Amazon redefines decentralised distribution
Amazon’s move to buy US retailer Whole Foods last Friday, which sent brick n’ mortar retail shares into freefall, demonstrates their new approach to fulfilment. Decentralisation. Such a strategy will not just enable them to get a foothold in the physical retail sector, but also facilitate speedy delivery to customers’ homes. While incumbent retailers should be worried, there may be a fix.
A constant criticism of Amazons’ projected penetration and growth has been distance and population of density. Not just here in Australia, but also in Canada, where online penetration is less than half of e-commerce in Australia.
The problem Amazon will face here in Australia is that despite shoppers having access to the worlds’ greatest online ordering platform and hundreds of thousands of products, the last mile still proves a challenge for such pure-play retailers.
While ‘same-day’ delivery, even one hour delivery, is being realised in London, Paris and major US capital cities, distance and cost of doing business, will restrict Amazon domination. Ultimately, it’s pretty pointless having an endless variety of goods and a secure site, if you can’t get those goods to your customer’s home in a fast and efficient manner.
Speed has become both the new currency for retailers, but also a challenge.
Shoppers love/hate relationship with online
Australian shoppers love the convenience and choice that online shopping provides. Being able to shop from home, on the train or sitting in an airport terminal provides a convenient way to buy. Being able to choose from hundreds of thousands of local, unique and global brands adds value. However, while most retailers can compete on price, speed has become the emergent point of competition.
Industry research has identified that 16 per cent of shoppers abandon online ‘carts’ because delivery lead times were too slow and 42 per cent of mobile shoppers say slow shipping makes online shopping inconvenient . While shoppers love the range and the convenience, they now demand fast delivery, with almost one in four shoppers (23 per cent) are willing to pay a premium for “same day” delivery.
Amazon’s move into bricks n’ mortar
While many will see Amazon’s purchase of US supermarket Whole Foods as a way to increase their share of the grocery sector, this is also very much about Amazon rethinking distribution. Not simply thinking ‘outside the square’, but reinventing the square completely. The online retail industry has seen a move from tradition warehouse/distribution centres to fulfilment, which cater to smaller, case picking, suited to online shopping. Amazon’s securing of over 400 supermarkets across the US and Canada on Friday, now give them essentially more than 400 micro-fulfilment centres, that will facilitate the distribution of products to local neighbourhoods.
It won’t be just groceries either held in these Whole Foods stores, but quite possibly the best selling consumer electronics, toys, sporting good and apparel. Having these micro-fulfilment centres embedded within suburbs, may mean delivery times under one hour. Decentralised delivery reduces both the time and cost of out bound logistics. An issue facing Amazon’s entry into Australia.
Possible solutions for bricks n’ mortar
As Amazon continues to reinvent distribution, there is an urgency for retailers to innovate. Earlier this month US retail giant Walmart began testing having employees deliver on their way home from work. Walmart claim that through their fleet of stores, they can access 90 per cent of the US population, within a 10 mile radius. Their idea is that a Walmart team member heading home after work, may drive past, ride past or even walk past a potential customer waiting for their delivery. Such a strategy would reduce delivery times and remove the necessity of having hundreds of half empty delivery trucks driving around neighbourhoods.
Could this work in Australia? There are currently 1.2 million retail workers in Australia, including 400,000 in regional towns and cities. Such a move would see Australian retailers leverage existing work forces to facilitate same day deliveries. Where Amazon and big companies, won’t event look at smaller regional towns and cities, small retailers will be able to deliver effortlessly. Recruitment into such a program would be purely voluntary and those team members willing to drop off a delivery on their way home would attract a small payment. In a win-win situation, retailers could offer delivery lead times of a couple of hours, not a couple of days; team members would cover the costs of their daily commute with a single delivery and satisfied shoppers remain loyal. In Australia, innovative start-ups like Passel are redefining the nature of online parcel delivery.
While Walmart ‘tests’ this strategy, new barriers are created. It may be a great idea to have available workforce do some deliveries on the way home, however, OHS legislation and other risks will need to be taken into consideration. Existing workplace injury ‘travel claims’ may increase if store team members are now charged with deliveries. If a team member deviates from the direct route home to facilitate a delivery, they may not be covered under the legislation. While incumbent parcel delivery services cover loss and damage of a customer’s order, retailers will also need to consider the cost/benefits of insurance cover.
Dr Gary Mortimer is associate professor in marketing and international business at QUT Business School.