E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Strong execution not only pleases shoppers, it can also reduce costs in areas like inventory and customer service.
Fulfilling a customer’s order is no longer an afterthought for online retailers. It can be a big factor in retaining a customer’s business, and it’s grown increasingly complex as online retailers seek to meet consumer expectations by, for instance, allowing customers to pick up items in stores, or for consumers in other countries to place orders on U.S. web sites.
And the economic downturn has only ratcheted up the challenge, putting a premium on merchants being able to fulfill orders quickly and accurately, without investing a lot in warehouses, equipment or inventory.
Major web-only retailers like Amazon.com and shoe merchant Zappos have made fulfillment a point of differentiation. Amazon’s Amazon Prime program offers free shipping on all orders for $79 a year, while Zappos promises free shipping-including on returns. That puts pressure on retailers that operate stores to trump those offers with the immediacy of in-store pickup, notes Forrester Research Inc. analyst Brian K. Walker.
Forrester research shows 88% of U.S. online shoppers are familiar with the concept of buying online and picking up in a store, and 37% of those familiar with it have done it. What’s more, 77% of those who have taken advantage of that option were satisfied with the service.
But for many multichannel retailers, in-store pickup is tough, because the retailers can’t make store inventory visible to the e-commerce site. Walker recommends retailers start with the simpler challenge of enabling customers to ship an item to a store for pickup-which doesn’t require instant visibility from the web site into store inventory. Instant pickup-such as the 24-minute guarantee electronics retailer Circuit City offered before it went bankrupt-can come later, he says.
While fulfillment is a major cost for online retailers-it represents 15% of the customer-facing costs for retailers and wholesalers, according to a 2008 Forrester survey-good execution can help a retailer minimize spending in other areas, such as inventory or customer service.
For instance, a retailer that can fulfill an order from multiple locations, including stores and multiple distribution centers, can buy less inventory, says Paula Rosenblum, managing director of research and advisory firm Retail Systems Research LLC. “They can pool their inventory and hedge their bets,” she says. And Rosenblum says that kind of distributed order management functionality is particularly important this year, when retailers are buying cautiously for the holiday season.
Lauren Freedman, president of research and consulting firm the E-tailing Group Inc., says online retailers are emphasizing fast delivery to minimize customer service costs. Some online retailers say a half or more of customers wind up calling to ask about orders, Freedman reports. “The quicker you deliver, the fewer people are going to call to ask, ‘Where’s my order?’” she says.
The economic pressures are also driving more online retailers to work with outsourced fulfillment providers, such as SpeedFC Inc., says Jeff Zisk, president and CEO of SpeedFC, which also builds and hosts web sites and operates contact centers.
Outsourcing eliminates the upfront expense of equipping a distribution center, and the cost is predictable and varies with the retailer’s business, Zisk says. That’s because SpeedFC is paid per order or on a percentage of sales.
But speed is important in this relationship, too, he says-the speed in which the retailer client can access information. To meet that demand, SpeedFC has implemented an information-management tool called SpeedOrder that allows clients to easily access information.
“There’s just so much people want to do in a very quick timeframe,” Zisk says. “Having this information completely accessible and in real time, it gives them more control over their business and allows them to generate sales today instead of tomorrow.”