In 2018, U.S. consumers spent $517.6 billion online, up 15% over the prior year. E-commerce represented 51.9% of all retail sales growth that year, with much of the profits going to Amazon, an e-tailing giant that many companies are hotly pursuing in an effort to grab a larger piece of the ever-growing e-commerce pie.
With Amazon commanding 47% of U.S. e-commerce sales and on track to grow its online sales by 20.4% to $282.52 billion, pursuing this formidable opponent makes sense to a lot of companies. Unfortunately, many of them are sacrificing profits in their attempt to compete, with transportation and fulfillment costs consuming a large part of their budgets.
Opportunity or Liability?
In many cases, the risks of racing Amazon have literally turned into liabilities, effectively slowing progress and forcing companies to rethink everything from their online order interfaces, shopping cart conversions, and final-mile/same-day order fulfillment management.
The brick and mortar world has really ramped up its game, but Amazon has conditioned us, as end consumers, that those efforts just are not good enough.
4 Practices to Protect Profitability
The good news is that there are steps that companies can take to improve e-commerce strategies without sacrificing profitability. Here are four that your company can start using today:
- Develop an above-par order fulfillment strategy. Amazon built its order fulfillment strategy around offering choices to its customers. In doing so, it made the online shopping experience all about the customer and his/her decisions. The e-tailer provides high levels of supply chain visibility as shipments move from Point A to Point B, maintains good inventory control, and understands its cost to serve. One good metric to use, when judging the efficiency of your order fulfillment processes, is the “Perfect Order,” or one that is on time, complete, intact, and includes the right shipping paperwork. In an environment where order fulfillment can comprise over 60% of the typical warehouse’s total direct labor, even small gains in this area can lead to profitability improvements
- Now, deliver on that strategy (on every order). Not only does shipping have to be free and fast, but if it includes a hovercraft and a promise to get a package to your doorstep within an hour, then all the better. We’re at a point where anything less simply doesn’t meet customer expectations. There’s little (if any) room for error on this step. Retailers that want to convert digital consumers know that competing on price and customer experience just isn’t enough anymore; they have to also be able to compete on speed and choice. Handled improperly, same-day delivery can be a logistical nightmare and major risk for retailers. It’s also a necessary evil for them, and something that they all have to be able to do for at least some of their customers. Making that happen requires locations and/or warehouses positioned close to those buyers; a modification of existing fulfillment procedures; a smart, profitable BOPIS strategy; and ensuring that the right product is in the right place and at precisely the right minute.
- Focus on continuous monitoring and improvement. Companies can no longer wait until quarterly review meetings to uncover a problem that happened a month ago. Smart companies use daily scorecards to gather, compare and disseminate meaningful, actionable intelligence (e.g., what products were shipped? How quickly were orders fulfilled? Did we pick all of our orders yesterday? If no, how can we make that up today?). By taking an introspective look at their e-commerce operations and developing metrics based on those results, retailers can adapt faster in a world that demands speed, accuracy and delivery on promises.
- Make the right transportation choices. If your company can’t access data that provides strategy around carrier contract alignment and then facilitates choosing the most economical transportation mode, it’s probably losing money. And, if it’s channeling all of its resources into getting same-day and next-day shipments out the door as quickly as possible − without worrying about whether or not those are the best and most economical decisions − it’s losing even more money. These are huge risks in an era where companies are being forced to go head-to-head with Amazon and Walmart, both of which offer same-day and one-day delivery to 72% and 75% of the total U.S. population, respectively. Retailers should be using technology (i.e., transportation management systems or TMS) to select not only the most economical mode, but also one that meets customers’ delivery expectations. Leveraging transactional audit across all modes, provides companies consolidated, visibility to know the rate they paid, identify service gaps, and improve their ability to make good transportation decisions going forward.
Following these guidelines, companies can effectively improve the e-commerce experience without sacrificing profitability − all while satisfying a lot of happy, repeat customers.
Ready to learn more ways retailers can improve e-commerce performance to satisfy customer demands for service and choice? Download Transportation Insight’s e-commerce guide below.