But losses mount for the home furnishings e-retailer that went public in October.
If there's something you've bought offline that you weren't able to buy online, we're probably thinking about that.”
The discount retailer reports a 69% increase in mobile conversion and a 44% year-over-year jump in mobile traffic.
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Fulfillment is emerging as the next frontier for e-commerce. With online shoppers expecting lightning-fast delivery of orders on their terms, and e-commerce becoming an ever more important part of retail spending, web merchants are putting more focus into making sure they can meet shipping demands.
As part of its 10th Annual Merchant Survey report, research firm The E-tailing Group asked web retailers about their fulfillment priorities for 2011, with the results suggesting that consumers are applying more pressure when it comes to shipping and delivery. 59% of the merchants who responded to the survey said that being able to fulfill an order by shipping to multiple consumer addresses was a priority this year, up slightly from 57% last year. Additionally, 43% said they would give high attention to enabling consumers to pick up and return online orders inside bricks-and-mortar stores, up significantly from 24% last year.
A study earlier this year from Retail Systems Research LLC suggests that retailers will have to further expand such fulfillment options as consumers become more sophisticated about shopping via multiple channels, including checking reviews and prices via their smartphones while in the aisles of bricks-and-mortar stores. In a survey of 76 retail chains by RSR from November 2010 to February 2011, 64% of those retailers deemed “winners”—that is, those with comparative-store sales growth better than the industry average of 3%—offered some form of in-store pickup of non-store orders. The RSR survey also found that 8% of the winners in the study use order management technology that can take non-store orders and fulfill them from any warehouse or store that has the desired inventory.
In-store pickup is becoming more important as free shipping becomes more valuable as a promotional tool for web merchants, with 69% of respondents to The E-tailing Group survey saying that tactic is a high promotional priority this year, up from 55% last year. Only sales/specials, and seasonal promotions, ranked higher for retailers among their promotional priorities this year.
That’s not to say all merchants are doing better when it comes to fulfillment. The E-tailing Group, in its mystery shopping survey from the fourth quarter of 2010, found that on average, it takes online retailers 4.26 days to get an item into the hands of a customer, up from 4.05 a year earlier. And four merchants out of the 100 included in the survey took at least nine days to deliver goods ordered online. “That is unacceptable even by early e-commerce standards,” the report says. It may be a sign some retailers are seeking slower, lower-cost shipping methods on low-priority orders in order to fund free shipping offers.
Many online retailers, however, are investing in improving their fulfillment capabilities in order to keep up with leading competitors. "The supply chain itself has been our Achilles' heel in this company for the last couple of years, as it is for any company scaling like us," says Christopher Halkyard, vice president of operations for Gilt Groupe Inc., which had <ITALICS>Internet Retailer<ITALICS>-estimated sales of $425 million last year, up 150% from $170 million in 2009. The flash-sale retailer offers large discounts on small quantities of products for a limited amount of time, and depends on being able to receive, sell and ship those products in a quick and efficient manner.
With a different 10% of its inventory typically on sale on a given day, Gilt turned to one of the rising trends in e-commerce fulfillment: robots. The mechanized helpers, which look like small boxes on wheels, can move around pods of inventory in the warehouse, bringing items to human employees for inspection and shipment right as orders come in, making more efficient use of warehouse shelving space and cutting down delivery times.
Using a robotic fulfillment system enabled department store chain Von Mauer Inc. last year to fulfill orders during the busy holiday shopping season without calling on some 35 employees from other departments to man the warehouse, as it had during previous peak periods. The robotic system moves product to people, instead of requiring people to go to the product. "A product can be in 15 different units around the warehouse, but the system knows where it's sitting, so you don't have to worry about moving products around on shelves," says Melody Westendorf, Von Maur's chief operating officer. "That is such a colossal waste of manpower and time." And now, instead of needing up to four days to fulfill an order, the retailer and its robots more merchandise out the door in as little as a hour, helping the chain meet the needs of impatient customers.
Von Maur is hardly the only retail chain spending significant money on e-commerce fulfillment. Urban Outfitters Inc., Macy's Inc. and Toys "R' Us Inc. are among the large chains that have recently announced plans to open dedicated e-retail distribution centers. And Kohl's, which hopes to reach $1 billion in e-commerce sales this year, wants to open in time for the holidays its third e-commerce fulfillment center, this one in Maryland. Meanwhile, the world’s largest online retailer, Amazon.com Inc., says it will build nine distribution centers by year’s end—half of them outside North America—giving the web-only merchant about 70 such facilities around the world.
Beyond such areas as free shipping and in-store pickup, one of the next places where many e-retailer will feel fulfillment pressure is likely to be international sales. According to an Internet Retailer survey earlier this year of 69 retail executives—including chain retailers, web-only merchants, catalogers and consumer brand manufacturers—70.1% sell online to consumers outside of the United States. Most of those merchants, 53.2%, fulfill orders from international customers by shipping products from warehouses located in the United States. About 13% shipped from a warehouse in the customer’s country, with another 4% drop shipping from either a U.S. vendor or an overseas supplier.
Of those who do not sell overseas, about 25% are put off by regulatory and logistical complexities. That include issues related to fulfillment, such as restrictions on shipping certain kinds of products like nutritional supplements. But with nearly 63% of respondents who do not currently sell overseas planning to within the next two years, those obstacles will have to be overcome.
Another potential obstacle for e-commerce fulfillment involves taxes. Numerous states are trying to tie distribution facilities to the collection of online sales taxes—that is, requiring that an online retailer that maintains a warehouse in a state, even if operated by a subsidiary, to collect and remit taxes on purchases made by residents of that state.
Amazon announced that it would close its distribution center in Texas and cancel plans for others after the state passed such a law this year. California was considering similar legislation this summer.
Other states are more focused on luring new jobs. South Carolina recently passed a law exempting Amazon from having to collect sales taxes from state residents in exchange for the No. 1 online retailer’s commitment to invest at least $125 million in the state and bring in 2,000 new jobs as it builds new fulfillment centers in the state.
In all kinds of ways, fulfillment has become a big money issue for online retailers.