Retailers set big goals for peak-season shipping in 2014 and, for the most part, they met them. Retail e-commerce sales topped a record $100 billion during the holiday season, according to the National Retail Federation (NRF), leaving retailers with the challenge of fulfilling more orders than ever before, faster than ever before. With the sting of holiday fulfillment failures in 2013 weighing heavily on their minds, retailers hit the books to study where they went wrong and made changes to lift their grades in 2014.
Kurt Salmon’s Omnichannel Fulfillment Study analyzed retailers’ peak-season fulfillment plans and realities to uncover successes, challenges and opportunities for 2015.
PEAK-SEASON LESSON PLAN
Ahead of the 2014 holiday season, Kurt Salmon surveyed over 100 retailers about their peak-season shipping and fulfillment plans. The survey revealed three key objectives for the holidays:
- Increase Speed: Retailers aimed to cut peak-season fulfillment times by almost two days.
- Keep More Promises: Following last-minute delivery challenges in 2013, retailers wanted to improve their success rate.
- Beat the Competition: Wary of a competitive and crowded market, many retailers were eager to keep up with the Joneses and save the sale by offering more fulfillment options and free shipping.
And they put their money where their mouths were. When asked about their investment priorities to improve peak-season delivery, retailers said that their top focus was on shipping (25%) and technology/ information (24%). On the technology side, retailers noted that they were investing in inventory and shipping management systems, distribution software and improved forecasting systems.
How did they do? What follows is a peak-season report card that rates retailers on three key tests for those goals: Cyber Monday, Last-Minute Orders and Returns.
CYBER MONDAY HONOR ROLL
While much attention was given to slower sales over Thanksgiving weekend due, in part, to earlier holiday promotions, Cyber Monday activity accelerated. In fact, comScore reports that e-commerce activity surpassed $2 billion on Cyber Monday, making it the biggest day ever in online shopping history. Shipping pressures intensified accordingly.
Based on an analysis of shipping times for orders placed on Cyber Monday from 58 retailers, 10 retailers earned spots on “Santa’s Good List,” speedily delivering multi-unit orders in an average of 2.7 business days, more than twice as fast as the average Cyber Monday fulfillment time of 6.5 business days.
Google Express topped the list as a new addition in 2014, while Net-A-Porter and Barneys New York were repeat winners. Looking exclusively at average processing time, Google, Walgreens, Under Armour and Net-A-Porter stand out again, along with REI, Ann Taylor, JCPenney, Zappos, West Elm and CVS, who all processed orders in one day or less. In addition to speed, many of the top-performing retailers also provided free shipping and flexible fulfillment options, including same-day/next-day delivery options and buy online, pick up in store (BOPUS) to attract consumers. Overall, 83% of retailers offered free shipping on Cyber Monday.
But there were a few bumps along the way. Sixteen percent of retailers had website issues during check-out, and 15% of retailers identified out-of-stock items only at checkout. Another 17% cancelled an item (or items) after the order had been placed. Overall, 26% of retailers were unable to complete the total multi-item order within two weeks of Cyber Monday. (See Exhibit 1.)
CRAMMING FOR LAST-MINUTE ORDERS
Despite issues with last-minute orders in 2013, which caused about 15% of orders to arrive late, retailers also doubled down on their commitment to late-season fulfillment. Twenty-six percent of retailers said their cut-off to guarantee Christmas delivery would be 1–3 days before Christmas. Nearly 50% of retailers planned to guarantee delivery by Christmas for orders placed by December 20, compared to 37% in 2013. Overall, retailers wanted to capture more sales by pushing back the last order date for guaranteed Christmas arrival on average from 6.9 days (around December 18) to 5.5 days (between December 19–20). Retailers also set a goal of reducing the number of late orders to just 8%. Retailers appeared eager to win back consumers’ trust. But consumers were skeptical; in a separate Kurt Salmon survey, just 40% of consumers said they were confident that their orders would be delivered by the retailer’s promised date. (See Exhibit 2.)
Kurt Salmon’s analysis found that retailers made progress but still have room for improvement. In 2014, 13% of last-minute orders did not reach consumers in time for Christmas, an improvement from 2013, but not as much as retailers hoped. The more retailers tried to push the limits with last-minute orders, the less successful they were.
Retailers can’t blame the mailman for their problems this time around. In fact, major carriers weren’t responsible for any of the last-minute fulfillment failures that Kurt Salmon analyzed. Last year, the blame for late orders was much more evenly split between retailers (responsible for 56% of the issues) and carriers (responsible for 44% of the issues). Inventory availability and communication issues were the root of most challenges with last season’s fulfillment problems and will likely be a focus for improvement throughout 2015. (See Exhibit 3.)
Overall Grade: SATISFACTORY
EARNING CREDIT FOR RETURNS
From the consumer’s perspective, retailers are not quite “acing” the returns process. The convenience and speed of returns are increasingly important to online shoppers, but there is a gap between expectations and reality. While consumers think that a refund should be processed in about seven days, and younger customers expect even shorter time frames, it actually took an average of 16.8 days to credit a return during peak season. (See Exhibit 4.)
Who is at the head of the class? Some return standouts include JCPenney and American Eagle, who processed holiday returns in under five days.
In addition to improving speed, retailers are taking strides to give consumers more options for returns. A December 2014 NRF survey on returns found that 87% of retailers allow customers to return merchandise bought online in their physical stores, up from 82.5% in 2013. In some cases, retailers encourage that option, as it is often less expensive to process returns in stores.
Overall Grade: NEEDS IMPROVEMENT
POP QUIZ FOR 2015 PLANNING
What did peak season teach retailers this year? That competitive mindset of “anything you can do, I can do better” may help capture a sale, but at what cost? While preparing for the 2015 peak season, retailers must take extra time to consider the increasing cost to serve in their omnichannel fulfillment strategy. The three questions retailers need to take a hard look at are:
What does my consumer actually value most?
- Retailers should examine what causes cart abandonment. Does your customer prioritize free shipping, fast shipping or something else? It may not always be necessary to beat the competition in speed. There may be opportunities to incentivize slower shipping, as Amazon has done.
What fulfillment options are right for me?
- Retailers rushed to enable ship-from-store and other fulfillment options to get products to consumers, but the value of different shipping methods varies by type of retailer and type of customer. For example, BOPUS has seen huge adoption and success in many hard goods retailers, but as Diane Ellis, CEO of The Limited, noted at the 2015 NRF Big Show, it wasn’t right for their customer base, which was more interested in the idea of reserving online and trying on the merchandise in the store.
How can I get my inventory to the right places?
- In the Kurt Salmon analysis of Cyber Monday orders, it took an average of 3.2 packages coming from multiple zip codes to receive eight items. Too much inventory in stores and not enough in distribution centers can cause retailers to pay more for fulfillment while charging less. Retailers need to focus on what their omnichannel fulfillment strategy means for inventory placement.
Successful omnichannel fulfillment this year will rely heavily on aligning customer expectations with what retailers can reasonably and successfully deliver. To make high grades, retailers must do their homework to evaluate how much value comes with pushing the envelope.
SIDEBAR: FLUNK OR FLYING COLORS?
In looking at peak-season fulfillment as a whole, retailers generally did well against their three key goals of increasing speed, keeping more promises and offering more flexible fulfillment options.
- Investments after 2013 peak-season issues
- Increased fulfillment options
- Improved coordination and communication with carriers
- Cyber Monday speed
- Last-minute deliveries
- Free shipping is increasingly the norm
- Speed of returns
- Inventory shortages
- Order volume above forecasts
SIDEBAR: OMNICHANNEL = EXPANDED OPTIONS
Omnichannel fulfillment ensures that the customer gets what they want, when they want it and where they want it. Retailers have embraced this vision and have been busy enabling new ways to get products to the customer.
Some of the changes that we saw in 2014 include:
- More companies have rolled out ship-fromstore, making more inventory available to the online customer
- More store locator options, allowing shoppers to reserve out-of-stock inventory at another local store or have it shipped for free
- Increased ship-to-store options, as a free service or for bulky items that are not in stock
- Buy online, pick up in store (BOPUS)
In fact, Kurt Salmon found that the fastest way to receive products during the holiday season was indeed to buy online and pick up in store, with both Best Buy and Lowe’s having orders ready in about an hour.
ABOUT THIS REPORT
Findings from Kurt Salmon’s Omnichannel Fulfillment Study are based on three related pieces of research which were conducted during Q4 2014. Over 100 retailers with e-commerce sites and revenues over $750 million (73% with $1 billion and up; 27% with between $750 million and $1 billion) were polled about peak-season shipping and fulfillment plans. Over 1,800 consumers were surveyed about their shipping and fulfillment expectations for their online purchases across a range of categories. Lastly, the shopping experience and fulfillment times were analyzed for almost 60 retailers (including traditional big boxes, department stores, specialty retailers and online-only e-tailers) for orders placed on Cyber Monday and on the last guaranteed ship date for Christmas arrival.
24 March 2015