail delivery is now two days, but 40% of respondents said they would like it to be same day. In addition, consumers also reported faster delivery times make them more loyal and less likely to shop around.
The problem with these new expectations is that delivering on free, two-day shipping is logistically difficult and expensive.
Even Jet.com with its climbing online sales is operating at a loss. Why? One likely reason is that the cost of meeting customer shipping expectations is too high without a massive fulfillment network.
This is a problem that will continue unless companies can get their products closer to their customers and start cutting freight costs.
Enter the logistics advantage of merging Walmart and Jet.com’s supply chains.
It turns out, Walmart and Jet.com’s supply chain networks are quite complimentary to one another. When combined, they both increase their US population base coverage significantly, which means they are getting closer to their customers and cutting freight costs.
How smaller eCommerce companies can get closer to customers
Walmart isn’t the only retailer trying to capitalize on the benefits of building a leaner, more agile supply chain. Look no further than Target’s latest appointment of supply chain executive Preston Mosier—another high-level heist from Amazon’s executive team—to see the growing urgency e-commerce businesses are feeling to innovate their supply chain and fulfillment strategies.
But, not everyone has the capital of retail giants like Walmart and Target. Yet, smaller companies are still struggling with the same problem: winning e-commerce customers means fast, low-cost delivery, which ultimately requires getting your product closer to your customers.
E-commerce businesses that don’t have the capital to insource new distribution centers are turning to pop-up fulfillment as a way to augment their supply chain and scale without costly acquisitions.
Pop-up fulfillment centers allow companies to expand operations without significant investments and to test new markets without long-term commitments.
For example, a small children’s toy store could use pop-up fulfillment to add a distribution center during the holiday season near one of its largest consumer bases. The temporary center could allow the store to offer free, two-day shipping on certain items during the peak season, giving the store a promotional marketing opportunity and a better chance at winning online customers long term.
Pop-up fulfillment allows companies to build complimentary supply chain models similar to Walmart and Jet.com, but on a much smaller scale and without long-term commitments.
Here’s an example of how FLEXE uses distribution modeling to help companies identify the right pop-up fulfillment strategy and get closer to their customers:
Example of a small parcel shipper going from 1 distribution center to a more optimized 3 distribution centers using pop-up fulfillment and FLEXE’s online marketplace.
Transit time goes from 3.9 days to 1.8 days when two distribution centers are added.
In the above example, the shipper's current strategy is to drop ship from the manufacturer, taking an average ground parcel time of 3.9 days.
Using pop-up fulfillment, the shipper is able to add two additional distribution centers, yielding a 7% savings on parcel spend and reducing the average transit time by 2 days.
The new average ground parcel time is 1.8 days. A 50% reduction in transit time.
One of the key advantages of pop-up fulfillment is the ability to add distribution centers, like above, with no fixed costs and no long-term commitments. FLEXE’s online marketplace has nearly 400 warehouse partners, which makes it easy to help companies build synergistic solutions and keep their supply chain agile. It is the first online warehouse marketplace of its kind, giving smaller companies an opportunity to boost their e-commerce strategy.
Walmart’s acquisition of Jet.com reiterates to the e-commerce world that it’s a delivery logistics game right now, and those who can get closer to their customers, cut delivery costs and still deliver a flawless customer experience will be the winners at the end of the day.
It also reminds us that it’s not an easy road and it’s going to take some bold moves and lean thinking to get there.