As online shopping continues to grow at a rapid pace, footwear merchants and brands face an overheated supply chain, especially at the fulfillment end. But that’s not the only problem. With online shopping, there are often hidden costs that businesses fail to consider. This can eat up profits in a heartbeat. And for small- to medium-sized brands and retailers in particular, fulfillment mishaps can not only erode profits but sour customer loyalty.
So as retailers and brands strategize for the second half of the year, there are several things to consider in regard to supply chain logistics, fulfillment and especially last-mile delivery. Controlling shipping costs and mitigating fulfillment hiccups while also maintaining a positive customer shopping experience is key.
In a just-released report by David Bassuk, managing director at AlixPartners, and co-authored by Joel Bines, also a managing director at the firm, brands and merchants continue to face increasing costs as online shopping grows. “While this last year was a breakthrough of sorts when it came to sending the consumer to channels other than the store, the byproduct was a series of unexpected expenses,” they noted in their report. “And many retailers have still not come to terms with how much it can cost to fulfill orders in a way that makes the experience seamless for the consumer.”
Why? Bassuk and Bines said there are several hidden costs attached to fulfillment, which can get overlooked “when the primary goal is to get the product into the hands of the consumer. The result: orders are maybe less profitable than they seem.”
The two said merchants will need to put in place “stop-gap solutions” to the problem. “Consumers have been trained over the past year to shop online, a trend that is unlikely to reverse once the pandemic is over — instead setting a new floor of channel sales mix going forward,” the report said. “While industry leaders have continued to raise the bar on omnichannel capabilities, this has led to steadily increasing consumer expectations from every retailer, including curbside pickup within a few minutes of arrival in many categories. Meanwhile, the cost of shipping is also going up. Van spot rates have increased 48% to record highs since June 2020.”
There are also hidden costs associated with misplaced inventory, over-investing in omnichannel capabilities, and one thorn in the side of the footwear industry: suboptimal store labor. “Omnichannel fulfillment must be thought of as a critical part of all store associates’ job roles and may require cross-training employees,” Bassuk said. “Ensure that your labor model appropriately credits stores for these sales, allowing associates to be allocated to completing this work. Potential tradeoffs may be required to enable this.”
Other hidden costs include poor store configurations, which often don’t account for omnichannel fulfillment volume. For smaller-sized footwear retailers, this is especially challenging. But mom-and-pop shops also face other hurdles. As online shopping and e-commerce continue to grow, fulfillment mishaps also increase.
For large retailers and marketplaces, it’s easy to absorb the cost of shipping the wrong product or replacing stolen items. But for small- to medium-sized businesses (SMBs), online order hiccups can be devastating.
There are solutions, though, which include adopting fulfillment strategies used by larger companies, said UPS Capital, the shipping insurance division of UPS, in a recent report.
UPS Capital said with the “proliferation of e-commerce marketplaces and platforms, it is easier than ever for SMBs to set up shop and begin selling online. But with any ‘virtual storefront’ comes the challenge of getting goods into consumers’ hands when and where they want them.”
In its survey of nearly 900 SMBs that was conducted this past March, UPS Capital found that 63% of retailers “noted an increase in incidents involving lost or damaged packages over the past year, with nearly half (48%) spotlighting an increase in theft after delivery, also known as ‘porch piracy.’”
In a survey of consumers, 38% reported experiencing lost packages, while 36% said delivered goods were damaged. And 21% said they were shipped the wrong merchandise.
“In all instances, consumers are most likely to reach out to SMBs for resolution, despite the fact that many small business owners may not have dedicated employees to handle these inquires,” UPS Capital said in its report. “While 38% of consumers are likely to fault the company they purchased from for any shipping issues, 21% would also point to e-commerce marketplaces. Unsurprisingly, 81% of SMBs stated that they are adversely impacted when shipments are lost, stolen or damaged.”
Kiel Harkness, head of global marketing and business intelligence and analytics at UPS Capital, said there are several things SMBs should consider as online sales continue to grow. “Shipments to the end customer have a long journey — most of which you don’t see,” Harkness told FN. “Any kind of loss or damage can occur in transit from a supplier to the warehouse, during inbounding or storage, while being picked and packed, in transit to a customer, or on the customer’s front porch.”
Harkness said each touchpoint along that journey “opens SMBs up to potential revenue loss and reputational risk.” He also said many of the points of vulnerability “may not be visible but can be closely monitored and controlled.”
“And fulfillment technology is quickly evolving, giving full visibility into inventory levels and fulfillment and delivery statuses,” Harkness said. He said omnichannel approaches that leverage larger retailers’ legacy brick-and-mortar locations to supplement and complement their in-house fulfillment operations shortens the miles between the shipping site and consumer delivery.
“This reduces the overall fulfillment time, providing consumers a tangible benefit,” Harkness said. “Omnichannel also provides consumers additional options on where and when they can receive their order. Click and collect, the option where consumers buy online and pick up in a store location of their selection at their selected time, is also a tangible benefit to consumers.”
However, these benefits don’t have to be offered by larger retailers alone, Harkness explained. “SMBs can select fulfillment partners that forward stock their inventory closer to their consumers, thereby reducing the fulfillment time from click to delivery,” he said. “Similarly, SMBs can provide their consumers click and collect options by offering delivery options to ‘Access Points.’ These are real options that are leveling the playing field for SMBs.”
Harkness acknowledged that even with these options, shipments and orders can “go wrong from time to time.” He said loss, damage and porch-pirated theft “are a part of e-commerce fulfillment.”
“And these incidents matter and are costing SMBs,” Harkness said, adding that 40% of SMBs in the report said they experienced “reputational damage and losing a customer” due to shipping mishaps. “So just as SMBs are looking to fulfillment solutions, they should also look to shipping insurance offerings that allow them to offer best-in-class post-purchase experiences to their customers; automatically reshipping and making themselves and their customers whole when something goes wrong,” he added.
Harkness said SMBs must find “a trusted logistics partner [that] can help protect the fulfillment journey starting with proper storage, inventory management, pick and pack and timely fulfillment. And leveraging partners that include insurance coverage should there be a mishap can help SMBs recover quickly.”
Looking at the supply chain from a higher level, there are some issues that could cause strong headwinds in the second half of the year. Frank Costa, VP of sales at OEC Group, said, “Unfortunately, with equipment shortages and limited space due to void sailings, retailers are seeing major delays in their supply chain, and seasons are starting to cross over into each other.”
“Retailers need to start shipping goods as early as possible in order to meet their deadlines,” he added. “Items need to be ordered at least a month or two earlier than usual.”
In regard to fulfillment, especially the last mile, “the stakes are high,” Carson Krieg, co-founder and director of strategic partnerships at Convey, told FN. Krieg said the “last mile is evolving into more than just transportation; it is an essential component of delivering a successful customer experience.”
Krieg said according to a recent Convey survey, 84% of shoppers said they wouldn’t return to a brand that missed their delivery. “As we head into the second part of the year, retailers must be prepared to continue to deal with uncertainty,” Krieg explained.