Retailers, Supply Chains and the Holiday Season

The National Retail Federation (NRF) expects holiday sales to increase 4.1% this holiday season. Meanwhile, Shop.org expects online sales to increase 8% – 11% over last holiday season. All eyes will be on how retailers and their supply chains hold up during this period.

An important time of year, according to NRF, sales in November and December can account for as much as 30% of a retailer’s annual sales and it makes up nearly 20% of the retail industry’s annual $3.2 trillion.

As such, beginning the week of Thanksgiving and each week afterwards, a retailer will be profiled here on the blog. This will then culminate in Ti’s publication of Global Ecommerce Logistics, scheduled for publication in January.

So, be sure to check back each week to see what retailer is profiled. If you’re interested in learning more about our Global Ecommerce Logistics report, the blog post series or about Ti, drop me a line.

Meanwhile, I hope you enjoy the posts!

 

Posts in Series:

1. Targeting a successful holiday season – Target

2. Supply Chain to the rescue for Best Buy

3. Will a Loyal Customer Base Be Enough to Help Newegg Expand?

4. Is the UK Holiday Season a Result of Over Promise and Under Deliver?

Is the UK Holiday Season a Result of Over Promise and Under Deliver?

I can’t help but see the irony in what’s currently going on in the UK and what happened here in the US when UPS and FedEx were “overwhelmed” by a sudden deluge of packages right before Christmas Day last year. Online retailing has put the retail industry, the delivery companies and customers on edge. But why? retailing has always been an innovative industry – the Sears & Roebuck catalog for example.  In this week’s Ti e-newsletter, I wrote a brief, Don’t let supply chain basics slip during disruptive periods, in which I suggested some basic supply chain components were missed in last year’s US holiday problems. I believe what is going on the UK is similar. In fact, other analysts have noted they believe the lack of forecasting (one of the basics I cite in my article) is a major contributor and I’ll take it a step further and add collaboration. Technology is a wonderful thing, if it is utilized effectively, but face-to-face talking with customers (i.e. collaborating) and setting expectations on a regular basis throughout the year is just as important.

So, the plan was to write on UK’s Marks & Spencer this week. However, after reading several articles on Yodel this past week, I decided to take a further look at this courier company. Why has it been voted the worst delivery company for two years in a row? It seems to me they must be doing something right if they’re the second largest delivery company and delivers on behalf of over 80% of retailers in the UK.

Information from Ti’s GSCI portal indicates that Yodel was originally known as the Home Delivery Network Limited. In 2010 the company, through its subsidiary company Parcelpoint Limited, purchased the domestic B2B and B2C businesses of DHL Express (UK) Limited.

Besides courier basic home delivery, there are several other services Yodel offers including CollectPlus, a joint venture with PayPoint, which allows consumers to collect, return or send parcels from their local convenience store, newsagent or gas station. Through Arrow XL, Yodel also offers a two man service for white goods and large items up to 120kg.

Have they, as well as others, including retailers, spread themselves too thin by over promising? I’m not sure but one thing that may be contributing to delivery delays is a shortage of drivers in the transportation industry. However, Yodel announced plans to hire 5,000 staff before Christmas, including “thousands of self-employed drivers and couriers”, and it insisted before the holiday season began that it was well placed.

Interesting to note, another company, Clipper Logistics Group, reported that despite experiencing its busiest ever period (Black Friday period), it had achieved a 100% success rate in dispatching orders within their allotted time-frame. What are they doing differently? Is it the ability to effectively utilize and forecast data?

And what about the potential 4.2% option Amazon has in Yodel? Will it be exercised? Amazon was among the many retailers to experience a disruption in delivery service levels. Last year it was quite vocal in its disappointment with two of its biggest delivery partners here in the US.

There are more questions that we at Ti have and we are looking into as we prepare the Global Ecommerce Logistics report. The report is due for publication in January. Speaking of irony…our original plan was to publish this report in November, however after internal discussions back in August, it was decided to delay publication until January to include analysis on the holiday period. So, to see what we find out on Yodel as well as our analysis of how well the holiday seasons in the US, the UK and other countries went, be sure to check out the report.

If you’re interested in learning more or have any questions, drop me a line.

In next week’s blog post, we’ll take a look at what’s going on Asia.

 

 

 

Will a Loyal Customer Base Be Enough to Help Newegg Expand?

Newegg, one of the largest online retailers that cater to the IT and gaming crowd is an interesting company. According to its director of transportation, the company distributes about 30,000 packages a day and more than 15 million annually. In terms of revenue, it’s about a $3.5 billion company. Profiled in Ti’s 2012 North America Ecommerce Logistics report, I decided to take a look at what’s been going on with Newegg since they were last profiled.

Delivery Services and Options

Just in time for the holiday season, Newegg is OnTrac’s first customer for its latest service, DirectPost. Much like UPS’ hybrid solution, SurePost, DirectPost also utilizes the USPS. The difference is that DirectPost services OnTrac’s 8-state delivery service area.

In addition to taking advantage of OnTrac’s new service, Newegg is also testing the delivery waters itself. Still in trial, customers in the Los Angeles area (actually within 50 miles of the company’s City of Industry warehouse) can place orders by 10:00 am and for $20 extra, a vehicle from the Newegg Express fleet will deliver the purchase before 6:00 pm same day. The trial will run through the holiday season and if successful, Newegg will expand the offering to Indianapolis, Edison and Memphis – all Newegg warehouse locations by the way.

Another option for customers is its Premier Service. Much like Amazon Prime, Premier is a $50 annual subscription service that provides free expedited shipping, guaranteed arrival within three on days, along with discounts on two-day and one-day shipping. It also offers free returns with no restocking fees, and a dedicated customer service line.

Alternative Payment Options

In a nod to its IT customers, Newegg now accepts bitcoin as payment. Alternative payment options are a growing trend for many e-retailers as they expand globally. Bitcoin, while maybe controversial to some, is a recognized option for many in the IT/gaming community. For now, Newegg is using BitPay as the payment processor and is available to US and Canadian customers.

B2B

The successful platform model created by the likes of Amazon, Alibaba’s T-Mall and Taobao and Ebay has resulted in Newegg launching its own version. Its B2B subsidiary Newegg Business, introduced a marketplace that provides business products across 25 categories, from industrial-grade construction tools and equipment to office supplies and consumer electronics. The site’s targeted audience includes large e-retailers, manufacturers and brick-and-mortar businesses.

Newegg Business charges sellers fees ranging from 10% to 15% of each sale, varied by product category. However, it charges no payment card processing or other fees. The company also guarantees against damaged or undelivered goods up to $1,000, as long as the buyer meets certain requirements.

Cross-Border Expansion

In June of this year, Newegg announced plans to expand into six new countries – India, Ireland, Netherlands, New Zealand, Poland and Singapore. Already operating in the US, Canada, UK, Australia, Taiwan and China via its Taiwan website. However, its last global attempt failed which the company attributed to the use of a third-party vendor.

This time, however, they’re doing it differently. The company will ship orders from the US first and then once local demand is sufficient, it will build a physical presence (i.e. warehouse) in the country. This may be beneficial to Newegg but for customers it means higher prices such as import taxes, administration fees and so on which could mean the price doubling. But, according to one blogger, Newegg will charge the consumer in advance for taxes and duties so that items will not be held in customs and delivery targets can be met. It seems to me that there are better ways to handle this and perhaps Newegg should do a bit more research on this if they want to succeed globally. Perhaps seek the advice of an international logistics provider for options?

Concluding Thoughts

Newegg will continue to be successful here in the US and Canada thanks to its loyal customer base. But, its cross-border strategy is a bit concerning and one that it needs to think further on or else run the risk of another failed attempt to truly globalize. Its B2B subsidiary and B2B marketplace are good ideas along with a subscription service that it is currently testing. However, these models are very similar to its primary competitor, Amazon.

It’s a tough market to compete in and one needs to be innovative and nimble to win. I’m not sure if Newegg is there yet. There’s too much “Me Too” and a company is going to need more than low prices to win.

Supply Chain to the rescue for Best Buy

If anything, this could be the holiday season to make or break Best Buy. Like Target, it enters the holiday season in a good position after reporting stronger than expected quarterly earnings. An amazing turnaround for the company as it’s been a rough road for Best Buy over the past couple of years and in fact, many expected the retailer to head for the retail graveyard as it suffered continuous declines in sales.

Indeed, the electronics retailer which helped take down the once great Circuit City is now facing the threat all other brick & mortar retailers are facing – the internet and specifically, Amazon. To fight back, Best Buy looked at its supply chain. Surprisingly as one of the most recognized retailers, analysts note that the company had quite a bit of “slack” in its supply chain that the company could optimize. And indeed it is doing just that, optimizing its supply chain and so far, the results have been positive. Among some of its supply chain achievements have been in returns management, ship from stores and faster shipping times thanks to all distribution centers handling online orders. While the company continues to optimize its supply chain, is it ready for the holiday season?

Returns

One of its biggest costs has centered on product returns. According to Best Buy, handling these returns cost the company $400 million on average per year. So, one of the solutions to correct this has been to connect store backrooms to its website and sell returns and open box items online. A combination of this service with its ship from store concept has resulted in positive gains for the company.

Faster delivery times

In fact, one of the biggest enhancements to help boost online sales has been its ship from stores service, now available at all 1,400 locations. Best Buy noted its online sales increased almost 22% thanks to this concept and according to the CEO, the capability helped drive over 50% of web sales.

Additionally, interesting data from the company suggested that 2% to 4% of its online traffic did not result in a purchase because of lack of inventory in its distribution centers, but around 80% of the time the stock is available in one or more of its retail centers. Through a retooling of its inventory management process, Best Buy further enabled all of its distribution centers, including those previously allocated to e-commerce to handle online orders. This change has resulted in the company to deliver goods two days faster than in the past.

“The trip to the stores needs to be extraordinary from a customer experience standpoint” – Best Buy CEO

And indeed, Best Buy has made great strides in this concept by creating “stores with the store”, reducing the size of the average store and encouraging in-store pickups for online orders. As a result, foot-traffic to stores increased during third quarter.

Holiday Season

Is Best Buy ready for the holiday season? The company is expecting a highly competitive holiday season and as such it is forecasting flat revenue. However, it has high expectations for its online sales but its website was put to a big test on Black Friday and failed for a period of time – it crashed due to an higher than expected mobile traffic. Mobile – The next hill to tackle for this retailer and fast. In fact on Black Friday, mobile sales accounted for 28% of all online sales, up nearly 30% from a year ago.

Here’s hoping the kinks are worked out and Cyber Monday and the rest of the season proves successful for a company that really needs to shine this season.

Ti’s Global e-Commerce Logistics Report

The second in a blog series which looks at how retailers are evolving in a new retail environment is just part of the e-commerce evolution. Disruptions are occurring in all industries and supply chains are being redrawn. A detailed analysis of this phenomenon will be available in Ti’s Global e-Commerce Logistics report available in January. For additional information, drop me a line.

Targeting a successful holiday season

Promising third quarter earnings has Target breathing a sigh of relief after a year of upheaval. A security breach which the retailer noted in its second quarter earnings filing cost it $148 million for the period and then perhaps a too eager push into Canada has resulted in a rethink in strategy.

Not surprising, its supply chain was blamed for its Canadian expansion mishap. In its first international expansion the company opened 124 stores and three distribution centers in Canada last year, losing nearly $1 billion as sales fell short of expectations. Higher prices than those in US stores, poor selection and in some cases empty shelves were among the issues. As such, the company set forth to correct these issues.

While it was working on its Canadian operations, the company was also beefing up its IT team in response to last year’s security breach and to transform the company into one with more omnichannel capabilities. Indeed, Target was slow entering the online retail space, long relying on Amazon for its platform but that changed in 2011 when the company split with the behemoth and created its own website. However, it proved slow going for the company and it wasn’t until this year with the creation of its Digital Advisory Council, that it’s finally focusing on linking the online with the physical store – an approach that many retailers are using to compete for the consumer’s dollar.

Convenience

It’s all about convenience and after last year thanks to bad weather and shipping delays, Target is one of many retailers looking towards its stores as fulfillment centers. While in-store pick up is offered at no cost to consumers, it’s taken the concept an extra step. For $10 per order, consumers can choose to have purchases shipped same day from store to final destination. Still in trial, Ship from Store is being rolled out into select markets. A potential plus for Target particularly as one analyst compared the number of Target’s potential fulfillment centers it would have, 1,797 to that of Amazon’s current 61 here in the US – a plus for Target perhaps. In fact, Target noted that with its current capabilities, it is able to offer 1 or 2 day shipping to 91% of the country by utilizing stores as fulfillment centers.

Mobile

Software company, Adobe, projects mobile will account for 31% of online sales on Thanksgiving Day compared to 21% in 2013. As such, this need for convenience for price-conscience consumers is on the minds of many retailers and Target is no exception as it rolls out apps for coupons, navigation, shopping lists and more. Aware of the growing trend favoring mobile, Target recently acquired Powered Analytics. Among its capabilities includes the ability to connect a retailer’s app to the in-store shopping experience. Its Fabric product, for example, uses the store’s layout and product locations to deliver customized recommendations and messaging to customers.

How it will combine these app capabilities to its supply chain will be important to maintain customer loyalty and perhaps a differentiator in the crowded retail space.

The Holiday Season

Is Target ready for the 2014 season? While it has recently introduced several enhancements to its mobile app to improve customer experience, an important measure of success will be providing the right products at the right price and the right time to consumers – whether it’s online, in the store or a hybrid of the two.

Slow out of the internet gate, it is working in overdrive to catch up with two of its biggest competitors, Amazon and Wal-Mart and seems to have momentum on its side after posting a good third quarter earnings. As a result, it should have a decent holiday season as long as they can assure consumers adequate security measures have been implemented; not only maintain visibility of inventory but the ability to quickly adjust inventory in-store or online and it is in synch with its delivery partners.

A Successful Retailer Without an Online Presence?

As Sears shuts down stores to stay afloat, UK-based Primark is taking advantage of some of these shuttered locations to expand into the US. An interesting retailer, Primark is similar to H&M and Zara’s, producing and selling low-priced, fashionable apparel. However, perhaps the big difference among the three is that Primark does not have an online presence, nor does it foresee having one anytime soon.

Yes. A retailer without an online presence and one that is still able to muster a 22% year-over-year increase in revenue.

In today’s retail world where e-retailing and omnichannel seem to be the main drivers for revenue, how can a company such as Primark financially benefit from simply brick & mortar? Well, for one thing, the company believes its strict control of its supply chain and limited marketing expense has attributed to its success.

Much like H&M and Zara, Primark responds quickly to changes in fashion tastes. With over 270 stores in primarily Western Europe, the company seems to be a tough negotiator with its 700 plus manufacturers based mostly in Asia.

The company’s quick response to fashion changes is quite impressive. About 10% of its fashion lines are changed out each week and it’s estimated that average stock turnover is about 6 times per season versus an average of 2 times for most US retailers. “Basic” garments are produced usually in Asia with a lead time of about 90 days while “fast fashion” has an average lead time of 8 weeks and are manufactured in Turkey or East Europe which allows Primark to respond quickly to demand for popular items.

Primark has 5 European warehouses – among which with locations in Germany, UK and Spain. DHL Supply Chain Solutions manages at least these three. Who will likely manage a US warehouse could very well be DHL Supply Chain Solutions or its subsidiary, Exel.

With plans to enter the US Northeast first with 10 planned US stores by 2016, Primark will continue with its current supply chain methods which will include sourcing clothing from traditional supplier markets of China, India, Bangladesh, Cambodia, Vietnam and Turkey. However, the company noted that it will make financial sense to establish suppliers from countries closer to the US such as Guatemala, Costa Rica and Mexico. This shift in thought will ultimately result in a rethink of its supply chain, a key to its current success. Perhaps a tricky situation but if done correctly, it can achieve success.

The other key to its success is limited marketing expense. It does little advertising and marketing and instead relies on word of mouth and ironically digital and social media.

So, a retailer without an online presence – a refreshing change and one that seems to follow its own drum beat – but, can it transport its European success and implement it successfully in the US home to such low-price providers as Amazon and Wal-Mart?

The Changing M&A Environment – What’s Next?

Come join us in St. Louis Oct. 23rd as we discuss the changing m&a environment.

The CSCMP St. Louis Chapter will host its October luncheon with guest speaker is Mrs. Cathy Roberson–Senior Analyst, Transport Intelligence. Thursday, October 23, 2014. Crowne Plaza-Clayton, Missouri.

Changes are in the midst for the logistics market. Mergers and acquisitions are up as such trends as an improving US economy and nearshoring take hold. What else is driving this growth? Who’s buying whom? Who’s at risk? What is the outlook?

  • Overview of the 2013 market and 2014 market to date
  • Trends driving the growth of M&A activity
  • What parts of the logistics market are of particular interest for acquisition?
  • Pros and cons for shippers – how do they benefit in this environment? Drawbacks?
  • What is the outlook?

To register, please click here.

For additional information on m&a activity, be sure to sign up for Transport Intelligence’s free newsletter service at http://www.transportintelligence.com

Recent articles include:

M&A interest continues in the US logistics market

North American logistics and transportation mergers & acquisitions heats up