This recent round of earnings reports has seen a few larger retailers break out of the pack, and those that have may owe some of their success to a cleaner, more efficient supply chain.
Brick-and-mortar stores in particular have improved their logistics and lowered fuel costs, according to the Wall Street Journal, which noted that Target and Home Depot in particular have increased productivity in their supply chains as they’ve boosted e-commerce.
In addition to leveraging their physical stores for fulfillment of online orders, more retailers, including Wal-Mart Stores Inc., Target, and Home Depot are also building regional warehouses to meet their e-commerce needs Amazon-style.
Amazon, in fact, has been a great driver of brick-and-mortar retailers’ digital sales growth, as those retailers have finally figured out how to beat the competition it created. They have become more bold about finding ways to fight e-commerce on their own terms—including cheaper prices and more transparent and available inventory. As a result, e-commerce growth, which was 5.2% in Q2, continues to outpace overall retail sales growth (1.6%), according to the U.S. Commerce Department.
Although e-commerce remains just 7.2% of overall retail sales, its impact on brick-and-mortar retailers’ supply chain takes up much more than that. In order to meet the needs of increasing digital sales — indeed, in part also to boost up those sales — brick-and-mortar retailers have turned to using their stores as mini warehouses and fulfillment centers and have smoothed their inventory systems so that know what is where for possible delivery.
In the process, they’ve sped things up and saved money, including lowering fuel costs, the Wall Street Journal reports.
This area continues to evolve as brick-and-mortar retailers expand their e-commerce efforts, get better at squeezing efficiencies from their logistics, and offer increasingly more delivery options. Macy’s has expanded its same-day delivery service to more cities, for example, and Target recently announced a pilot that would give online customers faster delivery and more transparent delivery information.
As brick-and-mortar retailers lower their free-delivery shipping minimums at a time when UPS and FedEx and most other carriers have begun to charge by dimensions as well as weight of packages, technology is now available to package orders the most efficient way possible. Free shipping doesn’t seem to lead to sales, exactly, but there’s a fair amount of research indicating that they may save them, including at the sensitive online-cart purchase moment.
There are “complex packing and assembly algorithms to figure out the packed weight and dimensions, that this or that is the final size that the carrier should be picking up,” Jeremy Bodenhamer, CEO of logistics automation company ShipHawk, told Retail Dive. “When the retailer figures out these unknowns and finally knows what these costs are consistently, ahead of time, they can then make that decision about free or subsidized shipping. Then it’s a rational decision.”