Home Delivery: Retailers’ Brave New World · 2020-05-14 · Executive Summary Key Findings Home delivery, long a dormant and specialized activity for retailers selling large durable

Home Delivery: Retailers’ Brave New World Benchmark Report Nikki Baird and Paula Rosenblum, Managing Partners

November 2015

Sponsored by:

Executive Summary

Key Findings

Home delivery, long a dormant and specialized activity for retailers selling large durable goods like furniture and appliances, is experiencing a renaissance, driven increasingly by consumers' expectations for a seamless cross-channel experience. They are rapidly becoming accustomed to receiving packages at their door, and are more and more aware that retailers with stores have an opportunity to leverage local inventory to get it to their door faster and cheaper.

That means, like it or not, it is up to retailers to figure out how to enable home delivery capabilities that will enable them to meet consumers' near-unrealistic expectations. Here is what they told us about how they plan to do that:

• Retailers are definitely feeling the pressure to get products into consumers' hands faster. Beyond that, retailer priorities split, and many of them do not necessarily focus on the things consumers say they want from home delivery services. Learn where the gaps are in the Business Challenges section.

• When it comes to opportunities, consumers say they are most motivated by convenience. Retailers are responding to this need by looking to up their game across almost every aspect of home delivery service – from types of services, to delivery windows, to speed of delivery. The challenge will be figuring out how to get consumers to pay for these services so that retailers can deliver profitably. Explore home delivery opportunities in the Opportunities section.

• Whether retailers turn to outside providers to enable their home delivery services, or plan to keep them in-house, they need the systems and people in place to manage these services well. On the people side, Retail Winners have an edge. Find out what that is in the Organizational Inhibitors section.

• Technology enablers for home delivery are a case of haves and have-nots: Retail Winners have already made some substantial investments, while their peers look catch up over the next 12-18 months. But either way, there are still significant gaps between the capabilities retailers value and the technology solutions they need in order to support those capabilities. Learn where the gaps lay in the Technology Enablers section.

Based on our data, we also offer several in-depth and pragmatic suggestions on how retailers should proceed. These recommendations can be found in the Bootstrap Rec-ommendations portion of the report.

We certainly hope you enjoy it,

Nikki Baird and Paula Rosenblum

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Table of Contents Executive Summary ......................................................................................................................... i Research Overview ......................................................................................................................... 1

Why Conduct This Study? ........................................................................................................... 1 In The Retail Enterprise, Who Is Running the Home Delivery Show? ......................................... 1 Passing The Buck Upstream ....................................................................................................... 2 Retail Winners And Why They Win .............................................................................................. 3 Methodology ................................................................................................................................ 4 Retail Survey Respondent Characteristics .................................................................................. 4 Consumer Survey Respondent Characteristics ........................................................................... 4

Business Challenges ....................................................................................................................... 6 The Need For Speed Dominates, Then Desires Diverge ............................................................ 6 3PLs Doing An “Adequate Job” In Retailers' Eyes ...................................................................... 7 Retailers Race For The Wrong Finish Line .................................................................................. 8

Opportunities ................................................................................................................................. 10 Retailer Goal: “Have It Your Way” ............................................................................................. 10 Consumers: What’s Your Motivation? Convenience! ................................................................ 10 Delivery Timelines And Windows Retailers Would Like To Offer .............................................. 11 Consumers: Looking At The Matrix Of Time And Spend ........................................................... 12 What About Value-Added Services? ......................................................................................... 13 Reward Rational Expectations ................................................................................................... 14

Organizational Inhibitors ................................................................................................................ 15 Home Delivery Alignment .......................................................................................................... 15 Insourcing Vs. Outsourcing ........................................................................................................ 17 A Green Footnote ...................................................................................................................... 17

Technology Enablers ..................................................................................................................... 19 Where Is My Shipment? ............................................................................................................ 19 Technology's Value ................................................................................................................... 19 Making Technology Commitments ............................................................................................ 20

BOOTstrap Recommendations ..................................................................................................... 22 Be The Expert When Things Go Wrong .................................................................................... 22 Be Creative About How To Charge For Home Delivery Services .............................................. 22 Internal Alignment Is Needed, Whether You Outsource Or Not ................................................ 22 Technology Investment Needs To Focus On Customers Too ................................................... 23

Appendix A: The BOOT Methodology© ........................................................................................... a Appendix B: About Our Sponsor ..................................................................................................... b Appendix C: About RSR Research ................................................................................................. c

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Figures Figure 1: On The Surface, LSPs Are Running The Show For Retailers ......................................... 2

Figure 2: Passing The Spud To Merchandise Vendors ................................................................... 2

Figure 3: Winners Stick To Their Knitting ........................................................................................ 3

Figure 4: Retailer Perceived Top-three Business Challenges ......................................................... 6

Figure 5: Retailers Feeling “Meh” About Their 3PL Providers ......................................................... 7

Figure 6: Consumers Generally Agree ............................................................................................ 8

Figure 7: Fixating On The Right Thing? .......................................................................................... 9

Figure 8: Have It Your Way! .......................................................................................................... 10

Figure 9: Retailer Expectations For Delivery Windows And Timelines ......................................... 11

Figure 10: How Much Must I Spend To Receive…. ...................................................................... 12

Figure 11: The Time/Value Matrix ................................................................................................. 13

Figure 12: The Special Services Picture Isn’t A Lot Brighter ......................................................... 14

Figure 13: A Question Of Competencies ....................................................................................... 15

Figure 14: Finding Support In All The Right Places ...................................................................... 16

Figure 15: The More The Merrier – And More Successful ............................................................ 16

Figure 16: Tech Tools For Tech Problems, But Outsourcing For Org Challenges ........................ 17

Figure 17: Get It There, Then Get It There Profitably .................................................................... 19

Figure 18: Across-The-Board Value Gaps .................................................................................... 20

Figure 19: Enabling The Customer First ....................................................................................... 21

1

Research Overview

Why Conduct This Study? Whether they deliver product themselves or participate in one of the various industry marketplaces, most retailers now find themselves in the home delivery business. This brave new world presents a host of challenges that previously were not part of their known universe.

Home delivery was once the realm of catalog retailers or those selling “big ticket” items like furniture and appliances. The rise of digital channels in general, and omni-channel retailing in particular, has changed that domain irrevocably. Digital giant Amazon.com, at this writing the world’s most valuable retailer, has disrupted the industry and changed consumer expectations in ways that would have been considered shocking just a decade ago:

• The days of it being “okay” to receive a delivery six weeks after placing an order are rapidly fading into the rear view mirror.

• The days of expecting consumers to “wait around” all day to receive goods or services are rapidly dwindling

• The days of “plus shipping and handling” seem to also be coming to an end

It’s not a coincidence that Amazon.com has been rated “America’s favorite retailer” for seven consecutive years.1 Deliveries are fast. Returns are simple to execute. Customer service is considered outstanding. The company’s rapid growth trajectory and continued investor confidence has given it the opportunity to grow rapidly and excel operationally while running its retail operations at a net loss. Most other retailers just don’t have that luxury and struggle to find ways to compete. RSR has seen this in virtually every benchmark study we conduct: consumer expectations are weighing on retailers.

That begs the question: What do consumers really think? What are their expectations of retailers and those who deliver merchandise in their name? And that leads us to the purpose of this study. Along with getting a deeper grasp of retailer home delivery processes and concerns, we decided to take a look at consumer concerns as well. Throughout this study, we highlight responses from more than a thousand consumers compared to more than 80 retailers to indicate where retailers might be either on or missing the mark.

In The Retail Enterprise, Who Is Running the Home Delivery Show? On the surface, it appears as though retailers are most likely to use outside providers (LSP’s or 3PLs) to manage home delivery or provide ways for consumers to collect items ordered online from their companies’ stores (Figure 1, below).

1 http://www.bloomberg.com/news/articles/2015-07-23/amazon-surpasses-wal-mart-as-biggest-retailer-by-market-value

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Figure 1: On The Surface, LSPs Are Running The Show For Retai lers

Source: RSR Research, November 2015

RSR believes this is a sign of organizational maturity. Given the relative newness of direct-to-consumer delivery for many retailers, and the lack of “slack” consumers are willing to give them, it makes sense to outsource or drive consumers to familiar territory (the store). As we’ll see in a moment, retailers who excel in year-over-year sales are even more likely to take these two approaches. After all, if you’re good at finding and selecting the products that consumers want, why distract yourself in figuring out how to get it to their homes?

Passing The Buck Upstream In fact, retailers see themselves pushing much responsibility for consumer home delivery off to their vendor partners in the coming years (Figure 2).

Figure 2: Passing The Spud To Merchandise Vendors


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Ship from store using pooling delivery services like Deliv

We do not deliver direct to consumers

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Ship from DC direct to consumer using our own or dedicated delivery trucks

Ship from store using our own or dedicated delivery trucks

Ship from store using parcel carriers

Consumer collects from my company's stores

Ship from DC direct to consumer using a logistics service provider

How Do You Deliver Products To Consumers Today? (select all that apply)

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Dramatically Increase Increase Remain the same Decrease

Expected Drop Ship Volume Changes Over Next Three Years

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This is a surprising turn of events. In the age when retailers and their merchandise vendor partners are becoming “frenemies” as vendors sell direct to consumers, we would expect retailers to protect the names and addresses of their customers like company jewels. But apparently, they’re willing to take their chances. And it’s even more surprising that over-performers, those we call “Retail Winners”, are even more likely to see drop ship from vendors in their future.

Retail Winners And Why They Win In our benchmark reports, RSR quite frequently cites differences between retailer over-performers in year-over-year comparable sales and their competitors. We find that consistent sales performance is an outcome of a differentiating set of thought processes, strategies and tactics. We call sales over-performers “Retail Winners.”

RSR’s definition of these Winners is straightforward. Assuming industry average comparable store/channel sales growth of 4.5 percent, we define those with sales above this hurdle as “Winners,” those at this sales growth rate as “average,” and those below this sales growth rate as “laggards” or “also-rans.”

Sticking To Their Knitting As already noted, Retail Winners are more apt to predict a growth in drop ship than their peers. Twenty-five percent expect drop ship volumes to increase dramatically, vs. none of other respondents. Others are more conservative, with 72% presuming some increase (vs. 45% of Winners).

Similarly, as evident in Figure 3, Winners are far more likely to use LSP’s for home delivery or drive customers to their stores to pick up product.

Figure 3: Winners St ick To Their Knitt ing


They do seem more comfortable using their own short-haul trucks to deliver from stores to consumer homes, but otherwise, are more apt to rely on others.

9%

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We do not deliver direct to consumers

Ship from store using pooling delivery services like Deliv

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Ship from DC direct to consumer using our own or dedicated delivery trucks

Ship from store using parcel carriers

Ship from store using our own or dedicated delivery trucks

Consumer collects from my company's stores

Ship from DC direct to consumer using a logistics service provider

How Do You Deliver Products to Consumers Today? (select all that apply)

Retail Winners Others

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Methodology RSR uses its own model, called The BOOT Methodology© to analyze Retail Industry issues. We build this model with our survey instruments. See Appendix A for a full explanation.

In our surveys, we continue to find the kinds of differences in thought processes, actions, and decisions cited above. The BOOT helps us better understand the behavioral and technological differences that drive sustainable sales improvements and successful execution of brand vision.

Retail Survey Respondent Characteristics RSR conducted an online survey from September – October 2015 and received answers from 83 qualified respondents. Respondent demographics are as follows:

• 2014 Revenue (US$ Equivalent) Less than $50 million 29% $50 million - $500 million 29% $500 million - $2 billion 13% $2 billion to $5 billion 15% Over $5 billion 15%

• Respondent Organizational Role Executive Management (CEO, COO, CFO) 34% Supply Chain 28% Logistics/Transportation 31% Warehouse 7%

• Geographic Presence for Home Delivery: USA 92% Canada 92% Latin America 38% UK 73% Europe 72% Middle East 64% Africa 55% Asia/Pacific 50%

• Year-Over-Year Sales Growth Rates (assume average growth of 4.5%): Worse than average (“Laggards”) 18% Average 47% Better than average (“Retail Winners”) 35%

Consumer Survey Respondent Characteristics RSR conducted a parallel online survey of United States consumers from September – October 2015 on the topic of Home Delivery and received answers from 1015 qualified respondents. Respondent demographics are as follows:

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• Age <18 0% 18-29 24% 30-44 24% 45-59 25% 60+ 28%

• Gender Female 51% Male 49%

• Household Income $0 to $9,999 6% $10,000 to $24,999 11% $25,000 to $49,999 17% $50,000 to $74,999 17% $75,000 to $99,999 13% $100,000 to $124,999 9% $125,000 to $149,999 4% $150,000 to $174,999 3% $175,000 to $199,999 1% $200,000 and up 4% Prefer not to answer 16%

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Business Challenges

The Need For Speed Dominates, Then Desires Diverge As we’ll see below in Figure 4, a majority of retailers (especially Retail Winners) rightfully recognize consumers’ desire for the need for speed. Beyond that, sadly, concerns really diverge.

Figure 4: Retai ler Perceived Top-three Business Chal lenges


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We need to take more environmental concerns into consideration

We need to do more to compete against online pure-plays and marketplaces

We need to differentiate more on services, less on product and price

Competitors are upping the game with faster and narrower delivery windows

We need to do more to utilize our transportation capacity or lower our costs

Consumer expectations for narrow delivery windows outpace our ability to deliver

Our customers are demanding more services (like in-home delivery & installation)

We need to increase our speed of delivery to customers

Retailers' Top 3 Business Challenges In Home Delivery Operations Today


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Home delivery services that don't add to traffic congestion and pollution in my neighborhood

Online retailers that offer home delivery faster than it takes me to drive to a local store

More services options to go with home delivery, for example, product assembly or installation

More eco-friendly or green options in home delivery

Narrower delivery windows, for example a 2-hour window instead of 4 or 8 hours

Retailers with physical stores to offer home delivery from store at comparable or cheaper prices than what I

can get online

Increased speed of delivery from when I order a product to when I receive it

Consumers' Top 3 Most Desired Home Delivery Benefits

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Winners particularly are most likely to cite the need for speed – faster delivery – what we can only call “The Amazon Effect.” A similar percentage of consumers are also likely to cite this as a top-three desire.

But while retailers think that consumers want more services, consumers are less enthusiastic. Rather, they are more interested in finding ways to get products cheaper. They are likely to think that if a retailer can get the product to their home from a local store, there must be a way the product could be delivered at a lower price than a pure play online retailer whose distribution center is “who knows where.” In this regard, Winners are missing the boat, while others “get it.” Fifty-four percent on non-winners cite a need to find other ways to compete with on-line marketplaces and pure plays as a top-three business challenge.

Most stunning is the variance between consumer interests in the environment vs. retailers’. While “green” initiatives were popular with retailers in the early 2000’s, those same retailers have now limited their focus to those things that generate clear cost savings.

The data from consumers tells a very different tale. Ecofriendly delivery options are frequently cited as a top-three desire, along with avoiding traffic congestion and pollution in their neighborhoods. Contrary to popular belief, our study shows no discernable difference of opinion between consumers of various ages: Baby Boomers are as likely to cite these desires as Millennials. Similarly, there is no discernable difference based on gender or income. Consumers want to see retailers do more environmentally. Retailers might take this into consideration, at minimum, in their marketing messages.

3PLs Doing An “Adequate Job” In Retailers' Eyes At the start of this report, we observed that the vast majority of retailers are outsourcing at least a portion of their home delivery to outside Providers (3PLs, or LSPs). We posited that, recognizing home delivery is not their core competency, it makes perfect sense to outsource the process. This leads us to the question, “How are those 3PLs doing?” The answer is a resounding “Meh” (Figure 5).

Figure 5: Retai lers Feel ing “Meh” About Their 3PL Providers


Extremely Satisfied 15%

Somewhat satisfied

49%

Somewhat dissatisfied 15%

Extremely dissatisfied 1%

Not applicable

21%

Rate Your Satisfaction With Your 3rd Party Logistics Provider For Home Delivery

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Consumers are slightly more positive about their home delivery experiences, but it’s still hard to declare victory (Figure 6).

Figure 6: Consumers General ly Agree


Again, these responses are consistent across all demographic and economic strata. The general sense seems to be “close enough but not overwhelming.” When we add retailers’ other means of delivery into the mix (most of which the consumer is blind to), it paints a picture of risk: Those, like Amazon, which excel at home delivery, could easily take market share from our survey respondents…unless they find a way to give consumers those “price breaks for local deliveries” they seem to crave.

We wonder if the more obvious dissatisfaction, “What happens when things go wrong?” is a problem retailers can tackle immediately. Whoever actually did the delivery, someone with strong customer service skills needs to be on the other end of the phone when a consumer calls. And that brings us to the last set of business challenges retailers face: operational responsiveness.

Retailers Race For The Wrong Finish Line We reported in Figure 4 that 42% of consumers select “tighter delivery windows” as a top-three desire. Of greater interest were speed and price. Yet when we look at retailer operational concerns (Figure 7, below), we see different priorities.

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I feel like the companies who deliver to me are inefficient.

Language barriers with drivers create a frustrating home delivery experience.

When things go wrong with a home delivery, I receive adequate communication from the company I buy from.

Most companies I buy from meet expected delivery times.

Most companies I buy from meet expected delivery dates.

Home Delivery Consumer Agree / Disagree

Strongly agree Agree Neither agree nor disagree Disagree Strongly Disagree

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Figure 7: F ixat ing On The Right Thing?


Certainly balancing capacity with demand is a core profitability and performance metric. No one can fault that and it’s an imperative that must be met. But it seems that measuring delivery quality might serve retailers far better in understanding how they are doing, than tightening delivery windows. Tracking and opinion surveys might go a long way towards understanding customer frustration with problem resolution.

Is consumer frustration caused by dealing with heavily scripted, outsourced customer service representatives (CSR’s)? Is it the almost impossible task of finding a customer service phone number on many web sites? As an industry, we’ll never know until we find adequate means of measuring the data we have just touched on here.

It’s a real opportunity to turn a negative into a positive.

And speaking of opportunities, it’s time to take a look at the opportunities retailers and consumers both see to improve the home delivery experience, regardless of who is managing the process.

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Language barriers between delivery drivers and customer

Product is not available in time for the start of the delivery route

Product is not always ‘delivery-ready’ when it is pulled at the warehouse

Skills of delivery drivers

Creating efficient routes

Measuring Delivery quality (OSD, timelines, status tracking, voice of the customer surveys, etc, )

Balancing delivery capacity with customer demand

Meeting tighter delivery window requirements

Top Three Home Delivery Operational Issues

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Opportunities

Retailer Goal: “Have It Your Way” Retailers see real opportunity in giving customers what they want, whenever they want it. They look to expand just about every one of their home delivery offerings (Figure 8).

Figure 8: Have It Your Way!


Retailers’ desires on delivery timelines run the gamut from same day (75%) to pure customer-controlled windows (82%), or as far out or as close in as consumers want. Where the rub comes in is figuring out what the consumer is actually willing to pay for. The first step towards making that decision is in understanding consumer motivation in the first place.

Consumers: What’s Your Motivation? Convenience! We asked consumers to cite the top-three reasons home delivery is attractive to them. The most frequently cited responses are all about convenience: 84% report “it’s convenient to have things brought to my home for me,” and 78% cite “Saving a trip to the store,” which is really just a proxy for convenience and time-saving. The third most frequently cited response, “Home delivery is part of the membership service I already signed up for,” is in essence a proxy for the same thing. It’s

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Same-day delivery

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Customer controlled delivery windows

Types Of Delivery Services Offered (Fee-or-No-Fee) Offer Today Would like to Offer

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Less than one hour delivery windows

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Delivery Windows Offered (Fee-or-No-Fee)

Offer Today Would like to Offer

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part and parcel of the reason they’ve likely signed up for the service in the first place: they crave that convenience.

The only discernable difference we found among various consumer demographics is unsurprising. As income rises, the percentage of consumers citing this as a top-three attractiveness factor also rises. Notably, there is virtually no difference in responses by gender: women are as time-starved as men.

But it begs the question, “What is the consumer willing to pay for?” As we’ll see shortly, consumers have some very specific parameters around what they are willing to pay for, while retailers see dollar signs in speed and precision.

Delivery Timelines And Windows Retailers Would Like To Offer We asked retailers to look at home delivery with a blank slate with the question, “What would you like to offer, and what do you expect consumers to pay for?” Their answers are in Figure 9.

Figure 9: Retai ler Expectat ions For Del ivery Windows And Timel ines


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Delivery Service Windows You Would Like To Offer

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It’s clear the majority of retailers believe they should be able to charge for convenience. Or, put another way, “Sure you can have it your way, but you have to be willing to pay for it.”

In reality, the opportunity is not that simple, and requires a lot more granular thinking.

Consumers: Looking At The Matrix Of Time And Spend In general, older consumers, who grew up in the world of “shipping and handling” are more willing to pay for delivery services, but the aggregate numbers still tell an interesting tale. First we looked at the purchase price/time dimension (Figure 10).

Figure 10: How Much Must I Spend To Receive….


In general, the “magic number” for free shipping seems to be $100. Of course, as delivery times stretch, the percentage of consumers with that expectation rises significantly, more than doubling from 40% for two-hour delivery windows to 91% for three-to-five day delivery. Prime Now, Amazon’s same day delivery service, does indeed provide free two-hour delivery in its available locations.

Women are more likely to be willing to spend money for half-day or shorter timelines, and younger consumers are slightly more likely to understand that there’s a cost to those short timelines that have to be covered.

This leaves us with the question of delivery windows. What are consumers’ expectations of this cost/time matrix? What are they willing to pay for, and how much are they willing to pay? The answer is in Figure 11, below.

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2-hour delivery from order to

receipt

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Same day delivery Next day delivery 2-day delivery 3-5 day delivery

Minimum Purchase Price To Receive Free...

$100 $500 $1,000 $2000 or more

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Figure 11: The Time/Value Matr ix


As it turns out, the delivery window “magic number” is the same as the delivery timeframe number: $100. Frankly, that’s a really tough nut for any retailer to crack. While delivery windows may be very predictable in some suburban environments, it would be very hard for retailers to solve their operational challenge of balancing capacity against demand at such a low price point. If the costs of these precise time windows aren’t baked into the cost of the product, retailers will find themselves in a similar situation to Amazon.com’s overarching retail dilemma: it’s hard to balance an enormous assortment and tight delivery expectations while still turning a profit.

Even when consumers are willing to pay, the amounts they’re willing to pay are so low that it causes us to wonder if in fact these services are only marginally desirable in the first place. It’s almost as though consumers are saying “Sure, I’ll take it if you give it to me, but it’s not all that valuable, so it had better be really inexpensive.” Keep in mind that we had a limited ability to explore consumers' willingness to pay – our analysis is really only able to uncover general areas of sensitivity. To further explore consumer price sensitivity, we would need to look at the impact of bulk of items, weight, and if any specialized handling is required. However, even within our limited scope, it's challenging to see a lot of retailer opportunity here.

What About Value-Added Services? Finally, we asked about value-added services. We hoped to see some movement in consumers’ perspectives for specialized goods and services. Responses are almost equally disappointing (Figure 12, below).

43% 49% 67%

22% 31%

22% 19% 15% 7%

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Less than 1 hour window for delivery time

A 1 hour window for delivery time


Minimum Spend To Receive Free...

$100 $500 $1,000 $2000 or more

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21% 27% 21% 18% 15% 12% 11% 11% 7% 16% 9% 8%

Less than 1 hour window for delivery time



Amount Consumers Are Willing To Pay For Delivery Services...

Less than $5 $5-$15 $15-$25 $25-$50 More than $50

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Figure 12: The Special Services Picture Isn’t A Lot Br ighter


We can see some of the legacy of big-ticket purchase behaviors here. Shoppers expect the hurdle for free inside home services to be a bit higher than $100 in most cases. Instead, they up the ante to a somewhat anemic $500.

Let’s be clear. No retailer is going to be profitable providing free white glove delivery, packaging removal and old product removal for $500 items. It’s not a reasonable expectation, but the expectation is there. This leads us to ask, “What’s a retailer to do?”

The answer seems clear.

Reward Rational Expectations The most logical solution to this seemingly intractable problem is to flip the model. Instead of attempting to charge for value-added services, perhaps retailers should contemplate discounts to consumers who avoid them. Promotions like: “Save $25 on four-hour shipping windows” will resonate better than “Pay $15 for a two-hour shipping window.”

Nothing is quite so insulting to a consumer than spending literally thousands of dollars on an item only to be told they’ll have to pay $15 to have it delivered in a two-hour window. Offering to save them a few bucks if they’re willing to stay home a bit longer might be a better decision. In the end, the numbers will likely work out the same, but the psychology is a lot different.

Assuming that perfect world, where retailers find a way to give shoppers what they want and can find ways to make money doing it, what could go wrong? Often, the answer lies within the enterprise itself: and so we move on to organizational inhibitors, where retailers identify the enemy within and how to vanquish it.

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“White glove” delivery

Installation services

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the home

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Minimum Purchase Price To Receive Free...

$100 $500 $1,000 $2000 or more

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Organizational Inhibitors

Home Delivery Alignment The top three organizational inhibitors focus on technology, and the alignment of technology to the home delivery processes it is designed to support (Figure 13).

Figure 13: A Quest ion Of Competencies


These inhibitors are mostly universal across performance. There are only two major differences:

• Organizational inability to absorb new technology – Winners 57%, peers 46% • Logistics/supply chain competence – Winners 48%, peers 60%

One would think these two would be the other way around – that Winning retailers would be more concerned about supply chain competency, considering that they are more likely to outsource management of those operations, while their peers would be more concerned about their organization's ability to absorb new technologies. But in fact, there are good reasons for the switch.

Winning retailers are not as concerned about the competence of their supply chain operations when it comes to supporting home delivery, mainly because they have greater organizational alignment than their peers. Across the board, from the executive team to finance to channel operations, Winners have near-total support for home delivery from internal organizations (Figure 14, below).

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Employee interpersonal skills

Employee technical skills

Management perception of the value of home delivery

Cultural resistance to change

Organizational inability to absorb new technologies

Logistics/supply chain competence

The existing technology infrastructure gets in the way of new initiatives

Top Three Organizational Inhibitors Impacting Home Delivery Business

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Figure 14: F inding Support In Al l The Right Places


Retail Winners also have more participation from these organizations when it comes to deciding home delivery strategy and tactics (Figure 15).

Figure 15: The More The Merr ier – And More Successful


This makes it easier for their companies to have faith in their supply chain capabilities. Companies with less alignment and support – "others" in this case – have more challenges creating support because of this lack of involvement.

On the other hand, Retail Winners are more concerned about their company's ability to take on new changes imposed by technology. They recognize that every organization has a certain capacity for handling change, and right now supply chain is at the epicenter of massive changes in retail, thanks to omni-channel fulfillment demands and the restructuring and new systems required to meet those demands. Winners' peers tend to look at technology as a way to force change – and so they worry less about the implications of too much change too soon.

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Who Is Involved In Strategic And Tactical Home Delivery Decisions Today?

(select all that apply)


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Insourcing Vs. Outsourcing These perspectives are carried through to the ways retailers see to overcome their inhibitors. For the most part, Winners see opportunities through a focus on making technology easier to swallow – improved integration tools, simpler user interfaces. Their peers tend to focus more on things like better employee training and even outsourcing to 3PL providers (Figure 16).

Figure 16: Tech Tools For Tech Problems, But Outsourcing For Org Chal lenges


Ironically, while average and under-performing retailers are focused on using 3PLs to manage their home delivery services, Retail Winners are headed in the exact opposite direction – investing in capabilities to provide more direct control over transportation. This isn't necessarily a contradiction of Winners' intention to continue to outsource and even to grow their drop ship operations. Rather, this is more about ensuring they have the internal systems and processes in place to adequately manage and track the activities of their partners.

This result should be no surprise: when you have the backing of the rest of your company and the support to enable a home delivery operation, it's much easier to focus more on getting supporting technologies implemented than on justifying internal expertise – which is exactly where their peers are forced to spend most of their time.

A Green Footnote In the figure above, 20% of peers believe more green options for managing home deliveries will help them overcome their internal challenges, compared to absolutely 0% of Retail Winners. There are two subtleties to this outcome. One, Retail Winners tend to be incredibly focused on what consumers want. And in looking at the consumer survey portion of this research, where only 36% of consumer respondents said they wanted more green options for home delivery, it's clear that Winners aren't really seeing strong demand for green options.

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Case studies or examples of successful home delivery operations

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Third party logistics companies to manage home delivery services for us

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Top 3 Ways To Overcome Inhibitors


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However, that doesn't mean Retail Winners are ignoring green options. The question above asks if green options can help overcome a retailer's internal challenges. Retail Winners say no – because they'll implement more green options if consumers demand it, and while consumers aren't putting it straight at the top of their list, there is enough interest there to make it important for all retailers to watch this area. For their peers, however, it appears interest in green is perceived as driving an internal benefit, more so than a customer one.

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Technology Enablers

Where Is My Shipment? In terms of technology enablement (Figure 17), retailers most value solutions that either let them know where shipments are (track and trace, electronic proof of delivery), or let their customers know when shipments are on their way (pre-delivery customer notification).

Figure 17: Get It There, Then Get It There Prof i tably


After that, retail respondents are next focused on solutions that help them make profitable deliveries – solutions like performance analytics, dynamic appointment scheduling, route optimization and real-time re-routing. Unfortunately, these are also the capabilities that are least implemented.

The good news is, there is a lot of room for improvement. The bad news is, given how much existing infrastructure issues impact their ability to implement new capabilities, delivering profitably may take longer to get to than retailers would like.

Technology's Value These gaps between value and use are large enough in aggregate, but even bigger gaps emerge when looking at technology value through the lens of retailer performance (Figure 18, below).

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Figure 18: Across-The-Board Value Gaps


Retail Winners are much more likely to assign high value to technologies that enable home delivery operations. With this much emphasis on technology's role, it's not surprising in retrospect that Winners are concerned about their organizations' capacity to absorb new technology capabilities.

The only places where lesser performing retailers are as likely to assign value are for track and trace, real-time re-routing, and route itinerary by stop. Ironically, GPS tracking, for example, has less value than real-time re-routing for these retailers, even though GPS tracking is most likely an enabling technology necessary for real-time re-routing to be valuable.

Making Technology Commitments The gaps continue when it comes to implementation – Retail Winners have implemented far more of these technologies than their peers (Figure 19, below).

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Figure 19: Enabl ing The Customer First


The only places where Winners and their peers are equally implemented are with the basic (but crucial) financial settlement, and in cost/performance analytics. Retail Winners have most distanced themselves on the two components needed to enable their typical relentless customer focus: pre-delivery customer notification and track and trace, with an additional heavier emphasis on post-delivery consumer surveys.

It's clear that Retail Winners are raising the bar on consumer expectations. However, their peers are planning on catching up – soon. They plan on investing in home delivery technologies at 2 times the rate of Winning retailers – almost across the board. The gaps in the customer service-oriented capabilities should narrow the most in the next 18-24 months, including customer pre-delivery notification, route optimization & scheduling, and electronic POD.

On the surface, these investments might seem to contradict average- and poor-performing retailers' interest in greater use of third parties. But if anything, such desires increase the importance of investing in technology capabilities – to help them manage and direct the activities of multiple potential participants in home delivery execution.

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BOOTstrap Recommendations

When consumers opt for delivery, they expect speed and convenience, and they expect it to come very cheaply. Whether these expectations are realistic or not, retailers need to at least attempt to meet them. That means home delivery capabilities, once the relatively obscure domain of furniture and appliance stores, are now becoming critical – and differentiating – capabilities for all retailers. The question is whether or not they can achieve any kind of volume of home delivery to enable profitable home delivery operations.

Towards that end, we have a few recommendations:

Be The Expert When Things Go Wrong There are two parts to this recommendation. First, be prepared for things to go wrong – because they will. When it comes to home delivery, don't look at customer service representatives (CSRs) as an expense to be outsourced to the lowest cost provider, or even left with the outside service provider. No matter whose name is on the truck that rolls up to a customer's house, it is the retailer's brand at stake. The same people who take the money need to be the ones who ensure that customers are taken care of – these people become part of your brand identity and keeping them in house might be the best thing you can do.

Be Creative About How To Charge For Home Delivery Services It's no surprise consumers don't want to pay for anything – they want home delivery fast and free. The reality is this is not a sustainable business model for any retailer. But with consumer expectations currently being set by retailers like Amazon, who has yet to demonstrate a sustainable retail business model, the rest of the retail ecosystem needs to get creative.

Given the responses we saw from US consumers in this survey, it might be better to offer discounts for those who don’t want those services, rather than an up-charge for those who do. This experiment is currently being run by retailer jet.com, but it’s hard to isolate its merits from the overall business model. It’s certainly worthwhile to try in other verticals.

This pricing strategy does not extend to add-ons like fabric protection or warranty services: these are traditional products consumers are used to buying. It’s important to be aware that pushing other services too hard might damage the value of these existing profit streams. And it will help to spend some time managing internal expectations around how to actually generate profit from home delivery services.

Internal Alignment Is Needed, Whether You Outsource Or Not We saw in this study that there are big differences in internal organizational alignment and confidence in internal competencies. Regardless of who actually delivers a home delivery product to a consumer, the retailer whose brand is on the box and whose logo is on the transaction needs to have the internal capabilities to ensure that consumer needs are being met and a differentiated experience is being delivered.

Retail Winners get this – even though they are more likely to already outsource home delivery capabilities, they have a high degree of internal alignment, investments in technology already made, and also have a resulting high degree of confidence in their internal capabilities. If any retailer is looking to increase their level of outsourcing around home delivery, that does not excuse them from needing the systems and people in place to manage home delivery operations.

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Technology Investment Needs To Focus On Customers Too One way retailers can ensure a strong customer experience in home delivery is to provide a high degree of transparency to consumers about what's happening with their delivery. This is another area where Retail Winners already recognize the opportunity, but there is a vast amount of opportunity here.

The more consumers feel engaged in the process, the more comfortable they will be in ordering from you. Pre-delivery notifications are an excellent start, but any way that retailers can find to use delivery-related information to improve the home delivery experience will ultimately pay off in the end, whether that is in increasing confidence around narrow delivery windows, adding new delivery-related services, or heading off customer service calls before a consumer ever knows something has gone awry.

There is a side bonus to this transparency – the more retailers can share this information with consumers, the more they will themselves be able to stay on top of how well they are executing on their home delivery promises.

a

Appendix A: The BOOT Methodology© The BOOT Methodology© is designed to reveal and prioritize the following:

• Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise.

• Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success.

• Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning Retailers understand their organizational inhibitors and find creative, effective ways to overcome them.

• Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers.

A graphical depiction of the BOOT Methodology© follows:

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Appendix B: About Our Sponsor

Descartes (Nasdaq:DSGX) (TSX:DSG) provides innovative technology solutions to help improve the productivity, performance and security of logistics-intensive retailers. Whether the challenge is home delivery, omni-channel retailing or international/domestic inbound logistics, our cloud-based solutions help retailers realize results quickly while offering the capabilities and scale to adapt as markets evolve. Learn more at www.descartes.com

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Appendix C: About RSR Research

Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by:

• Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses;

• Identifying industry issues that solutions providers must address to be relevant in the extended retail industry;

• Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry.

Copyright© 2015 by Retail Systems Research LLC • All rights reserved.

No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact [email protected] for more information.

Home Delivery: Retailers’ Brave New World · 2020-05-14 · Executive Summary Key Findings Home delivery, long a dormant and specialized activity for retailers selling large durable

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