Beat Disruption and Win Customers—How Retailers Mitigate Delivery Challenges to Meet Expectations

Retailers prepare for peak in the midst of continuous disruption #

Retailers battle supply chain crises while they prepare for 2022’s peak season. And many planned to ship peak season inventory at the end of June—weeks earlier than usual.

Meanwhile, shopping patterns shift due to rising inflation and economic uncertainty. Consumers favored cheaper alternatives in some categories as economic concerns grew. Many opted to purchase services over goods. Americans spent nearly $44 billion less on goods in May but $76 billion more on services.

So how do retailers successfully navigate chaotic supply chains and shifting customer expectations? No brand can predict the future, but they can take steps to mitigate disruptions and meet consumer expectations this peak season.

In Q1 2022, the Flexe Institute conducted two surveys to understand changes in consumer behavior and retailer priorities. The data revealed three strategic categories retailers leverage to mitigate supply chain disruption. Peak season will put these strategies to the test.

2022 peak season logistics challenges #

Retailers face several challenges leading into peak:

• Lead times remain unpredictable. Port lead times increase in Q2 2022. It took 111 days for vessels to arrive at West Coast ports—a 246% increase from pre-pandemic transits.

• Transportation rates climb. The national average diesel price rose $2 per gallon since January, an increase of 50%. Fuel prices certainly affect consumers. They also add significant transportation costs for retailers preparing for peak, a timeframe where truckload and LTL rates typically increase.

• Ports face labor challenges and continued congestion. West Coast port labor challenges may create bottlenecks. And longshore laborer contracts expired on July 1. Contract talks resumed June 1. Any new processing slowdowns will exacerbate congestion delays.
  
  While West Coast dwell times at the Port of Los Angeles and Long Beach dropped as companies rerouted vessels, East and Gulf Coast ports now face increased congestion.
  

• Industrial capacity constraints continue. Brands shipping peak inventory early will experience the lowest industrial vacancy rate ever—3.3% in Q1 2022, per Cushman Wakefield.
  
  Retailers encountered tight warehouse capacity throughout 2021 and into 2022. This isn’t new. Many retailers face highly constrained warehouse networks today—with existing inventories.

Current economic conditions shift consumer expectations and purchase habits #

Americans spent less in May 2022 due to inflation, increased fuel prices and recession fears. In May, consumer spending rose by 0.2 percent, down from 0.9 percent growth a month earlier—a departure from years of robust growth.

Consumers shifted spending to cheaper alternatives in some categories and opted to spend more on services than goods. Americans spent nearly $44 billion less on goods in May but $76 billion more on services.

As retailers prepare for peak, an uncertain economic future makes demand forecasts and inventory purchases harder.

Retailers struggle meeting consumers’ costly expectations #

Even amid economic disruptions, consumer shopping expectations remain high. Flexe’s 2022 Omnichannel Retail Report revealed consumer eCommerce delivery expectations continue to increase. They want their orders—fast and free.

Per the report, 44% of consumers define “fast” as next day in 2022, compared to only 14% in 2020. Thirty percent define fast as same-day versus only 6% in 2020. The baseline shifts toward even faster delivery.

And consumers also want free delivery options. Seventy-six percent of consumers say free shipping is important, and 92% source products from other retailers to save on shipping costs.

Retailers offering suboptimal delivery promises lose new and returning customers. Eighty-three percent of consumers switch retailers for faster delivery. Seventy-two percent of consumers skip repeat purchases due to late deliveries.

And some retailers can’t accelerate deliveries—or offer free options—without higher costs.

• Forty-five percent of retailers don’t offer fast shipping because it makes total costs too high.

• Likewise, 50% of retailers skip free shipping options due to outbound transportation costs.

• Thirty-eight percent claim embedded shipping costs, where a portion or the full shipping cost is rolled into the product’s price tag, will make total costs too high.

With fuel costs accelerating, retailers now face a double bind: lose customers due to suboptimal delivery options or lose them due to higher costs per order.

Minimizing final mile costs requires optimized logistics networks. Thirty-four percent of retailers don’t offer fast shipping because they don’t have fulfillment centers close to customers.

Traditional supply chains aren’t designed to change quickly—or cheaply. Retailers can add warehouse nodes to their networks, but it’s a costly strategy. The industrial vacancy rate rests at record lows. The national average industrial rent hit $8.93 per square foot in April 2022, up 11.8% year-over-year. Increased industrial construction provides some future relief—though not in 2022.

In short: the challenge to minimize costs and improve delivery promises is likely to worsen before it gets better.

How retailers can mitigate disruption—in their own words #

Brands aren’t helpless in the face of supply chain disruption, increased costs and heightened customer expectations. Retailers leverage proven strategies across three categories, mitigating disruptions and meeting consumer delivery expectations:

• Improve fulfillment networks and manage inventory

• Diversify logistics service providers (LSPs)

• Manage customer expectations

Improve fulfillment networks and manage inventory #

Consistent, fast delivery promises require optimized supply chain networks: The right inventory in the right locations at the right time.

Brands utilize a variety of strategies to optimize networks and improve inventory management, as the 2022 Omnichannel Retail Report revealed.

• Forty-five percent used physical stores as mini-fulfillment centers, and 36% considered mini-fulfillment models to increase the reach and flexibility of their networks.
  

• Forty-four diversified their fulfillment network locations. Only 29% added additional new fulfillment centers (FCs) to their networks, likely due in part to the upfront costs associated with adding net new facilities.
  
  Shippers can find reliable warehousing in secondary and tertiary markets by accessing lower labor and space costs while still servicing critical regions.
  

• Forty-four percent mitigate stockouts through increased on-hand inventory and safety stock.
  
  Stockouts plagued retailers in 2020 and 2021. Shifts in consumer spending and excess inventory cause many retailers to reevaluate on-hand inventory leading into peak season this year.

Diversify Logistics Service Providers (LSPs) #

Retailers optimize their supply chains, and introduce flexibility, by diversifying logistics service providers (LSPs). While diversification strategies typically focus on transportation and sourcing, leading organizations apply the same strategy to warehousing networks. But time is running out to diversify LSPs before 2022’s peak season begins.

• Forty-four percent diversified their supplier networks to navigate disruption. Half consider further diversification to navigate 2022’s peak season.
  

• Forty percent diversified their parcel network and partnerships. As 2022’s peak season approaches, 44% consider further diversification.

• Twenty-eight percent leverage short-term warehousing to flexibly expand and optimize networks. And 45% consider short-term warehousing in the future.
  
  Short-term warehousing boosts also position critical goods closer to customers, reducing delivery times and transportation costs.

Manage customer expectations #

Successful eCommerce selling requires transparent communication. Customers want to know what they can buy and when it will be delivered. Stockouts and delays alienate customers. Seventy percent of consumers planned to switch retailers or brands to avoid stockouts. And 72% skip repeat purchases due to late deliveries.

If brands can’t meet delivery promises, retailers are responsible for updating their customers on changes and delays.

• Sixty-nine percent implemented strategies to communicate delivery promises and order visibility to customers.
  
  Strong communication strategies reinforce customer trust. The 2021 peak season saw out-of-stock messages increase by 172% compared to 2020, and an astonishing 360% compared to 2019. In that context, nearly a third of top 100 retailers listed “cut-off” shipping dates on their homepages in 2021. Of these brands, 81% listed their cut-off dates on or before December 20.
  
  

• Sixty-four percent increased sales via their website, and 50% increased sales via third-party retailers.
  
  Customers expect a great eCommerce experience, with a strong delivery promise advertised at checkout. Brands with both fast and free delivery options will continue to win online sales.
  

Retailers may need to reconsider brick-and-mortar in 2022 as well. eCommerce sales sputtered in Q2. And brick-and-mortar purchases outgrew online transactions for the fourth consecutive quarter. Brands may adjust forecasts and channel strategies as trends shift.

Retailers can fight back against disruption #

Disruptions continue in 2022. Logistics professionals expect a chaotic peak season. Fifty-one percent expect this year to be worse than 2021.

But retailers can fight back. Top brands optimize their fulfillment networks, diversify their logistics service providers and implement communication strategies to meet customer expectations—even when unforeseen issues arise.