Fast delivery doesn’t have to hurt margins

Internet Retailing

13th Jun 2018

Aussie retailers can’t afford to sigh with relief at the news that international deliveries will now attract an extra $5 tax. They still need to work hard to meet growing customer expectations for faster, more flexible and cheaper delivery without compromising their profitability.

The tyranny of distance in Australia provides a unique challenge for retailers. With many retailers still operating central distribution centres, orders can travel thousands of kilometres to reach their destination. That’s time and money they can’t afford to lose.

Today’s customers are highly sophisticated and constantly on the move. They expect to order their goods online and delivery services to be fast, easy and preferably free.

Retailers are under pressure to offer delivery and collection services that encompass same-day, next-day and pick-up in-store, at a locker or other location. This raises significant logistical challenges that can squeeze already tight margins.

The challenge for mid-to-large Aussie retailers is how to meet customer expectations without sacrificing margin and increase efficiencies in the supply chain.

But with Amazon’s recent entrance into the market and the launch of Fulfilment by Amazon, small retailers have been given a boost through the power of Amazon’s delivery services.

This means that mid-large retailers are also faced with a new breed of competitor, smaller retailers that can now compete in a way they never could before.

Diversify the supply chain

To stay ahead, Aussie retailers need to diversify their supply chain and glean valuable insights from their customer data.

Retailers need to know exactly what their customers are buying, in what locations they are buying it and how they want it to be delivered, so they can optimise the process in the most profitable way.

Many larger retailers are faced with the added complexity that they might be selling products they don’t own or don’t currently have in their warehouses and therefore must collaborate with partners to fulfil those orders.

A good example of this is how Target personalises stock available in certain stores to meet known customer preferences in that location.

By analysing their customers behaviour, Target has been able to determine which stores are better suited for fulfilment of orders and which are better suited for the collection of orders Australia-wide.

This sophisticated approach to supply and logistics ensures that profitability isn’t compromised to meet customer demand.

Think globally, act locally

In today’s retail landscape, stores can become a combination of a shop front, a warehouse and a distribution centre. When a customer orders a product, it can be shipped or collected from a local store.

Retailers that optimise store operations, delivery networks and streamline order processes can offer consumers a range of fulfilment options and convenience. To so so, a universal view of inventory is essential.

Let’s say a customer visits your site, only to see an out-of-stock notification and buys that item from your competitor.

A few weeks later, your regional stores are getting ready for the next season and need to clear the blue shirts to make space for white ones. So, they do an in-store sale, mark down the excess stock and sell them at a discount.

If you had a unified view of inventory across all your sales channels, the excess online orders could have been routed to your regional stores for them to ship to the customer at full price.

Your systems must work together to ensure stock levels are accurate and updated in a timely manner.

At the same time, the planning and buying process needs to balance what is held centrally versus distributed, so that you can calibrate economies of scale in transportation with speed of availability to customers.

This requires an understanding of exactly how long and at what cost any item can be shipped from one location to any other – be it a warehouse, a store, a pick-up point or house.

Listen to your customers

The last and in some ways most important way to balance customer demand against profitability is to continuously analyse customer insights – make sure you’re aware of shifts in preference and behaviour so that you can respond fast.

Customer insights enable you to track things like average order value, via which channel and the preferred delivery method to better understand how you can optimise across the supply chain.

Jamie Cairns is the commercial director of Fluent Commerce.