As disruptions caused by the coronavirus are now being acknowledged by retailers and brands, industry observers and analysts expect shoppers to spend less time in stores and more time buying items online — which will further strain an inefficient retail supply chain, especially the critical last mile.
But technology providers said there are solutions and strategies that can help brands and retailers iron out the problems plaguing last-mile delivery. And it might just include higher delivery densities to make the last leg of the supply chain more efficient.
Regarding the impact of the coronavirus, Phillips Nizer partner Alan Behr, a fashion industry attorney, told WWD that airborne viruses “typically spread fastest in places where human contact is greatest, and that could mean that online shopping, which already has had such a profound impact on retailing, will increase at the expense of in-store shopping.”
The attorney expects delays and disruptions to be a factor for many sectors beyond retail. “If people become nervous about being in crowds, sporting events will suffer, as will all the sales of merchandise made during them,” he explained. “Fewer attendees at charitable events mean lower donations and lower sales of party clothes and accessories. And it goes without saying that if fewer vacations are taken, not only will the travel and hospitality sectors be affected but so will those who sell to vacationers — from camping-gear manufacturers to salespeople in hotel jewelry shops.”
Behr said the problem of a potential pandemic “iterates throughout the chain of supply, sale and consumption. The winners will likely be online retailers and services providers.”
But as WWD recently reported, the retail supply chain is saddled with high costs and inefficiencies.
Jack O’Leary, senior analyst at Edge by Ascential, noted that there is already “an intense amount of pressure on the last mile.” O’Leary cited business models funded by profit-focused VCs and policy changes as drags on growth and efficiencies. And in what seems counterintuitive, O’Leary sees more delivery volume, not less, as a solution. One issue is drivers and the investors backing the service providers.
“Crowd-sourced models all compete for the same types of drivers with every other gig-oriented business model,” O’Leary told WWD. “There is also an increasingly difficult macro environment for these players. Many of them are heavily subsidized by venture funds, where we saw through the end of 2019 an increased emphasis on bottom-line profitability versus outright topline growth-at-all-costs.”
From a regulatory standpoint, O’Leary said recent rulings in certain states “threaten the cost structures of all gig-based companies. If gig-workers change classification from contractor to employee the associated expenses might be too much to bear.” Despite all of this, O’Leary said companies can reach “sustainable operating economics with enough shopper adoption.”
“Instacart is unit economic profitable in many of its top cities,” O’Leary noted. “Having enough order volume creates delivery density, making individual delivery drivers more efficient. Additionally, the best of these business models are constantly improving their route mapping and in-aisle shopper/driver assistance technology, accelerating the velocity of orders through their individual shoppers/drivers.”
O’Leary said apart from the gig-businesses, “we see more retailers utilizing their stores as forward-deployed inventory points to create a more efficient last mile to shoppers. Target recently indicated that when it is able to fulfill an online order from the back of one of its stores instead of a fulfillment center 40 percent of the costs go away.” He also said “click-and-collect” capabilities have reached “a critical mass of stores.”
“There is no last-mile expense for the retailer when the shopper drives that last mile to pick up their e-commerce purchase themselves,” O’Leary said. “From our perspective, no singular operational model will define a successful last-mile operation of the future. Some combination of gig-shoppers picking from stores, delivery from the back of stores, click and collect, dark stores and a mix of different fulfillment centers will define the landscape. Each will be fit to the realities of the local geography it serves and the retailer it is fulfilling orders for within that area.”
Mark Holmes, chief operating officer at Newmine who previously held executive roles at Coldwater Creek, L.L. Bean and TJX Cos. Inc., among others, said there are “many solutions to last-mile delivery that retailers can pursue. The key is that all solutions require a sophisticated system of operational excellence, software organization and utilization of creative local transportation.”
Holmes said if retailers have inventory in a local store, they can “utilize employees to make customer delivery runs” or leverage a “ride-sharing partnership via Uber, Lyft, etc., to deliver packages.”
“The ultimate challenge is having all the sophistication to manage the process, ensure quality delivery with third parties and make it financially beneficial to the retailer,” Holmes said. “Amazon has resources that typical retailers don’t have, so they can absorb losses in the last mile that regular retailers can’t. Trying to compete with Amazon’s fast and free capabilities puts retailers’ bottom lines at risk, and this is just what Amazon is hoping for.”
Shaun Savage, chief executive officer and founder of GoShare, a virtual fleet network for businesses and consumers, acknowledged that for smaller brands and retailers, “it may seem impossible to compete” with Amazon.
“Without the size of Amazon’s business volume, the cost to offer next-day and same-day shipping options is astronomical,” Savage said. “Even brick-and-mortar brands are at risk, with customers shopping in-store, but choosing the convenience of having arranging online delivery for large, bulky items that are inconvenient to transport.”
Savage said virtual fleets, such as what his firm offers, can help. “Virtual fleets are networks of independent delivery professionals,” he explained.
“Businesses can tap into these networks, hiring nearby delivery professionals with immediate availability. Using a virtual fleet solution allows businesses to scale up and down depending on their daily volume. Because delivery pros are shared across the network, and only paid for individual projects, costs remain more affordable than hiring an in-house fleet to handle deliveries.”