In Home Depot’s upbeat earnings call last week, CEO Frank Blake said the 2,200-store home improvement chain had completed the rollout of what it calls “Buy Online, Ship to Store,” a variation on e-commerce that the company is clearly excited about. It disclosed that 22 percent of online sales were picked up at the store and that, with sales through this channel running ahead of expectations, some tinkering with retail store layouts to accommodate growing pickups of online orders and returns will be a natural next step.
The discussion of Home Depot’s online strategy underscored the depth to which e-commerce is impacting the supply chains of major shippers such as those included on this week’s annual JOC ranking of Top 100 Importers and Exporters. The meteoric growth of e-commerce, driven by mobile technologies, customer reviews and a better customer experience online, is beyond dispute; e-commerce has grown twice as fast as total retail sales over the past five years, with e-commerce expanding nearly 15 percent in 2012 over 2011 versus total retail sales growth of 5.3 percent during the same period.
According to Forester Research, the Internet will account for 10 percent of all U.S. retail sales by 2017. It’s also a global phenomenon: According to the China Ministry of Commerce, online retail sales last year in China totaled $179 billion, up more than 40 percent from 2011. With China, India and Indonesia setting the pace, e-commerce sales are booming in the Asia-Pacific, according to Practical E-commerce.
At the same time, we won’t wake up tomorrow and find the only way to buy things is via an iPad; even by 2025, online sales still will represent only 25 percent of all sales globally, supply chain consultant Tomkins Associates said in a recent research report analyzing how the Internet is altering industrial distribution, particularly since Amazon Supply debuted a year ago. “Although online sales are expected to be the prominent growth area, the traditional distribution channels of branches, call centers and fulfillment operations will still be very, very important,” Tompkins said.
Thus, omni-channel in retailing, the long-established idea of selling simultaneously through brick and mortar stores, print catalogs, Tupperware-type home parties, and, more recently, online, isn’t going away. But how shippers are responding to the inexorable growth in online sales in particular is changing the calculus.
The push to maintain lean inventories, for example, means that maintaining multiple supply chains depending on the channel — a retailer having two complete supply chains for bricks and mortar and catalog sales — is losing favor.
“The interesting thing about multichannel is the fact that we actually set up different supply chain channels for different types of businesses,” said Steve Schwietert, vice president for integrated systems sales at TGW Systems, in a recent interview with the Council of Supply Chain Management Professionals.
“Specifically, you had the retail supply chain doing the support or replenishment to store, then we also had what started as direct to consumer business which became a channel of distribution, and you also had wholesale,” he said. “What we are seeing now is a trend, as inventory levels become tighter, where we’re trying to combine these different channels of distribution into one, so that DCs as a whole can serve the client more effectively.”
But this still may be new. According to Area Development, only 6 percent of retailers have implemented a fully integrated multichannel distribution approach, and there is considerable debate about how best to compete with aggressive online retailers, most notably Amazon.com.
Part of the reason for that is the unique requirements of serving e-commerce versus replenishing stores. Jon Decesere of WCL Consulting says the following questions should be asked when considering setting up a DC for e-commerce: Are there FedEx and UPS small parcel hub facilities nearby? Does the warehouse have a large, flexible labor pool? Is the warehouse situated close to public transportation services? What is the functionality of the facility’s design? Is the warehouse close to major population centers so that it satisfies consumer demands for quick delivery on orders placed online.
Other issues include: Is there enough parking for the larger work force (for picking goods and stuffing boxes) required at a DC shipping small packages? Are there enough air conditioning and fire systems to create a comfortable and safe work environment?
Although outbound transportation from the DC is critical in a direct-to-consumer environment, the inbound leg into the DC for now is less subject to major upheaval. Improved planning and forecasting is allowing for use of ocean to be maximized versus air, and shippers are looking for opportunities to pare costs further by converting to intermodal from truck and to transload at the coast into more efficient 53-foot containers or trailers for the inbound move to the DC. Some outsourcing is moving to Mexico as labor costs in China skyrocket.
In trying to assess the impact of e-commerce, for the moment the effects are mostly downstream.