PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
Retailers pressed to deliver on increasing fulfillment demands
It’s one thing for online shoppers to find the product they want for the price they are willing to pay. Receiving that product in good condition, for a reasonable shipping fee and in a timely fashion is another ballgame. That’s where fulfillment comes in.
Establishing a cost-effective fulfillment program with a reliable vendor is key to customer satisfaction. If retailers secure competitive packing and shipping deals and are smart about their fulfillment operations, they can pass that savings on to the consumer, says Bill Armstrong, technical development manager for the Sealed Air Corp., a manufacturer of packaging materials and systems to help ensure the protection of shipped goods.
E-retailers should look to partner with third-party shipping and fulfillment providers that search for ways to reduce costs without skimping on performance, Armstrong says. “We are constantly working on design, and training packagers on how to best use our materials,” Armstrong says.
Efficient packaging design is more important than ever today, Armstrong says, because the majority of parcel carriers recently switched to pricing based on a package’s dimensions and not just weight. In general, the new pricing guidelines state that if a package is over three cubic feet, the customer must pay for shipping based on the product’s dimensional weight, which is typically about 9 pounds per cubic foot density. If a package is less than three cubic feet, the customer pays based on actual weight. This is to account for the space items take up in delivery trucks, regardless of their weight.
Such new rules have many packaging providers re-thinking how they will wrap up that lampshade or comforter, Armstrong says. “If retailers switch to smaller boxes or alternative forms of packaging they’ll be using less material and reducing package dimensions, and they’ll often save substantially on shipping fees,” Armstrong says.
In addition to adapting to new shipping price guidelines, e-retailers are striving to meet increasing demands from customers, says Mark Clendenin, director of consulting for Fry Consulting Services, a unit of e-commerce technology firm Fry Inc. “Customer service level expectations continue to increase and fulfillment is being asked to do more with less,” Clendenin says. “Customers expect fast fulfillment-and free or discounted shipping still drives sales.”
Indeed, online shoe retailer Zappos.com has long used free shipping as a key selling point and online auction site eBay recently added a free shipping option to its automated shipping calculator. EBay sellers that don’t want to charge shipping fees click on the Free Shipping checkbox when setting up the calculator. Listings that offer the value-add are promoted with a Free Shipping icon.
Moreover, Clendenin adds that multiple return options such as free return via mail and in-store returns for multi-channel retailers are becoming the norm. Such offerings are not cheap, Clendenin says. “Fulfillment costs to offer these service levels are becoming an important issue,” he says.
Trend toward drop shipping
One fulfillment trend that can ease the strain on e-retailers’ pocketbooks is drop shipping, a process in which a third party, often the manufacturer of a product, owns the items that an e-retailer sells and ships them to the customer on behalf of the e-retailer.
Drop shipping has several benefits, Clendenin says, including the ability for merchants to offer more products without financial risk, eliminate warehouse costs and reduce staff. But there are factors for merchants to consider, such as upfront costs for the technology to communicate with the drop shipper and time and resources to ensure proper packaging and branding. Quick and accurate data sharing about inventory and shipping is critical to the success of a drop shipping program, Clendenin says. “Unexpected order cancellations initiated by the fulfillment warehouse hurts customer retention,” he adds.
No matter how a retailer chooses to get its products in customers’ hands, it shouldn’t be afraid to bargain with its shippers and other third-party fulfillment providers to get better rates, Jeff Carter, vice president of fulfillment for outdoors apparel retailer Backcountry.com, said during a presentation at the Internet Retailer Conference & Exhibition in Chicago last month. He suggests gathering and analyzing data and using it as leverage to renegotiate fulfillment contracts. And, he also encourages touching base with sales reps weekly and combing through reports looking for extra fees such as fuel surcharges, rural delivery charges and address correction fees. “Get a good sales rep, question your bill and look for areas where you have an advantage,” Carter said.
Beyond developing cost-effective, efficient fulfillment operations, retailers and consumers alike are becoming more eco-conscious, Armstrong says, demanding biodegradable packaging and inquiring about the greenhouse gas emissions associated with creating packaging materials and shipping products.
“There is a very large emphasis on sustainability,” Armstrong says. “’More customers are asking us, ‘Are your products biodegradable?’” In fact, environmental concern has become so important to Sealed Air customers that the company has comprised a team of senior management executives who set aside time exploring ways to create a more eco-friendly business.
Armstrong believes many retailers want to use the trend of “going green” to their advantage. “If I can tell my customers that everything I use is renewable, it makes for a great sound bite,” Armstrong says. But he adds that his company is making a genuine effort to make reasonable changes in its operations to help the environment. “We’re looking at the energy required to make the products, the material of the product, the transportation and their disposal,” Armstrong says.
Clendenin says he has yet to see any significant eco-friendly advancements in terms of fulfillment. “I have not seen anything revolutionary to date,” he says. “Being green for fulfillment is either cost-driven internally or how the customer perceives you as being green.”
While consumers may be asking for eco-friendly service, speed is still often top priority. Therefore, retailers should be crystal clear about when shoppers can expect their shipment to arrive and, if there’s a hitch, they should let customers know-fast.