Amazon’s Growing Transportation Network
As Amazon expands across the globe, enhancing its logistics capabilities as well as adding to the list of perks for its Amazon Prime members, retailers and logistics providers are taking note.
The pressure is on for retailers to not only meet customer expectations, but to also exceed them as differentiation in the retail industry becomes paramount. Amazon has raised the bar for expectations with offers such as same-day delivery and free shipping, and its influence is spreading as it becomes one of the world’s biggest retailers.
As the battlefield moves into logistics, retailers continue to eye Amazon warily as it builds its international network. The company is constructing a massive fulfillment facility network that allows two-day delivery service as well as a same-day option. It is also growing its cross-border and fulfillment services. The result? Amazon is becoming a global logistics provider and could potentially rival the likes of DHL, FedEx and UPS.
In the United States, Amazon expanded its footprint with more than two dozen new fulfillment facilities in 2016 that link to its sortation spaces, delivery partners and its own nascent airfreight and ground capabilities. Combined, these capabilities allow Amazon to deliver goods to customers quicker and with greater efficiency. In addition, fulfillment by Amazon continues to gain traction with small-to-medium size businesses that are looking to take advantage of perks such as Amazon Prime, preferential placement on Amazon’s website, and the outsourcing of fulfillment and shipping.
The situation in Europe is similar as Amazon introduces faster delivery times. While FedEx and UPS have refused to publicly acknowledge that Amazon is competing on their home turf, DHL in Europe has noted that Amazon is indeed a threat and British Royal Mail has confirmed that Amazon is affecting its business.
In Munich, Germany, Amazon has 240 delivery vans operated by six subcontractors. And according to German business newspaper Handelsblatt, Amazon has taken about a third of DHL’s business in Munich. DHL’s CEO has stated that Amazon is one of its largest customers as well as competitors.
Meanwhile, as Amazon gains ground in both the U.S. and European markets, Asia has become more problematic with Amazon rethinking its strategy. In 2004, Amazon entered the Chinese market by adding Chinese e-tailer, Joyo.com. At the time of the acquisition, an Amazon spokesperson said the company would use the same template for running the Chinese operation that it applied in other regions.
This strategy soon proved difficult as it struggled to improve upon its approximate 2% domestic market share — Chinese e-commerce behemoth, Alibaba, has a projected 80% share of the domestic Chinese market.
With its new airfreight capabilities, Amazon has shifted gears once again, launching its cross-border capabilities between the United States and China. As a result it has reduced delivery times for U.S. Amazon Prime members from an average of eight days to five days on items such as USB cables, smartphone screen protectors, cosmetics and other small, flat products. This makes Amazon’s delivery of small, inexpensive items from China much faster than the two weeks to 30 days it can take using marketplaces owned by Alibaba, eBay and Wish.com.
China isn’t the only geographic region where Amazon is looking to gain. It is rumored that the company will be expanding into Southeast Asia in early 2017 and will compete head-to-head with Alibaba for dominance in this growing market.
India is also a much sought-after region for Amazon as it pumps billions of dollars into that domestic market. Competing against leading local online marketplaces Flipkart and Snapdeal, Amazon established a subsidiary service, Amazon Transportation Services Private Limited, to deliver goods directly to customers, and is taking market share from the two leading Indian online marketplaces.
Many businesses are wondering whether to concede or fight back. Logistics providers are fighting back by improving their own networks, while retailers are offering faster delivery services. But this begs the question: At what cost is all of this being done?
For logistics providers such as DHL, FedEx and UPS, operations investments are a norm and are usually included in annual budgets. However, the margins for retailers can be much tighter and the increasing logistics costs may be more difficult to recoup in retail sales.
Instead of trying to fight back, maybe it’s time for retailers to consider Amazon as a logistics partner. Among the benefits are the ability for retailers to reduce costs if Amazon is managing a retailer’s fulfillment and transportation needs.
Also, in terms of sourcing from Chinese suppliers, retailers can benefit by having their goods remain in one network without any handoffs to other logistics providers.
In other words, Amazon is able to pick up goods from a Chinese supplier and either utilize its NVOCC license and arrange ocean freight, or use its airfreight capabilities to ship the goods straight into one of its U.S. fulfillment facilities — and ultimately to the customer’s front door or locker. It’s not an easy decision, given Amazon’s track record of cutting out the intermediary and going straight to the end customer.
Determining Amazon’s impact on retailers will certainly vary from one retailer to the next. As with any strategic plan, everyone must do their homework and perform critical analytics. Welcome to the new retail industry dynamics.
John Haber is the founder and CEO of Spend Management Experts.
Digital disruption sets the tone for a new year — again
A new year is upon us, with new challenges and new opportunities. At the same time, retailers continue to struggle with how to embrace the digital disruptors that are redefining the retail customer and retail experience. Because one thing is clear: They are here to stay.
Indeed, these agents of change continue to pop up on a daily basis, each one designed to transform the trajectory of retail — and brands with an eye on the future should want in. After all, what retailer doesn’t want to reinvent their enterprise, drive agility and foster customer engagement in a new way?
But with so many innovations emerging, what will be the most intriguing concepts for 2017? Here are my top picks:
A phrase coined by Uber’s developer experience lead Chris Messina back in 2015, conversational commerce intersects messaging apps and shopping. Consumers are already getting their feet wet with “connected home” devices, such as Amazon Echo, Amazon Dot, Google Home and even Apple’s mobile devices. Embedded with an artificial intelligence assistant app, users are connected with web-based information via voice commands, such as adding items to virtual shopping lists or making online purchases. Now it’s up to retailers to learn how to embrace the disruptor to drive engagement.
Chains that offer in-store clientelling should explore how chatbots can augment this intimate service. A computer program designed to simulate conversations with human users, chatbots leverage messaging platforms to deliver a “personalized experience.”
Eager to reign in harried holiday shoppers, Nordstrom debuted a limited edition chatbot in December. Accessible through Facebook Messenger and Kik, the program asked shoppers relevant questions about who they were shopping for. Based on their answers, the bot suggested tailored gift ideas. The app also connected shoppers with a digital customer care specialist or specific products.
Whether trained for a specific task or learning from gleaned information, computers that support AI can help retailers manage customer expectations earlier in the sales process. Besides helping retailers predict and target offerings to specific shoppers, AI can manage inventory and optimize web-based customer-facing content. Staples is piloting a machine learning-enabled office supply reordering system with business-to-business customers. By integrating IBM’s Watson technology with internal personalization APIs, the service learns about each businesses’ preferred products and quantities. As the system becomes “smarter,” it will make product and service recommendations based on the customer’s current needs.
One of the most coveted holiday gifts, virtual reality is increasingly finding its place as a retail solution — especially in customer engagement applications. Lowe’s and Sam’s Club have already tried their hands at augmented reality solutions. Even Wayfair and Ashley Furniture recently adopted the disruptor to help shoppers visualize how furnishings can fit into their personal space.
However, the key to driving a successful VR program will rely on blending this 3D visualization with the expertise of knowledgeable sales people — a combination that will not only create a unique shopping experience, but become a brand differentiator.
Moving merchandise in an omnichannel world
Chain Store Age tech editor Deena M. Amato-McCoy spoke with Mike Lowey, director of retail for Brother Mobile Solutions, and learned how an increasingly evolving omnichannel retailing model, especially digital channels, is impacting replenishment operations and what retailers need to do to adapt.
Warehousing operations are growing more complex by the day. What trends are impacting how merchandise moves through the warehouse and up to store-level?
As e-commerce transactions become a greater percentage of total sales, brick-and-mortar retailers have been forced to view inventory management practices at their warehouses differently. Many retailers now make an effort to process e-commerce orders not from the ware-house, but from the store that’s closest to the customer’s delivery point. Done properly, this may be the most cost-effective way to support “next-day shipments,” and offer emerging “same-day shipments.”
All of this e-commerce activity, however, is forcing warehouse operations to revisit long-standing replenishment procedures. Historically, warehouses have relied heavily on store point-of-sale data to define replenishment requirements. The emergence of e-commerce store transactions is only adding to the challenge of getting the right mix and quantity of merchandise.
How is mobility reshaping retailers’ warehousing operations and strategies?
Today, inventory management is all about velocity. Retailers are not just looking to improve inventory turns at the warehouse. They want merchandise received, processed and then shipped to the store on the same day, a process often known as “cross docking.”
Cross docking is not just efficient, it’s often mandatory for handling fresh and temperature dependent foods. Pre-packaged and store-ready merchandise is also perfect for cross dock handling. The key to successful cross docking is often mobile technologies, which put time-sensitive instructions for handling and routing merchandise in the hands of the person who most needs it — the employee on the warehouse floor.
What other solutions are streamlining replenishment and how product moves between distribution centers and stores?
Historically, warehouse shipments to stores have been bulk replenishment orders, based on a store’s POS sales data for the previous week. The advent of “in-store pick-up” means company-owned warehouses must do more than manage bulk replenishment orders. They must essentially process individual sales transactions that likely won’t fit neatly into the “weekly store shipment schedule.”
Efforts to incorporate this new business model into traditional warehouses can strain an operation built around bulk replenishment. Rather than create a hybrid model, some retailers use third party logistics (3PL) partners to manage e-commerce and in-store pick-up transactions. These 3PLs are often more capable of handling frequent, smaller and ad hoc orders. Many retailers supplement their own internal program with 3PL partnerships that process e-commerce orders for a limited number of high volume SKUs.
Regardless of how the brick-and-mortar retailer elects to manage the growing demand for in-store pick-up orders, warehouse management is forced to revisit long-standing operational procedures.
How can Brother Mobile Solutions help retailers in their omnichannel journey?
Regardless of what methodology warehouse operations employ, merchandise will always move from the incoming doors at one end of the warehouse to the outbound doors at the other end. In between, there is much room for error and inefficiency.
One of the most effective ways to eliminate mistakes, be it in receiving, storage, picking or door assignment, is the proper labeling of merchandise at the point of initial contact. Brother Wi-Fi-enabled mobile label printers ensure that if a product must be marked eventually, it can now be marked immediately, in-aisle and on-demand.
What solutions can you provide retailers to bolster mobile efforts?
Brother offers a full range of wireless mobile printers that can be carried by the employee or, alternatively, mounted on forklifts and pallet jacks. The operational challenge in many warehouses for any wireless technology is maintaining network connectivity. Warehouses are generally a mass of concrete and steel, which are not the friendliest environments for mobile devices.
Brother products have been designed and rigorously tested to ensure that maximum signal strength and connectivity are maintained at all times. The dual Wi-Fi/Bluetooth models are ideally suited for these busy signal situations. We take very seriously what one customer reminds us: “Warehouse mobile devices are only as good as their ability to maintain connectivity at all times.”