There is no doubt, that the retail landscape is increasingly looking like an online one as traditional brick-and-mortar retailers, such as Toys R Us, Foot Locker, and Best Buy mobile shutter hundreds of stores unable to keep up with the changing customer that wants fast, free delivery all with just a click of a button.
Despite some struggles, retail as a whole had a solid 2017, as total sales reached $3.5 trillion, a 3.8 percent increase compared with $3.37 trillion in 2016, according to the U.S. Commerce Department. Of that, though, e-commerce accounted for 13 percent of the total, up dramatically from 11.6 percent in 2016. That growth is being led by Amazon.
This Amazon effect accounted for 43 percent of all e-commerce sales and a whopping 53 percent of all e-commerce growth, according to the U.S. Department of Commerce.
Retailers & Shippers Chasing the Amazon Effect
It seems that every online retailer is chasing Amazon, or rather, is being chased by Amazon. And they are not alone. Whether you are a retailer, carrier, cloud services provider, or eCommerce merchant, Amazon not only effected the landscape of e-tail but the landscape of shipping and logistics as a whole.
The Growth of Parcel Shipping on the Rise Thanks to the Amazon Effect
Overall, parcel shipping is growing at a robust 10-percent clip as all other freight modes are basically flat, growing at a very modest 1 percent. The impact is being felt globally as China’s parcel spend increased by 45 percent year-over-year.
Much of this growth has been spurred by Amazon’s Prime membership program.
The Current Status of Amazon’s Parcel Shipping Practices
The 12-year-old Prime program continues to expand its offerings to members to include streaming of movies, TV shows and music, exclusive shopping deals and selection, unlimited reading, and more. But at its heart continues to be fast and often free shipping, which has become expected by shoppers of not only Amazon but anywhere on or offline.
Currently, there are some 85 million prime subscribers, about 50 percent of all households. And keeping up with the parcel shipping of these customers does not come without a price.
In 2016, Amazon lost $7 billion on shipping costs which represents 12 percent of revenue. To offset those costs, Amazon is taking steps that may be beyond the reach of other retail or pure-play e-commerce companies.
Among the moves to reduced costs, Amazon is building 140 fulfillment centers to get closer to its customers to reduce shipping costs, achieve even faster delivery. The company also plans to utilize its Whole Foods locations’ parking lot space as distribution centers, placing fast delivery ahead of the in-store shopping experience. Amazon also plans on investing in trucks and planes, in addition to its Amazon Flex program, and even to outsource its logistics to other merchants as a way to offset its own shipping costs.
The Status of Parcel Management for Shippers & Retailers
But the high cost of parcel shipping isn’t borne by Amazon alone. The State of Retailing Online (SORO) survey of U.S. retailers conducted by NRF and Forrester Research surveyed the key metrics of 195 apparel, footwear, general merchandise, home furnishings and personal care retailers, and determined that the average cost to fulfill an order is $10 (shipping + fulfillment costs). Of course, the actual percentage of sales will vary significantly, depending upon several factors including product weight, value, and basket size. That can take a hefty bite out of a reseller’s typical – and necessary –margin.
So faced with mounting costs and increasing customer expectations what can e-tailers do in the face of the Amazon Effect?
3 Areas to Control Parcel & Logistics Costs & Combat the Amazon Effect
Here are 3 areas to control costs while keeping your customers happy and coming back.
1. Omni channel shipping can help keep costs in check, while also reducing the time for delivery.
- Ship from DCs, fulfillment centers and depots
- Ship from store
- Ship from suppliers as many manufacturers are starting to look more like B2C shippers
- Reduce middlemen: cutting out supply chain and cross-border consolidation can help retain precious margin points
2. Packing optimization can help shippers avoid unexpected dimensional weight (DIM) fees as carriers place increasing value on the space inside of their trucks:
- Carriers are penalizing shippers who don’t right size their containers: air tax in the form of dimensional weight fees
- New containerization algorithms figure out most transportation cost effective packing and palletization (most WMS systems don’t do this)
3. Analytics are evolving from basic information and becoming more in-depth and providing not only a historical picture but a forward-looking one as well:
- Descriptive: what happened
- Diagnostic: why did it happen
- Predictive: what will happen
- Prescriptive: How can we make it happen. Machine learning, neural networks, and artificial intelligence will find the most cost-effective deliveries
While few other than Jeff Bezos can absorb the costs of Amazon’s shipping, with some tight controls, a customer-first mindset, and an effective transportation management system, you can compete with the Amazon effect.