Merchant Independence – What retailers need to do to be competitive

sms-trackingMany of you may have seen the reports of late announcing that Amazon finally plans to launch in Australia by September 2017 (1). Since Australians already spend over $500M through Amazon I’m sure this is a welcome announcement for online buyers. However, retailers might not be quite as excited, especially those that are vulnerable through their supply chain.

As it stands now, Amazon comprises 50% of all online sales in the US and grew by over $23B more in 2015 than 2014. They are also predicted to hold over 10% of total retail sales in the US within a decade.

Why is Amazon streaking so far ahead of the competition particularly against brick and mortar behemoths like Walmart and Gap or any other pure online player for that matter?

  1. Margin (your margin is their opportunity)
  2. Supply chain
  3. Innovation
  4. They play the long game

Since the very beginning, Amazon has always known the role that they have to play in the supply chain.

In 1999 they invested in a New York-based bike messenger service, Kozmo.com. Kozmo failed but the concept of controlling the last mile obviously never left their minds (imagine what the founders of Kozmo must think of the on-demand economy now?)

Fast forward to May 2014, Amazon bought a 25% stake in Colis Prive, a French logistics company (4), then in September 2015 a little town called Willmington in the US started noticing unmarked planes coming in and out of the airport with packages wrapped all in black plastic obscuring all signs of branding (2). March 2016, Amazon announced it had leased 20 Boeing 767 to move its own cargo.

Amazon has distribution centres within approximately 20km of 30% of the US population and within 60% of its same day offering. In case you missed it, Amazon also has a same-day delivery network (Amazon Flex) and on-demand delivery options under their Amazon Prime subscription service. (3)

What’s the point of me laying all this out for you?

Im telling you this because the key thing that Amazon are focused on, is owning the supply chain and through doing this they will end up owning the customer and WIN.

They will win because they can provide cheaper prices, faster delivery and a much better experience than anyone else currently out there. This is why pure play online retailers or brick & mortar retailers are scrambling for what to do.

How do you stay competitive?

Merchant independence – This starts from your merchandise mix: choose items unique to your business and items that Amazon doesn’t have or that don’t sell well on it. Keep innovating on this.

Own the ‘repeat purchase consumer’ – come up with innovative ways to keep your customers coming back. This is great for your ‘lifetime value’ but also means not giving people a reason to shop somewhere else.

Build non-amazon partnerships – more relevant for large retailers but speaks to how you need to look at what can drive value through your business that give you an advantage; supply chain partnerships, product partnerships  and channel partnerships.

Dominate your supply chain – speaks for itself but make sure there are no kinks in the chain from the factory to the customer’s door.

A key point to make here is no matter what type of retailer you are, whether a florist or a cupcake store, its crucial you dominate your delivery to your customer.

The part we are trying to help you dominate or own at Sherpa is the last mile delivery.

The key to effective last mile delivery is:

  1. Operational efficiency
  2. Customer Centric delivery

Here is how you can achieve operational efficiency:

Operational efficiency begins at the factory but more specifically in this scenario im talking about improving how businesses need to be structrually and technologically setup combined with the processes to move products to their customers fast.

  1. Products need to be locally available
  2. Real-time overview of inventory
  3. Driver tracking
  4. Picking and Packing needs to be fast
  5. Streamlined Third party management

Last mile distribution – Graphic 1

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Here is how you achieve customer-centric delivery:

Customer centric delivery is about shifting the service to what makes delivery a good experience not just what the current setup of the business is able to achieve.

  1. Delivery is fast and flexible (If I want it now why can’t you get it to me)
  2. Visibility (timed, reliable and trackable)
  3. Driver contact (solve many failed deliveries through one simple process)

sms-phone-img

Online sales in Australia comprises approximately 14% of total retail sales but has grown to 16% since 2015. As this number continues to climb, your effectiveness in last-mile delivery is crucial.

Australian retailers, both online and omni-channel, have a great opportunity to build strong defensive/competitive strategies via complete merchant independence but they still have some work to do. Any retailer that isn’t offering a fast and flexible delivery service, complete with branded real-time customer tracking and a seamless returns service by end of 2017 may experience some rocky times ahead.

To find out more on Sherpa’s services or talk with us more about your plans for 2017 email me at ben@sherpa.net.au

 

  1. https://goo.gl/MLRBNy
  2. https://goo.gl/rHmwsc
  3. https://goo.gl/Q4H2z9
  4. https://goo.gl/G63MAK

Ben Nowlan

Ben Nowlan

Co-founder at Sherpa

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