Last mile: The amazing race to solve the delivery dilemma
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While the consumer has voted that omnichannel is their new normal for how to shop and purchase, both retailers and e-tailers are still scrambling on how to make all of this work and still generate a profit.
Consumers have rising expectations for flexible delivery/pickup. Free two-day delivery has become the benchmark, with increasing expectations for faster delivery options in a day or hours. That means that all retailers must find ways to solve for the "last mile" of delivery. 2017 will be the year of the amazing race to your door. A purchase is NOT complete until it is in the hands of the customer (and stays there).
Why this is important: Omnichannel is not cheap. It creates additional layers of infrastructure and costs to sell products through to the end customer. One of most challenging and costly is the "last mile" of delivery.
A "seamless" purchase does not solve the last mile logistics
Omnichannel has become such a normal expectation on the part of consumers that they literally don't think about channels anymore. They seamlessly move from the digital online realm to the physical retail world, and back again. They expect to find products, shop and purchase anytime and everywhere.
Omni-retail has become so prevalent that the consumer has literally become the POS (Point of Sale). They can choose when, where and how to purchase. But, that omnichannel purchase does not solve the physical reality of "getting the goods." If the customer purchases online, there is a formidable challenge of the "last mile" to complete delivery.
The amazing race for the last mile
A great metaphor for today's omnichannel scramble is the TV series "The Amazing Race." On The Amazing Race, teams use any and every means of transportation possible to scramble around the globe to win the $1 million dollar prize. Any transportation or means to get through the journey to reach the goal is fair game. In many ways this game show is very similar to the range of last mile delivery scenarios evolving for omni-retail today. The major difference is that the "prize" for retailers is winning relationships with today's consumers worth billions of dollars.
Growing ecommerce is creating a scramble for last mile solutions
The giants like Amazon continue to grow online sales double digits year over year. And, it's not just the pure etailers. All major retailers are scrambling to aggressively grow their online sales. All of this adds up to tremendous growth in deliveries that must go the last mile to the consumer's door, and increasingly SMB direct sales to the business door.
This growth in the last mile is not only causing disruption for retailers, but also for the companies contracted for the last mile. There are already a wide range of options being deployed and tested for the last mile.
The race is on … Planes, trucks, bicycles, drones and droids
One only needs to pursue the headlines to see the rapid innovation and options being developed for omnichannel and last mile delivery. The goal is not only to reduce costs of delivery, but to also differentiate based upon quality and reliability of service.
Amazon Prime Air – Disintermediate the traditional supply chain
Amazon's U.S. ecommerce share is projected grow from 34 percent to over 50 percent by 2021. Not surprisingly, CEO Jeff Bezos is aggressively investing in all components of the supply chain. What is often missed is how Amazon Prime Air is aggressively buying airplanes, leasing ships and truck fleets. The quicker products can be moved direct from foreign factories, Amazon can disintermediate both retailers and distributors. Owning your own fleets and distribution points enables direct control and ability to manage delivery all the way through the last mile.
Walmart counters with free click and collect with price discounts
Estimates are that the "last mile" of delivery to accounts for as much as 28 to 40 percent of the entire cost. It is no wonder that many retailers are highly investing in "click and collect" strategies designed to get the customer to go the last mile themselves to pick-up their purchase in store. That's why retail giant Walmart just announced new pricing that will give customers 3 to 5 percent savings if they pick up items in store. But, discount pricing in store can be a slippery slope. Amazon or other discounters could simply match or even choose to beat Walmart's click and collect discounts. In an omnichannel world, store discounts are not enough. Retailers also must solve for online purchase delivery last mile to the door.
Bikes are already a very cost effective last mile solution in cities
In Belgium, Zalando, together with courier firm Parcify, is trialing a fulfillment service that uses geo location to deliver online orders to shoppers via cycle couriers wherever they are. In many ways, this is a clone of what is already happening in the mega cities of China and India where trucks can't negotiate all of the traffic for last mile delivery. Bicycles and motor bikes are the proven last mile solution in the mega cities of India and Asia.
Uber and ride services continue to evolve as last mile solutions
Uber continues to evolve service options for delivering more than passengers across the last mile. There are a number of cities where you can use Uber as a courier service for packages. UberEATS has been specifically targeted for restaurant deliveries within an hour. While there are currently capacity issues, services like Uber could provide alternatives for last mile deliveries requiring speed and last minute scheduling.
Drone and droid nation to come?
The challenge of last mile delivery is all of the congestion and traffic plus the cost of the drivers. The attraction of drone delivery is unmanned flight direct to customers. Yelp Eat24 is testing food delivery in San Francisco. JD.com has plans to build 150 sites for unmanned aerial delivery in the southwestern province of Sichuan. In the U.S., it maybe Walmart and Target that have the stores closest to the customer … and all those rooftops would be perfect drone launch pads. If drones prove to be fantasy and the flight regulations are too cumbersome, the Starship robot buggies delivering Hermes parcels in London might evolve into a ground solution for last mile delivery.
Beyond price – "White Gloves" service with delivery the last mile
Almost all of the foregoing discussion on the last mile has been focused on the logistics and how to cut costs. When analyzing those parameters, what is often missed is the power to differentiate when services are added to the delivery. The very survival and success of both Best Buy and Dixon's has been based upon the customized install and services coupled with the delivery. Not only does this differentiate value add, it can make the last mile a major profit center rather than a cost drain from online sales.
Every retailer today, regardless of location or products sold, must find solutions for their customers rising expectations for delivery choice and convenience on their terms. One solution will not fit all … but the customer will demand a solution or shop elsewhere.
Chris Petersen / Chris H. Petersen, PhD, CEO of Integrated Marketing Solutions is a strategic consultant who specializes in retail, leadership, marketing, and measurement. He has built a legacy through working with Fortune 500 companies to achieve measurable results in improving their performance and partnerships. Chris is the founder of IMS Retail University, a series of strategic workshops focusing on the critical elements of competing profitably in the increasingly complex retail marketplace.