What are the big trends in retail for the coming year? For many executives, this is a question worth pondering to keep an eye on the latest events and ensure you stay ahead of the curve.
We have several key topics in mind, including retail media networks and product pricing – which we will cover at a later date – but one topic stands out, though it seldom receives the same headlines: omnichannel fulfillment.
Look no further than retailers such as Chewy and Macy’s, following in the footsteps of larger organizations like Target and Walmart. Retailers of all sizes are optimizing their order fulfillment operations to better serve customers while reducing their costs to service orders.
Why has this become an area of significant investment for retailers? Two key reasons stand out.
1. Increased expectations from customers on order speed
2. Continued high wages for workers, which have increased the costs to fulfill orders
To evaluate your own operations, use this three-step process to identify opportunities in your order fulfillment fundamentals.
Step 1: Start with the customer’s expectations and ideal experience
The cliché about starting with the customer is often overused but is also frequently true.
When considering the foundations of your order fulfillment network, consider talking to customers and getting a pulse on their expectations through touchpoints, such as NPS data.
For better or worse, customers do not set their expectations based on your brand alone but rather the larger market conditions. If a customer can place a one-click checkout order on Amazon and have a package arrive on their doorstep the next day, or place an order with Target and be able to pick it up from the store in two hours, then those expectations transfer over to you as well – regardless of your product category – because the customer is accustomed to shopping in this manner.
As an example, a well-established apparel retailer recently thought it was providing a great online customer experience with an extended online assortment, easy returns, and standard shipping. However, when it combed through customer feedback, it realized that the service speed offered to customers did not meet their expectations, resulting in their dissatisfaction.
In response, the retailer is embarking on an effort to revamp its fulfillment network and test new omnichannel fulfillment models.
Retailers in discretionary categories often believe – incorrectly – that customers will be ok waiting 5-7 days for standard shipping orders to arrive at their house or at the local store. Often, though, convenience trumps product, especially when a customer is weighing two similar options.
A sober assessment of the broader market’s service speed offerings in relation to your own speed can help you identify areas of opportunity to get you closer to parity and keep up with your customers, particularly since these changes often take 6-12 months to materialize.
Some related questions to consider:
- How do we envision the digital service experience to look like for customers based on packaging, convenience, returns, etc.?
- What is the assortment of products being sold today? In two years? Five years?
- How important is fulfillment speed to the customer’s purchasing considerations today? How will that change in the coming years based on the market?
- What do we expect the order speed expectations/mix will look like in 3-5 years?
Step 2: Evaluate the current cost to serve customers at your present service offerings
One of the most frequent objections to increased service speed for customers is around investments and the cost to service orders.
On the flip side, though, it is worth asking: what is the cost of losing customers and sales if you do not invest? Or, to take a more opportunistic outlook: what would it take to be able to serve customers at faster speeds today?
The last question helps lay out the opportunity for increased market share and sales by driving down the cost to serve customers at specific fulfillment locations and throughout the network. In turn, this helps lay out the investments and the technology or resources needed to drive the identified volume. [We lay out here how to conduct a deep dive on your cost to serve customers.]
A look at your picking costs, along with delivery costs, provides an understanding of the total cost to serve customers on a variable order basis, which helps inform areas of opportunity.
Questions to consider, through this lens, include:
- What is the anticipated average order value (AOV) for each service type?
- How many items are in each order?
- What is the anticipated margin on each order?
- Where are we running into capacity constraints based on service speeds?
Step 3: Test demand and capabilities in a low-cost manner
A way to get around the investment objections regarding service speed is to test out the operations and associated demand in a cost-efficient manner.
Do you have extra real estate space that’s vacant or a location that might be too big? These are all opportunities for testing faster fulfillment speeds to understand how changing fulfillment offerings might drive different purchase behavior.
Setting up these test locations may require construction costs, as well as identifying the right front-end user experience changes, to allow customers in the area to select new fulfillment offerings. This all, of course, also entails a basic technology build to enable store picking, along with training employees to fulfill orders in the space.
However, these costs are nominal in relation to a full-fledged network build-out and allow for agile learning, as well as the ability to adjust future plans based on customer demand.
It’s important to note that marketing support to drive customer awareness of the new offerings is important – particularly in low-frequency retail segments – as well as having a good measurement plan to capture metrics, like total sales lifts in the fulfillment catchment area, cost to serve customers, customer satisfaction and any long-term increase in customer shopping behavior (omnichannel customers tend to spend more with you).
When all is said and done, teams find they often have the insights to make more informed investment decisions around faster fulfillment offerings.
Where are you in this journey today?
