Amazon showed disappointing third-quarter results on fulfillment. The costs of fulfillment rose again, to now almost 31% of online sales. Year after year, these costs increase by one percentage point despite more sales. Growing volumes do not result in economy of scale at Amazon?
Zalando is doing a better job. Zalando’s fulfillment costs are decreasing from year to year; now, 26% of online sales. Hellofresh showed no less than 10 percent lower fulfillment costs. The third-quarter figures of AholdDelhaize are also positive. Is there a trend break in the rising costs of fulfillment? Is the gap between online and bricks-and-mortar narrowing?
Retailers in the UK made significant productivity gains in 2020 with the shift to online sales. Retailers can do more work with fewer and fewer employees. According to British research, productivity gains in the UK retail sector may also result from changes in the retail industry. Less productive retailers have failed to embrace online and have been forced out of business.
Meanwhile, online frontrunners did manage to realize operational gains and grow successfully. Online platforms turned years of losses into future profits by getting a solid grip on their fulfillment. Not only by focusing on automation and robotics in warehouses, artificial intelligence, data analysis, and IoT or by putting pressure on parcel companies, but also by involving consumers in the delivery process, enticing them to order more (order value) and return less.
A focused value proposition
Successful platforms offer a clear value proposition to their customer segments. In this value proposition, they align commercial and logistic processes, with end-to-end supply chain integration, together with fulfillment partners for all distribution channels; buy anywhere, deliver anywhere, return anywhere.
After decades of significant investments, those investments are now paying off. The cost gap between stores and online is rapidly being closed by the online and omnichannel retail leaders. Fulfillment is finally coming of age. And there are so many great things still to come: e-commerce ready packaging, new delivery and return concepts, address intelligence, digital twins, customized packaging, machine learning, delivery robots, and much more. So what will be the next frontier: 25, 20, or maybe even 10% fulfillment cost in online and omnichannel distribution models?
Walther Ploos van Amstel