The last mile race

From the April 2022 print edition

Retailers knew they would have to embrace e-commerce eventually. But when the world stopped amid the COVID-19 pandemic that confined consumers to their homes, online shopping not only accelerated, it shifted consumer behaviour significantly. Despite the risks in supply chains, customers wanted goods delivered fast and for a reasonable price. While larger retailers could pivot quicker than others, most have shifted to using existing locations as micro-fulfillment centres (MFCs) to meet demand and decrease last-mile delivery costs.

According to Jon Rosemberg, founder and CEO of Strongpoint Group Inc., the concept of MFCs was traditionally called ‘ship from store,’ a strategy that allowed retailers to get products to customers faster by shipping from a store in a closer geographical area.

“It was more of a convenience play,” he says. “One of the things that the pandemic did – which was going to happen anyway – was it accelerated the behavioural change in consumers. If we wanted to buy something, we had to buy it online, as there was no other choice or alternative. This was especially hard for older generations. The pandemic forced everyone to get outside of their comfort zone and it really disrupted the traditional magnetism toward brick-and-mortar retail. We were already seeing a shift from brick and mortar to online and that was continuing to move, so retailers knew that at some point they were going to have to leverage their retail footprint in a way that made financial sense.”

The case for brick-and-mortar will remain for those selling expensive products, like Apple, or retailers with tremendous traffic like Loblaws and Walmart, where consumers can purchase items that aren’t typically bought online. “There is also the financial advantage of buying in-store, and there’s even a quality advantage when it comes to things like perishables,” says Rosemberg. “But if you’re a retail store, one of the key metrics that you look at is productivity per square foot, or profitability and revenue per square foot. If your store is limited to servicing the customers that walk in, your revenue per square foot is limited to that.”

Pandemic restrictions are easing, but online shopping will continue growing and changing the way retailers accommodate customers. “Prices, consumer choice, delivery, availability, location and convenience have become the new drivers of shopping behaviour,” says Shash Anand, vice-president of product strategy at SOTI, a business mobility solutions provider. “Retailers are now required to offer speed and flexibility, putting them at risk of losing customers if both shopping and delivery experiences aren’t seamless.”

Retailers must remember that the era of mindless “add to cart” is over, Anand says. Shoppers are more mindful of the shopping journey – from clicking to shipping. “Consumers now care about how the supply chain operates in the background due to its impact on the rising prices of their favourite products and overall satisfaction. They want to know if trucks are on the road, if there are stocked shelves in stores, and the exact wait times for orders and package deliveries to their doorsteps. Consumer expectations have not only changed, but if their preferred retailer is unable to provide any of those critical elements in their shopping experience, they will look for other retailers who can.”

SOTI’s latest retail report: From Clicks to Ships: Navigating the Global Supply Chain Crisis 2022, revealed that 56 per cent of Canadian consumers are less likely to order an item that requires shipping from overseas than they were a year ago. And 33 per cent of Canadian consumers said that if delivery or pick-up takes longer than two days, they will look elsewhere.

More money, happy customers
Micro-fulfillment solutions can help companies improve the customer experience with faster delivery times and save money by carving out space in existing stores, rather than creating new warehousings. There are a few versions of how companies are implementing micro-fulfillment.

“Some are picking singles manually in their warehouses, in stores or applying a hybrid setup where they allocate space in the back of the store for dedicated order assembly,” says Gary Newbury, founder of Retailer Inc. and a consultant specializing in rapid performance improvement across retail supply chains and the last mile. “Some are using automation within their main warehouses and some are doing micro-fulfillment, distinct from their warehouse network from centres local to, or some distance from, their target market, which is what Sobeys is doing with Voila. It’s able to transport orders to customers in a reasonable time to meet an agreed delivery window.”

Newbury says that Target does about 90 per cent of their picking in store – something they’ve done well. “But one thing that I’ve been saying for years is to stop in-store picking and find a different route because you have pickers getting to the product before the actual customer arrives to shop. But when you look at the store-based approach, if you’re only selling a product infrequently, why commit warehouse or inventory space to that product when it could be on the shelves for customers. If you put your fast-moving products through the automated picking lines and leave slow movers on shelves, you need to keep good stock control on those when you make them available online.”

The other major challenge with micro-fulfillment centres is managing inventory allocation. “If you have micro-fulfillment centres and 400 stores across the country, you need to figure out where you’re going to place your inventory. And that’s not an easy question to answer,” says Rosemberg. “Artificial intelligence (AI) and machine learning are helpful in understanding what the customer trend is going to be, but it’s both an art and a science.”

Newbury agrees, “In-store traffic is easier to predict week to week, but e-commerce on the other hand is very hard to predict with any confidence what that might look like next week or next month. We want to get an e-commerce volume to support whatever structure we’re doing on the ground in terms of fulfillment, and then design our promotions, online assortment and speed accordingly to compete and drive that volume.”

This is where automation, AI and mobile solutions come in. “Retailers need to find a way to accelerate innovation and implement technology to communicate with consumers and partners, while also taking into consideration the fact that we’re still very much in a state of flux, which places a premium on the need for flexibility and scalability,” says Anand. “By investing in mobile technology, brands and retailers can not only diagnose problems quickly and adapt to the evolving retail ecosystem, but ensure they remain on top of customer needs, support employees in the field and remain profitable.”

Anand suggests that retailers consider integrating handheld and wearable barcode scanners, printers, radio frequency identification devices (RFID) and GPS-enabled tablets with data collecting apps to stay connected with employees and logistics partners to relay information quickly to customers. “If the retailer has invested in the right technology, their customers standing in front of an empty shelf, for example, can scan a QR code and get information on when that item might be replenished and can be offered options to pre-pay. They can also receive a notification when their item is ready for pick up, arrange a delivery or be directed to the nearest retail location which has the item in stock.”

Prioritizing ESG
Micro-fulfillment and shipping direct to home is a density game, and a strategy for reducing costs on last-mile delivery efficiently and sustainably. It also reduces GHG emissions. “Whether you’re talking about greenhouse gases, carbon footprint or even the social justice movement, all of these things have been in the background for years, but they’ve bubbled up throughout the pandemic,” says Rosemberg. “For any company that wants to survive and thrive in the future, they must prioritize environmental, social, and governance (ESG).”

There is no silver bullet, but retailers must create an on-demand customer experience online and in store. It’s costly, but if done properly and product is allocated well, retailers can provide the desired experience while saving money.