DELIVERING IN THE LAST MILE Using Location-Based Analytics to Win the Digital Shelf
Introduction How Brick-and-Mortar is Fighting Back Against Pure Play From the beginning, ecommerce has been an arms race. To remain competitive, retailers have had to offer consumers as many choices as possible. As customers grew more comfortable with ecommerce, they became less concerned about payment security and more interested in the shopping experience. This gave rise to omnichannel retail, a consumer-driven shift in shopping habits which rewarded businesses that enabled consumers to move freely between channels. There are now more points of interaction between brands and consumers than ever before; retailers continue to race to create the most consistent, seamless and user-friendly experience for shoppers prone to jumping between physical stores, ecommerce sites, mobile apps and social media.
In the omnichannel market, it is virtually impossible to separate ‘e’ from ‘commerce’. The digital shelf is now highly integrated with the greater retail ecosystem. Consequently, the arms race has shifted again: the front line is now the last mile. Optimizing last mile fulfillment is today’s biggest battlefield for retailers and for brands. The path to purchase has changed: with ecommerce, retailers have inherited the responsibility of picking, packing and delivering items to the end consumer – and supply chain capabilities need to evolve to accommodate. The most innovative retailers have turned this challenge into an opportunity – they were the first to understand that the best way to earn customer loyalty and build long-term success is to provide customers with the best fulfillment services on the market.
Traditional route to consumer: The whole journey takes place in the store with the consumer responsible for picking, packing and delivering
Modern routes to consumer: There are many more options for retailers to consider as they decide how to fulfil orders
How is my consumer ordering?
How and where do I pick and pack the order?
How do I deliver the order?
How will the customer receive the item?
How do I link all the steps together most efficiently?
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But this responsibility extends to brands as well. By necessity, retailers prioritize products that can be delivered to the end consumer by the quickest and most efficient path. This has made location-based analytics a crucial weapon in the brand manufacturer’s arsenal: a tool which allows manufacturers to track their assortment right down to individual stores and fulfillment centers, enabling them to optimize distribution and adapt to market fluctuations in real time.
doubled, and will continue to grow at nearly four times the rate of traditional retail over the next five years. However, this growth is not limitless. The rate of growth is beginning to slow, and a world in which ecommerce surpasses traditional retail is still a long way away. Physical stores remain the key point of interaction in the retail market and are arguably becoming an even more important part of infrastructure due to this new emphasis on last mile fulfillment.
BRICK-AND-MORTAR VS. ECOMMERCE
Take Amazon, for instance. Long seen as the beacon for retail’s evolution into an ecommerce-driven future, Amazon realized that lacking the robust infrastructure of a retail chain would be a major disadvantage. This was the key motivation behind its acquisition of Whole Foods, and many of its pureplay competitors have followed suit and invested in physical retail networks too.
Just five years ago, ecommerce held a 9% share of global retail sales. Today, that share has more than
Indeed, the brick-and-mortar networks of traditional retailers give them a major advantage over their
This paper will explore the state of the retail market, the growing variety of fulfillment methods on the market and the best practices that will empower brand manufacturers to deliver in the last mile.
CHANNEL
CAGR 2017-2023E
SALES ADDED 2017-2023E (USD)
SHARE OF SALES ADDED 2017-2023E
Ecommerce
14.4%
1,778bn
53%
Store-based
4.0%
1,563bn
47%
Store-based vs Ecommerce Share of Global Sales (%) 100% 90%
9%
11%
13%
15%
17%
20%
23%
25%
27%
28%
29%
85%
83%
80%
77%
75%
73%
72%
71%
2016
2017
2018
2019
2020
2021
2022
2023
80% 70% 60% 50% 40%
91%
89%
87%
30% 20% 10% 0% 2013
2014
2015
Store-based
Ecommerce
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pureplay competitors because of their ability to leverage their stores and warehouses as fulfillment centers, making it much easier to optimize and innovate in the last mile. Providing consumers with unique and novel fulfillment options has proven to be an effective method for driving traffic while optimizing flexible, convenient and economical delivery. And consumers - who have embraced the convenience of ecommerce but still recognize the benefits retail stores can offer - are embracing these new options. According to Dropoff’s most recent Annual Consumer Survey, 43% of consumers expect companies to have ‘much faster’ delivery times than the previous year and 74% say they are more likely to buy again from a company after receiving same-day delivery.
RETAIL INITIATIVES Walmart
Alibaba
One of the world’s largest retailers, Alibaba is also one of the most innovative. Alibaba is a front-runner in rapid response times, with same-day delivery available in nearly 1,500 Chinese districts and counties. As an ecommerce pure player, it is a pioneer in integrating with third-party services and new technologies to increase its fulfillment capabilities. For instance, the company:
»»Has partnered with a huge number of independent retailers to function as pickup and return locations.
»»Holds 51% controlling stake in logistics company Cainiao, which includes thousands of fulfillment stations and numerous innovations like the Cainiao Box, a secure, facial-recognition-activated delivery receptacle that can be installed outside a customer’s home.
»»Is successfully testing other methods of fulfillment With nearly 5,000 stores in the U.S. alone, Walmart’s expansive physical network means it is uniquely positioned to reach the most consumers in the shortest amount of time. The company already offers free two-day shipping on many items with no subscription-based paywall (unlike Amazon Prime), and it is continually adapting its infrastructure to support ecommerce using a series of test-and-learn pilots. These include:
via autonomous vehicles and drones, which can integrate with existing services like pickup towers and the Cainiao Box.
JD.com
»»Developing click-and-collect options such as automated pickup towers (expanding to 700 stores by the end of 2018) and drive-through grocery pickup.
»»Closing and converting some outlets to fulfillment centers (‘dark stores’) for home delivery.
»»Trialing new methods for home delivery such as direct-to-car delivery (ship-to-trunk) or expanding its associate (employee) delivery program.
JD.com - another Chinese ecommerce giant - is also a key innovator in last mile fulfillment. With its advanced logistics expertise, JD fulfills an unprecedented 90%
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of its orders with same- or next-day delivery. By focusing on optimizing their internal supply chain with state-of-the-art technologies, JD has been the first mover in numerous developments:
»»Being the first retailer to open a fully
In addition to these now common options, many retailers are exploring more innovative ways of getting products to the end consumer, including:
»»Pickup lockers, where customers scan their receipts or enter a code to unlock their products.
automated warehouse.
»»Flexible home delivery options such as delivery
»»Launching a network of robotic delivery vehicles
direct to the customer’s fridge.
in Beijing.
»»Car-based options such as ship-to-trunk, drive-
»»Forming a unique partnership with Walmart to
through pickup lockers and curbside pickup.
integrate stock system data to improve fulfillment.
FULFILLMENT MODELS The growth and diversification of ecommerce fulfillment has occurred rapidly. The rise of the omnichannel store of the future and its emphasis on innovating last-mile fulfillment has proven to be so popular with consumers that measures which were cutting edge just a few years ago are now widespread:
»»Click-and-collect and ship-to-store. »»Free two-day delivery for a growing assortment of products.
»»Same-day delivery in more and more markets.
Retailers are continuing to push the envelope. Measures like 24/7 pickup terminals, on-demand deliveries with ride share services like Lyft and Uber, and even self-driving delivery drones and robots could be released to the public in the near future. In summary, the old black and white perception of traditional versus digital retail has proven to be reductive and simplistic. In the omnichannel world, all available touchpoints influence each other in complex ways, even across different retailers. Digital retailers (like Amazon and Alibaba) now function as marketing platforms, influencing brand awareness and sentiment across the entire retail landscape and driving online and in-store sales.
Click-and-Collect Trends Amongst Retailers 84% of analyzed retailers offer Click-and-Collect
Speed
> 1 day
13%
Next-day
25%
Same-day
63%
Coverage
Location
Lockers
29%
Owned location
52%
Third party location
57%
Very Limited
12%
Big Cities Only
47%
Nationwide
41% 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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Consumers will never truly give up in-store shopping. But the biggest impact of ecommerce is how it has completely transformed consumer expectations through its convenience, user-centric design and wealth of options. Now, retailers have to live up to
these expectations to retain existing customers and attract new ones. To have any chance of competing in the digital realm, retailers and brands must maximize efficiency and seamlessly integrate online and offline touchpoints.
Location-Based Analytics Tracking Local Availability This arms race in last mile fulfillment is putting immense pressure on retailers. Innovation is expensive – investing in new fulfillment options and faster delivery times raises costs. In order to stay competitive, retailers need to keep up with the consumers’ heightened expectations and competitors’ increasing capabilities, while also maintaining efficiency and profitability. Click-and-collect, for instance, has proven to be an extremely successful fulfillment model in part because it allows retailers to provide a convenient access point for online customers at a fraction of the cost of traditional fulfillment methods. Retailers only need to engage their existing supply chains to fulfill the order, making it the customer’s responsibility to get the product from the store to their home. And luckily for retailers, it has also proven to be very popular with consumers, who value its balance between convenience and timeliness. Different models are being used to manage the demand for click-and-collect. Many retail chains have adapted entire sections of their stores to handle the logistics of in-store pickup and retailers that lack expansive store networks are partnering with third-party locations to provide more touchpoints for their customers. Another outcome of new last mile arms race is that many omnichannel retailers are now ranking brands and running promotions based on geography and prioritizing products based on stock levels at the individual store. Instead of tracking sales by retailer alone, brands should be ready to optimize stock
down to the individual store / warehouse level so that when a customer orders a product online it will be in stock at their local store, allowing for click-andcollect delivery. Out-of-stocks (OOS) can be harmful to both the retailer and the brand, resulting in lost sales and reduced trust and loyalty. According to a study conducted by Edge by Ascential, online stores lose the purchase 22% of the time when an item is OOS, and brands fare even worse. Despite its advantages, click-and-collect also brings new stock management challenges for brands. An OOS in any one store can cause that product to be hidden from listings visible to online shoppers within a certain proximity to that store, even if that item is in stock at another nearby store or warehouse. Since retailers prioritize the products that reach the end consumer most efficiently, inventory visibility at the store level is key for brands to optimize their supply chain and win in the last mile. As the growth of click-and-collect and other new fulfillment models put increasing pressure on the supply chain, it’s more important than ever for brands to adjust their strategy accordingly. Now, products are no longer shipping out from a handful of central locations/warehouses. Brands have to rely on location-based analytics in order to track variation in their online availability across their entire market.
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26.93%
4.22%
7.64%
4.92%
22.11%
Consumer responses to out of stock (OOS) items
5.23%
Consumer responses to out-of-stock (OOS) items
26.93%
4.22%
28.94%
4.92%
7.64% 22.11% 28.94%
26.93%
5.23% Switch Online Store
Canceled Purc
Purchased at same retail store
Purchased at d
Substituted different brand
Substituted sa
Delayed Purchase
4.22%
Switch Online Store
Canceled Purchase
4.92% Purchased at same retail store
Purchased at different retail store
Substituted different brand 5.23%
Substituted same brand
Delayed Purchase
28.94%
Switch Online Store
Canceled Purchase Edge by Ascential offers a suite of products to
BEST FOR BRANDS Purchased at PRACTICES same retail store Purchased at different retail store competitiveness on the digital enhance all brands’ Portfolio Substituted different brand
shelf, including solutions to the problems caused by
Substituted same brand the last mile arms race. Leading brands use Edge
To adapt their portfolios to modern ecommerce, brands must take a location-based, customer-centric approach.
Delayed Purchase
In addition to tracking store-level stock and availability, brands must understand how consumer tastes and lifestyle choices vary with location. For instance, urban consumers are likely more interested in niche items like specialty pet food, while rural consumers are more likely to purchase economical/bulk-sized packs. Urban shoppers are less likely to own a vehicle and tend to have smaller living spaces, while the opposite is true for rural consumers. This is going to affect both what they buy and what fulfillment methods they prefer, so building a varied portfolio with a different stock assortment for different shoppers is a crucial part of last mile fulfillment. To execute an effective portfolio strategy for shoppers and retailers, brands must understand which segments drive sales in which locations, and the relationship between these factors and the demographics of a given audience. They must also have a deep understanding of the breadth and depth of distribution.
Digital Shelf’s Location-Based Analytics tool to track product ranges by retailer at the individual store level to gain insights into how product performance varies by location. Edge Digital Shelf’s LocationBased Analytics allows brands to focus efforts on identifying distribution opportunities, improving overall assortment, and shortening the path from the manufacturing facility to the end consumer.
Pricing But location-based analytics isn’t just an asset for improving last mile fulfillment – it’s also a necessity for brands who work with retailers that change pricing from location to location. Unintended variations in price by retailer, region and store can have a significant impact on brand performance and visibility. In some EMEA markets (like France) individual store locations can set and change prices and implement promotions independently, and brands may be completely in the dark as to what price their products are selling at which location. Multiply that by dozens of retailers and hundreds of stores and the consequences are enormous.
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A brand’s ability to understand and monitor it’s own pricing (and its competitors’) is critical in maintaining a well-defined and effective sales strategy. For instance, if a retailer drops a product’s prices below the minimum advertised price, other retailers will likely price match. Suddenly the brand is faced with major losses in profitability, plus the possibility that its perceived value in the eyes of customers and relationship with the retailer will be harmed. Brands need to know which retailer is dropping the price first and react accordingly before the drop becomes harmful in the long term. Edge By Ascential’s products offer solutions to the challenges posed by retailers that manipulate prices locally. With the improved visibility over the digital and physical shelf afforded by Edge Digital Shelf’s Location-Based Analytics, brands regain control over their pricing throughout the retail ecosystem, gain leverage to negotiate with retailers, and can readily identify store-specific issues that impact sales performance. By proactively helping retailers manage compliance across online and physical locations, brands enhance their ability to drive sales and deliver a more seamless experience for customers.
Promotions The effective execution of promotions is one of the most powerful drivers of sales and visibility, but in the omnichannel marketplace, running a successful promotion can be a risky and complex undertaking. For instance, on the digital shelf, price-matching algorithms can be very aggressive (particularly on
Amazon). Brands that run a deep discount on one retailer will often find the price on their Amazon listings have plummeted automatically to match the discount. And because of Amazon’s profitability metrics, sudden drops in price will often trigger an automatic reclassification in Amazon’s rankings/ tags system, causing the product to be reclassified as ‘Exclusively for Prime’ or ‘Can’t Realize a Profit’, which buries ASINs in the all-important search results. Another common result of mismanaged promotions is to run out of stock. The goal of promotions is to drive sales, so brands and retailers typically ‘stock up’ on a product before running a promotion on it. But when promotions are executed across an entire retail chain, ensuring that each store and warehouse has adequate stock to handle the spike in traffic becomes a challenge. As we discussed above, the consequences of going OOS at the store level can be severe, with brands and retailers on average losing a third of their sales when a product is not in stock. Store-level stock tracking allows brands to readily execute effective promotions by ‘stocking up’ each individual location and replenishing stock as needed throughout the promotion. Additionally, pricing visibility can prevent brands from unintentionally undercutting the price of their own products listed with other retailers. Location-Based Analytics also allows the tracking of sales and search rank variations across different stores, an important insight for developing future targeted price and promotion strategies.
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Conclusion The arms race for last mile fulfillment is only intensifying. Innovation continues to proceed at a breakneck pace, and this trend is entirely consumerdriven. This means that brands who do everything they can to help ease the journey from manufacturing facility to end consumer will be chosen by more customers and earn more sales. The rise of the omnichannel store of the future and the last mile arms race have resulted in countless innovations which are now widespread, and retailers continue to push to win the last mile because consumers have indicated that fulfillment is now a top priority.
However, improving fulfillment capabilities and shortening delivery times is a delicate balance – retailers are under immense pressure to improve the last mile without sacrificing profitability. But the last mile arms race poses more challenges for brands as the omnichannel store of the future has shifted ecommerce from global to local. Now brands must optimize and tailor stock, pricing, portfolio, and marketing strategies down to the individual store and warehouse level. Edge by Ascential’s suite of products – particularly Edge Digital Shelf’s Location Based Analytics – allows brands to navigate this new and challenging reality.
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Case Studies USE C A SE 1
USE C A SE 2
AVAIL ABILIT Y OF MUST-STOCK ITEMS AT PARTICUL AR LOCATIONS
OPTIMIZING ASSORTMENTS AT DIFFERENT REGIONAL STORES
“Availability is an ongoing issue for my brand’s ‘must stock’ items at Walmart. I need to understand which online stores / pick points are most at fault so I can minimize lost sales.”
“New product ranges are due to go live in Target stores next week. I need to make sure ranges at Target stores reflect the goals of this new category management project.”
Without location-based analytics, brands can only react to stock issues by sending more items to a central warehouse or hub location. But brands with Edge by Ascential’s Location-Based Analytics can track stock at the level of individual stores and fulfillment centers and solve the problem rapidly with surgical precision. The tool also allows them to identify which stores are having the most success moving their products and react accordingly.
Launching a new product or promotion never goes completely smoothly. Coordinating the timing and presentation of a large project across dozens or hundreds of stores is a daunting task. But Edge by Ascential’s Location-Based Analytics allows brands to monitor and optimize their assortment before, during and after the launch of a major new project, quickly identify and resolve any issues that occur and react to unforeseen demand in real time.
USE C A SE 3
USE C A SE 4
OPPORTUNITIES FOR INCREASING DISTRIBUTION
A MUST-HAVE FOR OMNICHANNEL GROW TH
“I’m looking to increase the distribution of my brand at Walmart in order to grow sales. How do I understand where the opportunities lie?” Strategic growth is a complex issue. The myriad factors that go into whether a brand will be successful in any given location can be challenging to quantify. But with Edge Digital Shelf’s Location-Based Analytics, brands glean valuable insights about which products – including those from competitors – are performing well at which locations (and which are failing), allowing brands to optimize assortment portfolios to grow distribution and generate sales.
“My brick-and-mortar team also struggles with assortment and availability in certain areas and specific locations. We need localized data in real-time so we can troubleshoot availability issues before they occur at individual outlets.” It’s not just ecommerce teams that need localized data – if an item is OOS at a certain location online, it will be OOS on the brick-and-mortar shelf as well. As last-mile fulfillment options become increasingly innovative and widespread, brick-and-mortar teams will need the localized, real-time data and visibility on competitor assortment that Edge by Ascential’s Location-Based Analytics tool provides.
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