Retail Economy: It's War Out There!

This morning going through email I received a (spam) note from Amazon.com. Endless Shoes and Handbags will now charge a negative 5 bucks for overnight shipping?!? I'm in the parcel business, so that one got my attention.  Of course the price of shipping is not free.  The shipper has it built into the cost of his goods.

What this advertisement does tell me is that on-line retailers are scrapping with the bricks and mortar retailers for consumer dollars.  The holidays are over and with the high price of gas and heating oil, plus those post holiday credit card bills,  people are just not spending.  The on-line merchants and the stores at the shopping mall are feeling the pinch.  Retail sales for the 2007 Holiday season were the lowest in 5 years according to TNS Retail Forward, with fourth quarter growth year over year only 3.4%.

Unfortunately the parcel carriers are feeling the pinch too. When retail suffers, parcel suffers.  That makes for a major dogfight between FedEx, DHL and UPS for domestic business.   It puts pressure on parcel rates and on mode selection.  What's interesting here is that the shipper is promising overnight express shipment not ground delivery.   

Last year (then) UPS CEO Mike Eskew pretty much said that UPS's profits came largely from international business, not from domestic.   This year all the carriers are investing heavily in new international services in order to diversify the balance sheet.   The dollar is weak, so US products are attractive to foreign buyers.   With the economy and the cost of fuel being worse this year than last, there is no reason for that trend not to continue.   If I were a shipper needing to negotiate domestic rates with parcel carriers, now would be a good time to do it.

My brother runs a highly successful exec search firm that specializes in finding and hiring e-commerce guru's for the on-line retail market.  He's got some big box and specialty retailers for customers as well as Internet only firms.  I'll have to ask him whether he asks any supply chain related questions of his candidates.  In today's economy knowing how the goods get to the consumer is critical to on-line marketing strategy. It's not all about drop shipping any more.

Eric

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Comments

[Eric]

Doh! indeed young man.

I personally worked on this problem 18 months ago with this very customer.

Lets take it off line and compare notes.

E

[Marketing Recruiters]

D'oh!

Freightdawg: Williams-Sonoma doesn't "offer an ability to buy product online from international buyers. Why? because of limitations on parcel transportation on some of their products. Especially larger products such as tables."

Marketing Headhunter: No, they don't sell that stuff overseas because of the risk of non payment. Sometimes, REVERSE logistics enters into the equation -- but rarely does export logistics matter much."

[Richard Palarea, COO]

Brothers Joiner...if you'll permit an outsider to comment here -

Yesterday retail behomoth Starbucks announced that they, too, are feeling the pinch. Starbucks will begin testing a $1 smaller coffee with free refills in their home store(s): http://www.cnbc.com/id/22805701/

Certainly, the marketing angle here will be to keep people in the stores with refills, which is where its high-profit margin items are. But the numbers are showing the discretionary income is starting to manifest in the psuedo-luxuries of the Starbucks habits of America (oddly enough, our appetite for flat screen TVs is one of the only luxury categories that has not begun to trend downward yet as reported last evening by CNBC).

I have a well-known apparel client that runs a two-pronged logistics strategy. The e-commerce fulfillment is handled by the VP of E-Commerce (with a marketing background) and the rest of the traditional movement is captained by the VP of Global Logistics and her capable staff. We assist on both fronts. The latter functions well and makes decisions based on supply chain pressures and data. The former gives free shipping on purchases of $75 or more, but has no data to track the performance and if his shipping (99% residential) is subsidized by the per-cart profit or overall performace of his unit.

We negotiated significantly discounted express, ground and surcharge discounts for the client. I don't know their cost vs price to establish an e-commerce margin. But when I inquired about why they chose $75 as a threshhold and if they cover their shipping costs in the model, the answers were "it just seemed like a good number looking at what others are doing" and "we don't really know". I wonder if they either don't want to know or don't really care.

There may be some creedence to your point about a smart logistician making a better e-commerce head.

[Eric]

Actually theres a lot more to it. Take your client WS. They don't offer an ability to buy product online from international buyers. Why? because of limitations on parcel transportation on some of their products. Especially larger products such as tables.

Thats because UPS wont take those items. How will the director of e-commerce at that firm expand the sales footprint of the online catalog without understanding of parcel or LCL/LTL shipping restrictions?

Frankly I think a guy with logistics background makes a better e-commerce director than an e-commerce only guy.

I think this whole thing plays to Customer Conversion. The catalog gets them interested, but its the ease of buying and delivery that secures the sale. How well that works is what may make a repeat customer.

Eric

[Marketing Recruiters]

Boy, this is a very interesting question -- and a very good post.

Do I ask logistics questions? Sometimes.

When you get right down to it, marketing is broken down into three areas:

- Prospect attraction
- Prospect conversion, and
- Customer retention

If the client needs someone to attract or convert prospects (though SEO, email, affiliate marketing, etc) -- then NO, I don't ask many logistics questions.

But with respect to customer retention, fulfillment makes an enormous difference in how customers perceive a brand.

Nothing will make a customer tell ten friends you suck more than breaking your promises to that customer.

So, I will always ask a candidate this two part question ...

1. What three words best describe your company's brand?

2. How would you improve your company's supply chain to better deliver these three attributes? Be specific.

Thanks for the shoutout,
Harry "Your brother" Joiner