Last-Mile Success - Closer and Faster
The recent batch of retailers' earnings offers insights into the success that retailers are achieving in connecting the online and physical store, better known as omnichannel which was first coined around 2010.
Many retailers were slow to invest in required technologies until 2020 when the COVID pandemic temporarily forced physical stores to close and/or limit hours of operation, e-commerce purchases jumped, and last-mile delivery providers struggled to deliver goods on time to consumers.
Since 2020, retailers' emphasis on the middle and last miles has rapidly brought forward such solutions as Buy Online, Pick Up in Store (BOPIS), curbside pickups, and same-day deliveries.
Investments in micro-fulfillment facilities and the last mile are being made to achieve these solutions to maintain customer satisfaction, faster last-mile delivery, and mitigating costs.
Last-mile shipping costs have steadily increased along with a number of surcharges to support increased demand. According to 3PL provider AFS, the cost per package increased 3.5% from Q4 2021 to Q1 2022 due to higher general rate increases and fuel surcharges.
Macy's has struggled with lowering its last-mile costs. However, in its first-quarter earnings call on May 26, it saw some success in reduced splits or reduced packages per order. Also, it was fulfilling more orders from stores, up about 3.5 points versus Q1 2021.
A 2020 survey from consulting firm Deloitte found that 83% of consumers expect flexible shipping and fulfillment options like BOPIS. Indeed, Nordstrom's executives described BOPIS as its "most profitable customer journey and one of our highest satisfaction customer experiences" during the company's May 24 earnings call.
Meanwhile, Dick's Sporting Goods executives noted on its May 25th earnings call that its stores enabled over 90% of total sales and provided over 800 forward points of distribution for omnichannel fulfillment through the ship from store, in-store pickup, or curbside.
In addition, smaller fulfillment facilities closer to the end customer are popping up. In 2021, Ulta Beauty announced plans to build market fulfillment centers (MFCs) to supplement its existing distribution center network capacity and provide faster deliveries to stores and e-commerce customers in specific markets. The first such facility was announced on the retailer's May 27 earnings call and will be in Greenville, SC, and it is expected to be fully operational in the third quarter of 2023.
BOPIS and fast last-mile deliveries are also being embraced by Ulta Beauty, whose executives noted that BOPIS increased 26% to 21% of its e-commerce sales during its first quarter compared to 16% for the same period last year. Also, same-day delivery was introduced to five new markets, with about 30% of its stores now offering the option.
Even Dollar General is offering same-day delivery services via its partnership with DoorDash. "This offering was available in about 11,000 stores at the end of Q1, and we continue to be pleased with the early results, including better-than-expected customer trial, strong repurchase rates, high levels of sales incrementality, and a broadening of our customer base," a Dollar General executive said during the company's recent earnings call.
But, in my opinion, the retailers to keep a keen eye on are the ones that are truly taking ownership of their middle and last miles.
"We continue to add downstream capacity in our sortation centers, which increased speed and reduced the unit costs of last-mile delivery," Target's COO, John Mulligan, said during the company's May 18 earnings call.
As noted by Mulligan, Target has six sortation centers with plans to open three more by the end of the year. In total, the six sortation centers handled 4.5 million packages in the first quarter with the ability to sort by its national carrier partners, including sorting USPS packages individually by post office, "creating a high speed, low-cost delivery option in the metro area surrounding each center."
Target is also introducing its lowest-cost delivery option, Target Last-Mile, beginning at its Atlanta sortation center. Collaborating with its crowd-sourced last-mile delivery subsidiary, Shipt, orders are sorted "hyper-locally down to the neighborhood level, providing a fast, efficient, reliable and low-cost delivery option," Mulligan said.
Costco, for example, acquired Innovel Solutions in 2020. Innovel provided last-mile delivery, installation, and white-glove capabilities for 'big and bulky' products across the US and Puerto Rico. Innovel is now rebranded as Costco Logistics. For its fiscal third-quarter ending May 8, Costco Logistics average "more than" 58,000 stops a week. The company estimates that total deliveries will be up 23% and exceed $3 million for the full year.
Last year, American Eagle Outfitters (AEO) acquired the last-mile platform AirTerra and fulfillment provider Quiet Logistics.
"In the first quarter, we saw further reductions in our number of shipments per order and shipped our digital orders faster with a 13% reduction in delivery times," AEO COO Michael Rempell told investors on May 26.
As a result of the benefits AEO is achieving from its two logistics acquisitions, it is extending its services through its third-party Quiet platform business to customers through a shared supply chain services network. "We believe that edge fulfillment, share distribution, and shared logistics will be as transformative to retail as the shift to omnichannel was a few years ago," Rempell said. "We are clearly in a very disruptive supply chain environment… Clearly, positioning inventory closer to customers, being able to get supply chain efficiencies, being able to have fast and efficient delivery, it is the future."
Indeed, positioning inventory closer to customers and providing fast and efficient delivery is the key to success for retailers in terms of financial and customer satisfaction.
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I wear a number of hats these days. Catch my weekly column on air cargo, freight forwarding, and the express markets, as well as a monthly podcast on Air Cargo World. I’m also helping out the Reverse Logistics Association as a research manager and at JOC I help out as a research analyst and write a weekly LinkedIn article, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.
In June, I’ll be heading to a couple of conferences. I’ll be moderating a few sessions at Air Cargo World’s Air Cargo Tech Summit on June 6 and 7 and will be on a panel at NRF’s Supply Chain 360 discussing returns on June 20 and 21.