eCommerce and the Changing Role of the Store – the Shifting Business Model

Dawn Downes August 23, 2019 Industry – eCommerce

In the U.S. Fashion Industry Association’s 2017 benchmarking study, participating business’s listed “market competition in the United States from eCommerce” and “market competition in the United States from brick-and-mortar stores” as top challenges.

And with good reason. Consider analysis from comScore marketing analyst Adam Lella: “Brick-and-mortar retail stores are closing at their fastest pace in years, and it’s apparel companies that are bearing the brunt of this fallout. Despite a healthy economy and consumer sentiment more positive than at any time since the recession, several factors are contributing to the downturn in retail – perhaps the most notable being the channel shift from offline spending to online.”

Driving much of the growth in eCommerce, of course, has been Amazon, which has not only dramatically increased the scope of its apparel and accessories offerings but is also entering the category with its own brands. As reported by WWD, Amazon’s U.S. apparel sales exceeded $5.5 billion during 2017, which marked a 25 percent increase over the previous year. At that rate, the Internet giant is predicted to overtake Macy’s by the end of 2018 as the largest clothing seller in the United States.

Along with Amazon’s diverse inventory offerings, consumers are drawn to the company’s free delivery, flexibility, and benefits, as offered through its Amazon Prime membership service. Amazon Prime members pay $99 per year for the service, which provides guaranteed “free” two-day delivery plus other benefits, including access to free music and books. Amazon Chief Executive Jeff Bezos announced in April 2018 that more than 100 million people worldwide are current Amazon Prime subscribers. Bezos’s announcement marked the first time the company had publicly acknowledged the size of its membership service.

Amazon is also providing online apparel shoppers with personalized and premium customer experiences. Among other things, “the Echo Look” was introduced in 2017 and is promoted as a virtual style assistant. As described by The Verge, “Echo Look is a camera that takes full-body length photos to catalogue your outfits in a ‘Look Book’ and suggests fashion recommendations through machine learning. It also has a shopping element that suggests fashion items from (of course) Amazon.”

Other retailers have also recognized the importance of delivering an optimal online experience. A wide range of companies allow customers to zoom in for close inspection of fabrics and design. Levi’s has rolled out a “virtual stylist” that utilizes bots to help consumers visualize how a particular pair of jeans might fit. The company’s technology even allows consumers to compare how a specific size of Levi’s jeans compares with competitors’ sizing.

Such personalized touches can also help address a problem endemic to online clothing purchases – returns. While the National Retail Federation estimates a “typical” retailer can expect a returns rate of eight percent, that number jumps to as high as 30 percent for an online clothing retailer.

The reason for this may be fairly obvious. As noted by the San Francisco Chronicle: “In a physical store, consumers can try on clothing in a dressing room. When they order online, they often find the shirts and pants they bought are either too big or too small, regardless of the brand.”

As a result, many consumers will order an item in different sizes or colors, with the intention of returning all but one, a phenomenon sometimes referred to as “the bedroom as the new dressing room.” But, as the Chronicle notes, with each return order costing from $3 to $12 to process, online returns get very expensive very quickly.

Online shopping tools, such as Levi’s virtual stylist and Amazon’s Echo Look, can help customers make better-informed decisions and hopefully help reduce the number of products returned.

How are Apparel Companies Adapting to Changing Expectations for Buying Options?

Clearly there is broad understanding among apparel companies of the need to adapt. But many are realizing they have one thing to offer customers that Amazon doesn’t – a physical store. This has given way to the rise of omni-channel, as companies leverage their physical stores to provide consumers with enhanced shopping options. By giving customers the choice to shop either via a brick-and-mortar store, a digital platform (mobile app, website), or through a hybrid option (purchase online, pickup in store), apparel companies are differentiating themselves from online-only retailers.

Research by Harvard Business Review found omnichannel customers are more valuable to a retailer, both in terms of money spent during a typical transaction and with regard to loyalty. Among the HBR findings:

Omnichannel customers tend to make good use of multiple “touchpoints.” This includes using a smart phone app to compare prices or download a coupon, in-store digital tools such as an interactive catalog or price-checker, buying in-store and having items shipped, and buying online but picking up in-store.
Omnichannel shoppers logged 23 percent more repeat shopping trips to a retailer’s stores and were more likely to recommend that retailer than those who used a single channel.
Shoppers who conducted pre-purchase online research on the retailer’s own website led to 13 percent greater in-store spending among omnichannel shoppers.
Omnichannel customers spend an average four percent more on every in-store shopping trip and 10 percent more online than single-channel customers.

While the HBR authors are careful not to give full credit to omnichannel platforms for increased loyalty and repeat business, the study does state: “Our study firmly endorses traditional retailers’ logic of embracing an omnichannel strategy and using it as a differentiator to fight the retail onslaught.”

Once retailers realize the importance and the inevitability of embracing an omnichannel, customer-centric sales experience, the logical question becomes: “Now what?”

This seems to typify supply chain managers’ initial reactions as the realization sets in that changes will be needed to integrate new omnichannel platforms. “A retailer has to make decisions,” Pete Madden, a director at AlixPartners retail consultancy, said in a CNBC interview. “Do I own my distribution center? Do I pay a third party to do it for me? The cost for certain corporate functions associated with running distribution centers, like IT and marketing, can be in the tens of millions of dollars in terms of investment.”

In addition, Madden noted, “there’s also the investment to build and manage websites, apps, distribution centers and establish shipping networks or partnerships to fulfill those orders. A retailer needs systems to help shippers with order management and tracking, and to show them where inventory may be available (i.e., online only, or available in certain stores). Plus, there’s a cost to manage the complexity of the ‘endless aisle’ online, logistics and IT coordination with shipping vendors….”

In other words, building an omnichannel platform is no small undertaking.

Planning an Optimal Omnichannel Distribution Strategy

Many apparel companies choose to take an “all of the above” approach to their omnichannel distribution strategies, offering customers multiple options, including:

Buy in-store/Take delivery in store
Online purchase/Delivery through distribution center
Online purchase/In-store pickup
Online purchase/Fulfillment from store

However, research from AlixPartners found that omnichannel fulfillment options can be quite costly for a retailer. The growing trend to fill eCommerce orders from brick-and-mortar stores, for example, is highly inefficient from a cost perspective – in fact, it’s the least profitable model. As CNBC explains, “the main reason for the compressed profitability is the cost of double-shipping merchandise.

“As a retailer, you are operating two channels, and shipping that merchandise twice.” First, shipping charges are paid to the truck company that delivers merchandise to the store; and then again to the shipping company that picks up the eCommerce package from the store and delivers it to the customer.

AlixPartners determined that the most profitable distribution method for an apparel retailer is… the traditional brick-and-mortar transaction.

But, given strong customer preference for omnichannel options such as buy online/in store pick-up, a retailer needs to decide if the higher costs associated with providing that service can be justified by the benefits of meeting customer expectations.

In determining its omnichannel strategy, an apparel company will need to evaluate multiple core processes that affect every aspect of its supply chain.

Inventory Management The heart of omnichannel lies in allowing customers to make purchases and then take delivery of those products across any number of convenient venues. But for sellers, making this possible is among the greatest headaches. How do you manage inventory so that it is where it needs to be at the exact right time? And how do you make inventory available across all channels without incurring excessive carrying costs? And perhaps most important, how do you fulfill customer orders in the least expensive, least disruptive way possible?

Inventory visibility. The answer to these questions depends on the degree of visibility a business has in its supply chain. A highly visible supply chain will allow a retailer to know – with exact precision – where a product is located. Easier said than done for many businesses. This is because many businesses maintain parallel fulfillment operations for retail stores and eCommerce operations with separate distribution centers, replenishment processes, and sometimes even separate inventories.

“With separate systems and separate inventory stocks in place,” notes research by Chain Link Research, “stores have no visibility to the inventory in the other channels and vice versa. Each store usually has visibility to only the inventory at [its] own location. If they are out of stock in the store, the store associate does not have the visibility or tools to check available inventory at other stores, or across the network of other stocking locations – distribution centers, logistics providers, or inventory at the manufacturer that is available to fulfill an order.”

The key is finding a way to integrate all systems so that employees – and customers – have visibility into inventory levels and locations. And like so much in today’s modern supply chains, visibility is possible through technology.

Businesses have a plethora of technology solutions to choose from at a variety of price points. Many businesses are satisfied with off-the-shelf software, or cloud-based offerings, while other businesses may opt for a customized solution. While each business will have unique needs, visibility goals must include:

Real-time data updates with regard to merchandising systems
Creating and shipping transfers to store
Facilitating movement of products to meet consumer needs
Inventory updates from point-of-sale systems
Advance notifications of all inbound merchandise
24/7 stock counts
Initiate in-store stock replenishment
Processing “return to vendor” orders for product returns, both those eligible for resale, and those that are unsellable.

Distribution/Transportation Considerations. Omnichannel, and its emphasis on fluid inventory and flexible shipping and delivery options, will necessarily force deep analysis of existing distribution and transportation processes. Top considerations include:

eCommerce-driven surge in multiple small package shipments, each in need of delivery to a private residence or small business often located in remote regions.
Challenge of having “just enough” inventory in the right place at the right moment to meet in-store sales as well as “ship-to-store” and “ship-from-store” commitments.
Pressure to adapt to the new world order in which customer preferences are driving businesses’ supply chains. Key customer expectations? Namely, fast and free delivery service with little tolerance for late arrivals.
Pressure for retailers, who often do not have enough distribution centers or the bandwidth to absorb the costs of offering free shipping.

The challenge then is for businesses, operating on razor-thin margins, to offer Cadillac levels of service for very little cost to their customers. “Most retailers are trying to figure out the eCommerce model,” says Huw Thomas, CEO of Alberta-based mall developer Calloway REIT. “There are very few significant-size retailers that have profitable eCommerce businesses. The delivery component of the eCommerce equation is a very, very expensive piece of the puzzle because, in essence, you’re matching the prices that you have in a physical store, but you’re delivering for free sometimes very substantially-sized products to a consumer.”

The good news? It can be done. Among the current “best practices” businesses are using to meet today’s transportation/ distribution challenges:

Rethinking the TMS. Flexibility, scalability, and adaptability – these are three words that are often used to describe critical components of an omni-channel transportation management system (TMS). Today’s successful supply chain allows a business to schedule transportation based on its needs rather than be locked into a rigid “one size fits all” service schedule dictated by its traditional service provider. Instead, today’s TMS has many moving parts, with technology being the glue that holds everything together. One industry expert defines today’s TMS as a “holistic” system that “allows retailers and manufacturers to gather facts about current and future orders, and then make the best possible judgment that combines low price with high service. As business conditions change, this process is repeated to ensure that shippers are always making the right choice for the current environment.”

Shared Assets. Once unthinkable, a growing number of businesses are taking control of transportation costs by reaching agreements with companies with similar supply chain needs – usually competitors – to share distribution centers, truck space, and other assets. The practice, known as “horizontal collaboration” or “collaborative shipping,” allows companies to reduce costs on distribution, delivery, and even backhauling costs. Among the companies currently collaborating: French food giant Danone and probiotic drink manufacturer Yakult have shared a Tokyo distribution center since 2011. Another example: U.S. chocolate manufacturers the Hershey Co. and The Ferrero Group in North America have shared warehousing, transportation, and distribution processes and assets, also since 2011.

Businesses interested in integrating horizontal collaboration solutions into their supply chains should be forewarned though. It’s not for everyone, and it’s hard work. According to the “North American Horizontal Collaboration in the Supply Chain Report,” produced by supply chain research group Eyefortransport, top concerns for businesses include:

Fear of information disclosure
Lack of clarity over who’s in charge
Lack of widespread acceptance of ideas
Difficulty finding appropriate partners
Difficulty starting trusting relationships

Last Mile. With eCommerce requiring delivery to consumers’ homes and local business addresses, critical last mile delivery capabilities have been in the spotlight. According to the Council of Supply Chain Management Professionals (CSCMP), last mile services account for as much as 28 percent of total logistics costs. But what exactly do consumers expect in last mile services?

Research by Temando found that in addition to free and fast shipping, consumers want more shipping options. Lots more options.

77 percent would like guaranteed weekend or after-hours deliveries
80 percent would like same-day shipping
61 percent in favor of 1- to 3-hour shipping
76 percent want a specified time slot for delivery
82 percent want to collect their shipments from stores (This includes a growing preference for “click and collect,” whereby customers collect their shipments at a designated location, which might be a local convenience store, drycleaner, or a locker facility)

And with regard to the actual delivery:

Customers want to be able to re-route their shipment up until the last minute.
They want real-time tracking and visibility, similar to Uber driver tracking.
Customers want great communication, including an email or a text when a delivery is imminent with a follow-up text or email after the delivery has been made.
They expect immediate notification when a problem arises, with information about how that problem is going to be solved.
Depending on the shipment, if special services are required, such as installation or assembly, customers expect the delivery personnel to be experienced, knowledgeable, courteous, and to have the right equipment with them at time of delivery.

Logistics to the Rescue

As fashion companies face the realities of today’s changing retail environment, many have turned to their logistics companies for assistance. Global supply chains that previously coasted along with delivery times measured in weeks are no longer acceptable as retailers adapt to consumer expectations for increasingly fast deliveries.

Fortunately, logistics innovations have kept pace with the changing apparel industry. Technology and creative thinking have combined to enable solutions that simply didn’t exist as recently as five or six years ago.

For many apparel companies, their logistics provider has become an essential partner and integral to strategic planning and execution. Among the logistics solutions now available to apparel companies:

Just-in-Time Manufacturing. As apparel companies adapt to the need for “smaller inventory batches produced more frequently,” many have adopted some of the same just-in-time (JIT) manufacturing techniques that have helped drive success for many fast-fashion companies, including Zara and H&M. Through JIT, an apparel company can drive final decisions about production – styles, sizes, colors – until the last possible moment, based on customer feedback and sales intelligence. The key though is having the necessary materials on hand when production decisions are made. And this, of course, depends on a well-executed logistics strategy. Successful JIT requires careful coordination between the manufacturing facility and its suppliers. An experienced logistics provider can help manage the process and ensure precision-like materials deliveries and pickups of finished products.

Expedited Services. Expedited service has become an increasingly attractive solution for ensuring guaranteed deliveries of time-sensitive apparel shipments. A shipment of sweaters, for example, sitting in a Chinese warehouse but set to go on sale in a few days throughout American stores could seamlessly be delivered via an expedited solution. Other companies have relied on expedited services for just-in-time manufacturing efficiency or for its highest levels of customer service, including extra security for valuable shipments and inside deliveries.

Distribution Center Bypass/Direct-to-Store Shipping Solution. Traditional distribution solutions have been upended by out-of-the-box thinking that allows merchandise to travel directly to retail stores. This eliminates unnecessary and inefficient distribution center stopovers. It used to be that shipments were routinely shipped to a distribution center, often located hundreds of miles off-route, just to be sorted and re-loaded. By allowing shipments to move directly to their end destination, a company can shave three to seven days from its transit time.

Direct-to-Consumer Shipping Solution. Innovative logistics solutions can help apparel makers facilitate deliveries to their growing base of eCommerce consumers. Mark Burstein of NGC Software describes a highly efficient solution in which: “Orders are packed and labeled at the factory, then consolidated and shipped in bulk. Once the shipment clears customs in the destination country, a courier service… deconsolidates the shipment and delivers each order directly to the consumer.”

Returns Management. Long considered the “necessary evil” of retail, product returns can amount to as much as 30 percent of an apparel company’s total sales. But savvy business managers have come to see potential in those returns – both as a way to satisfy customers with a hassle-free returns policy and as a source of revenue. Returns management has become such an important part of the customer purchasing experience that nearly half of all consumers check a retailer’s returns policy before making a purchase. An experienced logistics provider can work directly with a business to help build a suitable returns process. Key components of that strategy should include:

Process for consumer to use in sending back a return (i.e., including returns label with original packaging, RMA authorization)
Whether to offer free returns shipping
Schedule for picking up/delivering returns to designated returns facility
Process for transporting returns between the United States and Canada
Role of technology in ensuring high visibility and tracking capability for consumers

Retooling a supply chain to meet the realities of the omnichannel market can be a daunting undertaking. Businesses are literally bombarded with emails, trade publications, and direct solicitations from vendors offering to supply “superior” insight about how best to upgrade supply chain functionality.

So how do you know? With so many options from which to choose, how can an apparel company possibly decide which solution is best and which logistics provider can provide the top-level service it needs?

Following are a few considerations to keep in mind when deciding the best logistics partner to add to your supply chain team:

Single Source/Comprehensive Solution Provider. Given the complexities of an omnichannel supply chain, it is imperative to have a logistics partner that can offer complete management of the entire process. A qualified logistics provider will offer comprehensive services ranging from order management, inventory management, warehousing, kitting, picking, labeling/shipment preparation, transportation, delivery, and all back-end functions including recordkeeping and compliance mandates. And a comprehensive provider should also provide reverse logistics services to process merchandise returns. A single source provider will have 360-degree insight into all global processes and the ability to ramp up or scale back services as needed. This is especially helpful for businesses with seasonal sales fluctuations.
There is no substitute for experience. And with so many providers from which to choose, it’s essential for a business to carefully research a logistics provider before signing on the dotted line. A knowledgeable provider will have documented experience in apparel logistics and understand the nuances of this industry. This will include a broad range of logistics solutions that have been used with other apparel customers, along with ideas about how to efficiently address your company’s issues.
Customization and Collaboration. It’s essential to view your logistics provider as a partner. You want to build a relationship based on a mutual understanding of your business objectives, priorities, and needs. This information sharing can only happen through many, many direct conversations and ongoing open lines of communication. A qualified logistics provider will use this information to create a customized solution to meet your specific needs.
Customer Service. Equally important is a high level of customer service. Services should include a dedicated representative with whom you have a personal relationship and direct contact information. Your customer service representative should be fully aware of your supply chain, provide you with regular updates, and know about – and resolve – any snafus or changes before they become problematic.
Scope of Service. Today’s logistics providers are able to offer a range of service options that can be customized to fit a business’s precise needs. If you find that a logistics provider is forcing you to adapt your needs to meet its capabilities, it’s a good sign that the carrier is not up to the job.
Many logistics providers have their own customized technology solutions that integrate with their customers’ internal systems. This allows for a seamless on boarding, and it allows several critical functions to share data, generate reports, and provide tracking/visibility.

Bringing It All Together – Choosing the Right Logistics Provider

Following are a few considerations to keep in mind when deciding the best logistics partner to add to your supply chain team:

Single Source/Comprehensive Solution Provider. Given the complexities of an omnichannel supply chain, it is imperative to have a logistics partner that can offer complete management of the entire process. A qualified logistics provider will offer comprehensive services ranging from order management, inventory management, warehousing, kitting, picking, labeling/shipment preparation, transportation, delivery, and all back-end functions including recordkeeping and compliance mandates. And a comprehensive provider should also provide reverse logistics services to process merchandise returns. A single source provider will have 360-degree insight into all global processes and the ability to ramp up or scale back services as needed. This is especially helpful for businesses with seasonal sales fluctuations.
There is no substitute for experience. And with so many providers from which to choose, it’s essential for a business to carefully research a logistics provider before signing on the dotted line. A knowledgeable provider will have documented experience in apparel logistics and understand the nuances of this industry. This will include a broad range of logistics solutions that have been used with other apparel customers, along with ideas about how to efficiently address your company’s issues.
Customization and Collaboration. It’s essential to view your logistics provider as a partner. You want to build a relationship based on a mutual understanding of your business objectives, priorities, and needs. This information sharing can only happen through many, many direct conversations and ongoing open lines of communication. A qualified logistics provider will use this information to create a customized solution to meet your specific needs.
Customer Service. Equally important is a high level of customer service. Services should include a dedicated representative with whom you have a personal relationship and direct contact information. Your customer service representative should be fully aware of your supply chain, provide you with regular updates, and know about – and resolve – any snafus or changes before they become problematic.
Scope of Service. Today’s logistics providers are able to offer a range of service options that can be customized to fit a business’s precise needs. If you find that a logistics provider is forcing you to adapt your needs to meet its capabilities, it’s a good sign that the carrier is not up to the job.
Many logistics providers have their own customized technology solutions that integrate with their customers’ internal systems. This allows for a seamless on boarding, and it allows several critical functions to share data, generate reports, and provide tracking/visibility.

Contact Purolator International to Optimize Your Supply Chain Today

Focusing on collaboration, custom solutions and top-quality services, Purolator International is a great partner for companies attempting to navigate the complexities of an omnichannel supply chain.

When you partner with us, we consider your customers’ needs our own, and we utilize our unsurpassed Canadian expertise to deliver reliable and efficient shipping on behalf of all of our customers.