It’s no surprise that Amazon is experiencing huge growth compared to other omni-channel retailers, and it seems Amazon’s team is setting the curve when it comes to innovative supply chain strategies, efficiency tactics and boosting the consumer experience.
This all sounds happy and nice, but I would contend that Amazon is desperately trying to outrun major retailers like Target, Wal-Mart, and DSW as these groups slowly get their arms around this “newfangled” supply chain thing… Here’s a few stats on Amazon that will lead to my point:
- Amazon has more than 70 fulfillment centers in the US which are located within 20 miles of 44% of US population as of 2016 (nearly doubled since 2014)
- 5,000 cities now offering Amazon Prime
- 40 cities are offered PrimeNow (100,000 items available for 1 hour delivery, free 2 hour delivery of household items, essentials, restaurants and local stores)
- Amazon Bookstores – offering drive-up window, pick up and convenience stores
- 50-60 million prime members and 310 million active shoppers
- Amazon soon to be coming out with private label expansion similar to generics like Kirkland, Equate, and Up & Up brands.
While Amazon is a force to be reckoned with and their game changing innovations have raised the standard in omni-channel retail, it is only a matter of time before large retailers close the gap and begin to stifle Amazon’s current growth rate.
Amazon hasn’t won any prizes yet, and knows it. Jeff Bezos wants to get as far ahead as he can and leverage a short term competitive advantage over major retailers like Wal-Mart, Target, and DSW, in order to gobble up market share. Let me illustrate why Amazon is in such a rush.
As you probably noted above, Amazon has facilities within 20 miles of 40% of the US population. That sounds amazing until you compare it to DSW who has a store within 20 minutes of 70% of the US population. Many of these retailers already have the infrastructure in place to re-purpose buildings for fulfillment and restructure their supply chain to more effectively compete in an omni-channel world.
Amazon has a little over 70 fulfillment centers in the US whereas Target has around 1,800 stores in established markets; Wal-Mart has over 3,500 super-centers alone. Taking these store numbers into account, it would then seem reasonable to say that if foot traffic is reduced in many of these existing major retail sites, real estate values for traditional retail (as we know it) will drop along with occupancy costs (rental rates, RE taxes, etc…).
Reduced occupancy costs will allow retailers to consider re-purposing all or a portion of their profit centers for distribution/e-fulfillment. Since most major retail sites are located in or near densely populated areas, re-purposing positions those retailers perfectly for fast, convenient delivery service to their customer base without upsetting the apple-cart. So, if/when Super Target starts offering grocery delivery, you may see Amazon sweat…
In the next 3-5 years you will see a lot of new, similar offerings from major retailers that mimic what Amazon has already done. Below, I’ve highlighted five strategies I think are most important from a commercial real estate and logistics industry perspective.
1. Retailers will begin to optimize their physical footprint for omni-channel customer sales:
44%f of retailers say expanding unified commerce initiatives is one of their top five priorities. Short-term – Expect to see stores changing the interior design and traffic flow to provide a showroom atmosphere closer to IKEA and keeping more product stocked in the warehouse portion of the building and less on the shelves.
Certain areas will be dedicated to e-fulfillment and local delivery. Long term – Look for retailers re-purposing big-box retail landscape as a reaction to lower walk-in traffic and a higher ratio of e-fulfillment to in-store sales.
Customers will shop in-store to “try before buying” and the decision will be less impulsive whether or not to add the item to the consumer’s monthly subscription.
2. 1-3 day free delivery will become a standard:
“How soon can I get it?” is one of the first questions we ask ourselves when we need to purchase an item online. So it’s not surprising that average online order delivery time has dropped from 5 days to 3 days in the last two years.
Reducing delivery times will be an easy switch for retailers to accommodate with multiple stores located in densely populated areas. This will quickly become a basic customer service standard.
3. Death of Black Friday:
Peak seasonal activity will become a thing of the past as retailers use discount incentives and manipulate demand patterns to encourage shopping behavior that spreads the logistical loads more evenly over what would normally be a seasonal spike.
The days of getting trampled for a Tickle Me Elmo and discounted electronics will soon be gone.
4. The “Barbell Effect”:
The market share for omni-channel retailers is shifting toward firms focusing on exclusive high end boutique brands & hyper-local/high-convenience models. As a result, market share will become unsustainable for “generalist” companies and those that fail to narrow their focus and/or build a loyal consumer base.
You should expect to see several large retailers who cannot adjust quickly enough and get phased out like Blockbuster Video; consumed through M&A for pennies on the dollar.
5. Delivery Appointment Scheduling:
It’s like when you order a pizza and don’t need it in “30 minutes or less,” you instead click the box that says I want this pizza delivered on Tuesday at 5:30 PM.
Being able to schedule appointments is key to last mile fulfillment and allows for optimization of picking routes, kitting, identifying the most efficient route aligned with on-demand customer requests as they come in through an order management system (OMS).
Scheduling the order delivery at the point of sale while simultaneously factoring in the cost of delivery, existing inventory levels and typical delivery routes, requires next level communication and orchestration to coincide with inbound lead times and outbound route planning.
85% of retailers already provide some kind of tracking or updating/notification system on shipment progress. Scheduling delivery is just another step to reduce costs and optimize the supply chain. Avoiding deliveries during peak traffic hours alone will save millions in $ and omissions…
Many of these innovations are already being put into practice, but it won’t be enough to just “catch up”. The omni-channel retail consumer continues to raise the standard for purchase options, overall experience and customer service and right now Amazon seems so far ahead, it’s like global warming. The longer the major retailers wait to take action, the more they will have to scramble to catch up later on.
- The Network Effect – How last mile delivery affects the supply chain http://supplychainbeyond.com/how-last-mile-delivery-affects-the-supply-chain/
- Saddle Creek Logistics – Whitepapers: OMS: Key to the Optimal Omnichannel Customer Experience https://www.sclogistics.com/whitepapers/ > https://www.sclogistics.com/wp-content/uploads/2017/02/OMS-Whitepaper.pdf
- FLEXE: The Future of Logistics: 20 Trends to Follow in 2017 https://www.flexe.com/blog/logistics-2017-trends/
- IWLA Conference 2017/Education Track 3 – Real Estate: Its impact on 3PLs effectively managing their overall Business – Slides by Cushman Wakefield – Rich Hamilton
- Amazon vs. Alibaba: Which will dominate global online retail? – Tim Barrett, senior retailing analyst, Euromonitor International – Mar 31, 2017 https://www.digitalcommerce360.com/2017/03/31/amazon-vs-alibaba-which-will-dominate-global-online-retail/
- Can stores give e-retailers an edge? – Matt Linder – Internet Retailer Periodical – April 2017 Ed. Pg.22-27
- Five Questions Every Consumer asks when Shopping Online – Lauren Freedman – Internet Retailer Periodical – April 2017 Ed. Pg.44-45