At the National Retail Federation (NRF) conference going on this week, I can assure you that the hot topic is e-commerce and omni-channel distribution. The staggering growth of e-commerce and demands of digital consumers are wreaking havoc on retailers and challenging transportation and logistics providers worldwide.
Let’s look at some of the growth numbers. We saw a 3% increase to $626.1 billion, and e-commerce sales grew 9% to $105 billion, according to NRF. Worldwide retail sales are predicted to reach $28.300 trillion in 2018, and e-commerce is expected to be 8.8% of the total sales. China and the US are the leading e-commerce markets responsible for over 50% of total global sales. Then, you have e-commerce giants like Amazon and Alibaba. Amazon added 3 million prime members in a single week in December 2015 and analysts at Macquarie Research say that about half of the people in the United States will be Amazon Prime members by 2020. Then there is Alibaba, the 800-pound gorilla that sold more than $14.3 billion of merchandise in 24 hours. That number is greater than the 2014 annual revenue of stores like Nordstrom and Toys “R” Us.
E-commerce growth has been a challenge even for parcel giants, UPS and Fedex. In the 2014 peak holiday season, UPS was not able to handle the massive volume of shipments caused by Amazon, which resulted in delayed shipments to consumers. This last holiday season, UPS seemed better prepared but FedEx appeared to have issues as they were blamed for delayed deliveries by retailers, Eddie Bauer and Pacific Sun. This last year, parcel and post carriers started enforcing volume limits on many large retailers, and I predict those limits will grow over the next year. These delivery challenges have led Amazon to begin building out their own distribution network. Amazon has purchased their own trailers, added planes for air cargo, built a crowd-sourcing app for local pickup and delivery, become an ocean freight forwarder and has quietly been building out fulfillment and sortation centers across the globe. These challenges have also opened up a new market for existing carriers to expand into specialized delivery services and for new entrants into the market. There are several crowd-sourcing startups like Roadie, Uber Cargo and localized urban delivery players deliv, Doordash and Swapbox trying to grab a share of the last-mile delivery market.
The challenges of e-commerce and omni-channel distribution were never more apparent than in this last holiday season. Several retail giants announced store closings as they begin to evaluate their omni-channel strategy in 2016. Macy’s announced it will close 40 stores and cut thousands of jobs, and just recently Walmart joined stating it was closing 150 stores in the U.S. There are many late nights being spent in the boardroom trying to identify the correct type, location and balance of retail stores compared to their online presence and what channels they should serve. The number of delivery options being demanded by the digital consumer has created challenges that can seem insurmountable to traditional retailers. Delivering a true omni-channel strategy of order anywhere, ship from anywhere, receive anywhere, and return anywhere does not happen overnight. It takes a sound strategy and implementation of the correct systems, people and business processes. One of the omni-channel strategies that retailers hoped would help save profit margins by reducing parcel shipping costs may already be doomed. Studies show that 35% of consumers have tried ordering online with in-store pickup in the last year, and half have had problems with the process. This is just one of the many channels that retailers need to master to create customer loyalty and grow sales. One would think that retailers would naturally be proficient in this channel given that the majority of the resources are under their own control and have been a part of their traditional distribution channel.
Now that we have laid out the many challenges created by the ever-growing digital consumer, e-commerce and omni-channel distribution, what’s the answer? There is no simple answer as anyone in the retail space knows but there are solutions. The first thing retailers must do is rationalize and prioritize the channels they want to address first. Then a strategy must be developed that is inclusive of all necessary systems, people and processes. This is where many retailers overlook a critical component necessary for success – Transportation Management. Most executives think of order management and warehouse management when they think fulfilling customer orders. Yet, with the exponential growth of delivery channels, calculating the most efficient delivery method has one of the largest impacts to the bottom line and is a rapidly growing segment of overall supply chain costs. Intelligent transportation systems leverage geographic location and know delivery times per service level combined with carrier cost models to create a profit center around shipping while matching customer delivery expectations. A transportation management system (TMS) will not only increase efficiencies and cut costs, it will provide a vital component of visibility demanded by customers. An effective omni-channel strategy in 2016 must include a TMS in addition to an order management and warehouse management system. Without all three legs, the omni-channel strategy will fail. To learn more about TMS’s role in omni-channel distribution, read the recently published whitepaper – TMS – The Forgotten Critical Component of Omni-Channel.