Retailers, vendors differ on omnichannel and drop shipping

by Jan 21, 20143PLs, Omnichannel

2014 may be the year of the omnichannel, as more Millennials drive the need through mobile shopping and people order more daily products — diapers, toiletries, office supplies — from online retailers like Amazon instead of brick-and-mortar stores. And it may cause some forced collaboration and growth for retailers and vendors.

People want seamless shopping from the moment they start researching a product online to the minute it lands at their front door. As a result, Millennials — now the largest demographic in the U.S. — are expecting companies to change their own model of the shopping experience and increasing their budget, demanding that seamless “device to door” shopping experience.

The omnichannel phenomenon is happening as vendors, retailers and third-party logistics providers (3PLs) embrace it as a way of doing business. They’re increasing their budgets in omni-channel development, although we worry that they’re not all on the same page. Or in the same book.

A long time ago…
Before omnichannel started becoming a reality, consumers would go to the store for daily products and go online for gifts and items they didn’t need for a few days. Brick-and-mortar stores did one thing, e-commerce stores did another. They had different supply chains, different vendors and different promotions.

Even the big retailers had two independent sides to their business. Target and Target.com were two different entities. So were Wal-Mart, Lowes, and Best Buy. They had products online that you’d never find in the store, and sometimes the store items weren’t available online.

Now their .com counterparts play an important role in their in-store sales, and vice versa. When you go to Eddie Bauer, if they don’t have your size, the staff will help you order it right from EddieBauer.com while you’re in the store. Or you can find all the products they carry online — called the endless aisle — and either arrange to have the item held for in-store pickup, or even have the item shipped to the store for free to be picked up later.

Customers are driving growth
In our special report, Retail Insight: The Impact of Omni-Channel Trends for 2014 and Beyond, we discuss how retailers, vendors and 3PLs may be missing a great opportunity by not working toward omnichannel alignment. They’re focusing on their own portion of omni-channel growth, but aren’t necessarily working with the other two.

According to the report, the only place we’re seeing alignment is on price expectations and product availability — people want it cheap and they want it now — but it’s the rest of the omnichannel that we’re seeing some problems.

For example, drop shipping is a big point of contention. Retailers want the endless aisle, but they don’t want consumers to be able to “buy anywhere, get anywhere.” On the other hand, vendors aren’t completely sold on the idea of the endless aisle, but they want to be able to offer new capabilities like drop shipping.

Here, retailers express two different opinions—one group is fairly staunch that drop ship is a small part of their business and will remain that way. But another group is very optimistic about the growth opportunities for drop ship: 38% of retailers report that drop ship makes up more than 25% of their current e-commerce sales, and 57% anticipate that the amount of e-commerce sales fulfilled via drop ship will grow somewhere between 11–50% in the next 12–18 months.

Vendors report a much greater volume of e-commerce sales being delivered via drop ship—only 29% of vendors report that their drop ship volume is less than 5% of e-commerce sales, and 25 percent of vendors believe that the volume will grow by 50% or more in the next year.

This is where 3PLs can play an important role and may very well explain why they are feeling a lot more pressure around speed of fulfillment than their peers. Only 22% of 3PLs report that they do less than 5% of e-commerce sales as direct ship, and 67% expect the volume to grow somewhere between 11–50% over the next 12–18 months.

Someone will find the solution
Someone is going to find the solution to this problem. Two “someones” (or more) are going to step up and work together, and it’s going to happen sooner rather than later. In fact, it’s already happened a few times, especially with Amazon.com.

The online giant at one point or another has managed retail websites for companies like Borders, Target, Benefit Cosmetics, Sears Canada, Lacoste and Marks & Spencer. They also handle fulfillment for a lot of very small and specialized retailers and even used book sellers.

In some cases, Amazon is only managing the front end. For others, like Borders, Amazon managed their fulfillment as well, handling everything except actually driving the product to the customer’s door. Relationships like this give Amazon a leg up on the competition and give customers a complete omnichannel experience. Combine that with a mobile app, and customers can shop from their phone, even while standing in someone else’s store.

Omnichannel is going to make some big strides this year, although we’re still a few years away from a completely seamless shopping experience for all users. But whoever manages to crack the code is going to have a distinct advantage over the rest of the industry.

Brandon Pierre

Senior Director for Customer Success - Community & Analytics at SPS Commerce at SPS Commerce
As a Senior Director for Customer Success at SPS, Brandon Pierre’s team works alongside many retailers and suppliers to develop strategies that involve technology along with the people and process around it to address their merchandising and supply chain business objectives. With more than 15 years in the buying organizations including large and small, he has experienced first-hand the opportunities of the digital era and how technology can transform the consumer experience through improved retailer and supplier connections.
Brandon Pierre