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Just how far can ecommerce push the home delivery model before it breaks?

by Robert Hetu  |  December 30, 2013  |  1 Comment

With the growth of ecommerce this holiday season there are some renewed predictions for the extinction on the physical store.  Simultaneously news reports revealed Santa failed to arrive by Christmas at the homes of last minute ecommerce shoppers.  So does this tarnish the promise of next day delivery?  Perhaps not yet, but it is a stark warning of the impending failure in the supply chain.  The major delivery services provided by UPS and Fedex are optimized for package delivery to individuals.  But how far can ecommerce stretch this individual delivery model without adding significantly to the operational costs of the delivery provider that will have to be passed on to the retailer and the consumer?

In the US more than $4.1 trillion in retail sales are generated each year.  Knowing that ecommerce accounts for less than 10% of retail sales it’s safe to assume that the vast majority of these products were shipped through the traditional supply chain and transacted in a physical store.  Just how much of this volume can be absorbed by home delivery is unknown but there is a tipping point where fuel, equipment and manpower costs will cause delivery fees to skyrocket.  This is to say nothing of the non-green aspects of local delivery trucks versus more efficient modes.  Amazon is testing a drone-based delivery system but realistically can we expect to see $4.1 trillion of merchandise darkening our suburban skies?  While likely that 3d printing or some other technology will one day be efficient enough to produce products at home, this is still in the sci-fi future.  So how should multichannel merchandising teams react to the impact of ecommerce in light of the continued shift seen in 2013?     

Although there may be too many stores with too much floor space, the significant advantage of localized inventory delivered through an efficient supply chain is and will be a competitive advantage.  The effort here cannot be underestimated.  This is not assortment rationalization, clustering, grading or other more traditional forms of range planning.  Retail merchants must refine assortments for each physical location using a combination of digital and physical transactions or searches conducted within the local trading area.  Maximizing this advantage will require a sophisticated multichannel strategy.  From a merchandising perspective the implications are significant. 

No longer can buyers, category managers, planners, and re-buyers continue to merchandise in category or channel silos, nor can they rely on past experience to drive store assortments.  Merchandising needs process driven business intelligence and analytic tools to help probe customer purchase activity.  Gartner research clearly shows that assortment and/or availability are the number 2 and 3 reasons that customers leave a store to shop elsewhere (price is of course number 1).  To alleviate this concern the mix of high and low frequency, exclusive and moderate brands, large and small items will need to be evaluated in the light of local consumer and customer demand across channels.   Inventory for each of these items needs to be stocked in the local store or in proximity, for example a “dark store” where inventory can be used to support a variety of local stores. 

Make a resolution to adopt customer centric merchandising as a plank in the overall multichannel strategy during 2014.  This must be supported by new applications, organizational change and a renewed focus on customer led innovation.


Tags: consumers  multichannel  omni-channel  personalization  retail  

Robert Hetu
Research Director
6 years at Gartner
29 years IT Industry

Bob Hetu is a Research Director with the Gartner Retail Industry Services team. His responsibilities involve tracking the technology markets and trends impacting the broad-based retail merchandising and planning areas. Mr. Hetu is an expert in the areas of brand, vendor and assortment management, merchandise planning, allocation, and replenishment. Read Full Bio

Thoughts on Just how far can ecommerce push the home delivery model before it breaks?

  1. Jean Duchaine says:

    Imagine a new way thru technology is THE big mistake. Innovate, think upside down & U find the solution. Simply. IT exists !

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