What will it take for retailers to win the last-mile race for customers?

Best Buy's new distribution center, Missouri City, TX - Photo: Best Buy
Nov 30, 2018
Matthew Stern

Top retailers have improved their speed in last-mile fulfillment drastically over the last two years and those gains have been instrumental in helping them stay afloat and even make headway in categories dominated by Amazon.com. This was one of the major takeaways from research presented by Ken Cassar, principal analyst at Rakuten Intelligence, in a RetailWire webinar earlier this week.

Using Best Buy as an example, Mr. Cassar showed that while the store’s click-to-ship rate — the time from user purchase to a product leaving the warehouse — had not sped up, the time it takes to get product from the warehouse to the customer dropped from 6.3 days to 2.7 days within the past two years. This is consistent with an industry-wide trend.

“That Best Buy story isn’t a novel one,” Mr. Cassar said. “The improvement that retailers not named Amazon have made is almost exclusively coming from faster delivery — from faster ship-to-door.”

Improving this leg of the last mile, however, is an expensive proposition due to high shipping costs.

The return to fashion of brick-and-mortar retail, however, has positioned retailers with physical stores to thrive in the last mile, thanks to trends like ship-from-store and buy online, pick up in-store (BOPIS).

“We do believe that there’s a pretty significant opportunity for retailers to invest more in their fulfillment capabilities in order to allow those fulfillment centers to turn orders around much more quickly,” said Mr. Cassar.

BOPIS appears to offer a far better proposition for retailers than just a year ago; it jumped in popularity 73 percent between 2017 and this year’s Thanksgiving, according to Adobe’s research.

Charles Dimov, vice president of marketing at OrderDynamics, who joined Mr. Cassar on the webinar, noted that these statistics illustrate that BOPIS is expanding beyond an industry buzzword and into a service that customers are aware of as an option.

“[The numbers on BOPIS adoption are] a testament to the fact that awareness is growing,” Mr. Dimov said. “I think the rewards are going to go to the retailers that have already put [BOPIS] in play. I think there’s going to be a propensity for other retailers to scratch their head and say, ‘Hey maybe I should be putting a little speed behind this and accelerate our pace a little here.’”

DISCUSSION QUESTIONS: How can retailers best succeed in the last mile without spending so much to get there that it negates the value of the investment? Which retailers stand the best chance of wrestling back share from Amazon through improving last-mile fulfillment?

Please practice The RetailWire Golden Rule when submitting your comments.
"Amazon doesn’t make much money on its retail operations. Most other retailers can’t get away with that. So they’ve got to ultimately be BETTER than Amazon."
"The answer to this question requires benchmarking against relevant competitors – something that retailers need to develop a strong interest in."
"The best bet for most [retailers] is going to be to innovate, be willing to run trials, to not be too proud to drop projects that don’t work, and to test, test, test."

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22 Comments on "What will it take for retailers to win the last-mile race for customers?"

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Chris Petersen, PhD.

What gets measured gets done, and can be managed. It is alarming how many retailers do not have adequate systems or KPIs to track both effectiveness and efficiency of last-mile deliveries. Relative to the high cost of shipment to the customer’s door, retailers must start measuring more than just a single sale today. That last-mile shipment today is well worth the investment for a loyal, long-term customer relationship. Regarding BOPIS, make it incredibly convenient and consistent and they will come, and come back.

Min-Jee Hwang

BOPIS is definitely a strong strategy for retailers looking to improve their fulfillment efforts. Especially for retailers with a good number of physical locations, BOPIS allows shoppers the convenience to shop online with the immediate gratification of buying in-store. Ship-from-store and BOPIS are two strategies ideal for businesses that want to improve in this area without drastically overhauling their shipping infrastructure.

Paula Rosenblum

Well, the problem is that success is relative. Retailers have to do what consumers want, which is to get faster and deliver free. So getting it done is table stakes and certainly requires technology.

But here’s the thing. Amazon doesn’t make much money on its retail operations (I’m being charitable, here). Most other retailers can’t get away with that. So they’ve got to ultimately be BETTER than Amazon. The narrower their assortments, the easier that will be.

On their fronts, Target and Walmart will take advantage of their brick-and-mortar presences to do Instacart-like deliveries for relatively short money.

So I see specialty stores and giants doing well.

Others will struggle, and profits will be hurt. There’s just no choice.

Rich Kizer

Very well said Paula!

Kenneth Leung

Agreed. Amazon is a tech service and content provider (in essence a Customer Experience provider) that delivers goods. Most retailers have to figure out how to turn a profit with their customers with their brick and mortar AND web properties. You can’t keep trying to replicate Amazon or Apple as a retailer.

Jeff Sward

Best Buy is succeeding by getting it right in ALL the miles, not just the last mile. They vastly improved product, presentation and service first. Then they executed delivery with speed and efficiency. Product first. The last mile is — last.

Ralph Jacobson

This is a cost of doing business. Retailers need to invest in order to capture market share. Then manage COGS to maximize margin. Easier said than done, for sure. However, we’re seeing it happen with smaller players, not just the big guys.

Art Suriano
Retailers that are brick-and-mortar, as well as e-commerce, have the advantage and that advantage is physical stores. The secret for success is getting customers into those stores and not to lose them when they buy online. BOPIS is a brilliant concept that no doubt is successful for everyone because it provides the convenience of shopping online and still gets the customer into the store where they could see and possibly purchase other items. Speed is essential to getting them the service they need and, if in-store, helping them pay for an item without the hassle of a long line at the register. Whether they purchase the item online or in-store it needs to arrive with fast delivery. Retailers have their challenges but the smart ones, like Best Buy, are tackling them one at a time and those that do are seeing significant signs of success. The future is going to be a blend of brick-and-mortar and online functioning as a single opportunity for a customer to make a purchase. The more retailers can figure out… Read more »
Cathy Hotka

That last mile was the main topic of conversation at the September Store Operations Council meeting. There are multiple process and personnel challenges, and retailers are trying everything to see what will work best…but what works today may not cut it tomorrow.

Adrian Weidmann

I totally concur with Mr. Petersen’s comment — “What gets measured — gets done, and can be measured.” The fact that many retailers either don’t have the systems, KPIs, or willingness to put them in place continually baffles me. Watching the public-facing aspects of click-and-collect and click-and-ship first hand at Target suggests that while they’ve made progress, they are figuring this all out on the fly. These new shopping alternatives and expectations are forcing the shrinking of center store and the expansion of the back room and perimeter raceway. The store planogram as we know it is evolving and the change is being accelerated by shopper expectations.

Charles Dimov

Retailers need to get many things right. The best bet for most is going to be to innovate, be willing to run trials, to not be too proud to drop projects that don’t work, and to test, test, test. Test out in-store pickup as an option, test out Lyft or Uber instant delivery from store, test out Mobile Quick-Stop pickup points. Do the same on the fulfillment backend with technology and process improvements.

As an echo … “don’t try to out-Amazon, Amazon.” Retailers need to get better at what they are doing, carve out their own unique capabilities, and to Paula R.’s point — cater to the customer’s wants, needs, and demands!

Trevor Sumner

While BOPIS is a nice advantage, it’s one that Amazon can ultimately copy with the logistical, data and AI power that they uniquely bring to the table. Retailers can thrive by making their stores the ones you WANT to go to with great experiences. Additionally, they can do so in a way that is brand-friendly, creating marketing centers of excellence with brand-funded programs that deepen those partner relationships while Amazon continues to shun brands with predatory practices aimed at maximizing their profitability at the expense of brands while commoditizing their brand marketing. By strengthening relationships through delighting both customers and brands, retailers prove their value as a necessary part of the value chain.

Ed Rosenbaum

Free delivery is the next step I see in this last-mile race. Here is a good example of why I say this. We are going to purchase a new recliner for our family room. The price is right and the chair appears to be just what we are looking for. The issue is that delivery is almost $60. Sixty dollars adds almost 10 percent to the purchase price. Sure we have choices. But picking it up ourselves is not a workable option. Renting a truck will cost almost as much as having the store deliver it. Therefore, if we want the chair we are paying for the delivery. So we are off to the store in about an hour. Now watch, the chair will already be sold and we will have to wait months for another.

Ananda Chakravarty

If that last mile is too costly, you shouldn’t be doing business there. Fulfillment is costly. Logistics can be costly. Success is not about delivering fast, but delivering the way the customer wants it and still making money. This translates into better understanding the customer — something all retailers must strive more to do. Companies that can use tools that incorporate ways to push down delivery costs — like AI to determine whether to ship from a DC or store location or delivery options where the cost is pushed to the customer (which it ultimately is anyway) for faster delivery is part of it. The Walmarts and CVSes have already got this. Even retailers in the middle will have the advantage of a physical presence and can work on retaking market share from Amazon — but it’s a long term commitment.

Glenn Cantor
2 years 58 minutes ago

Amazon owns fast, which means it is not the differentiator for competing retailers. Rather, it should be the in-store experience. This includes the shopping help as well as just plain, old fun- exceeding shoppers’ expectations at every moment of truth.

Ken Cassar
Ken Cassar
Principal, Cassarco Strategy & Analytic Consultants
2 years 55 minutes ago

I think that Chris, Paula and Adrian all hit the nail on the head: How fast is fast enough is critical for retailers to understand. The answer to this question requires benchmarking against relevant competitors – something that retailers need to develop a strong interest in.

Bill Friend
The battleground here is about being convenient. Amazon is very clear on this. Creating transparency around store inventory as a basis for offering online shoppers “convenience options” should be the focus for retailers who compete with Amazon. Fulfilling online orders using local store inventory could actually save retailers money vs shipping from a central warehouse far away. You have the added benefit of shorter delivery times or even offering the shopper an option to pick it up themselves in the store same day. Both cases boost the retailers convenience game. The value of bringing the shopper in the store is well understood by retailers creating up sell/cross sell opportunities. Target and Walmart are great examples of staying focused on convenience as a key driver for conversion with curb side pickup and same day shipping options. Most others large retailers have invested in this area as well but not all have mastered the process yet. Shopper expectations are that these options should be available from all retailers who have physical locations. Look for this to become… Read more »
Sid K. Hasan

Difficult to answer. In my opinion, cracking LMS (last mile services) within retail may be rooted in the ongoing debate/decisions around Net Neutrality — see below.

Perhaps, we consider shopper volume-based fast-lanes/deliveries?

Net neutrality is the principle that internet service providers treat all data on the internet equally, and not discriminate or charge differently by user, content, website, platform, application, type of attached equipment, or method of communication.

PS: I can’t see a drone dropping off a 5 lb package within a 5 mile radius to the 13th floor of my hi-rise. Our 24/7 concierge won’t have it.

Peter Charness
Using the benefit of “Friday morning math” and with nothing valid for statistics … if say 1/3 of all transactions originate online, and say Amazon gets nearly half of them, then consumers are used to speed for delivery (kinda sort of for free, I don’t remember that annual Prime fee when I press one click buy) and other retailers are going to need to replicate that speed, (and make it look pretty much free). The consumer charge for delivery for most stuff, like the cost of credit card processing, will end up largely buried probably in margin, while retailers are still juggling the competitive price equation. Store networks can be leveraged though, for a speed and cost advantage. How to show/hide/make customers feel good about that “landed price,” well that’s going to be the creative part. As Paula points out there is no free lunch here for retailers who can’t cover the retail operational expenses from elsewhere. They’re just going to have to find a way to make that cost invisible — or pleasant….
James Tenser
What it takes to win last-mile race is a great example of a RetailWire discussion that comes down to “it depends.” In this instance, it depends on what type of retailer, product and purchase occasion we’re talking about. For many individual item purchases, “fast enough” home delivery at a painless price (maybe not always free) will be the key to success. Fast-as-you-can delivery will surely remain an area of one-ups-man-ship for Amazon and some other retailers, but some consumers could balk at paying the true cost of these services. I don’t believe “free shipping” on large or bulky items like furniture or appliances is fooling shoppers very much. Most grasp that the cost is figured into the purchase price somehow. Transparency is probably a better policy for ensuring trust. For market basket purchases, especially grocery and club stores, store pickup can have very meaningful advantages to shoppers on the go. I believe streamlined store pickup solutions, powered by true all-channel inventory visibility and sophisticated techniques for in-store order staging, will prove to be a core… Read more »
Kim Souza
1 year 11 months ago

Amazon set the bar high for fast home delivery with its Prime membership and despite the fee, it’s still likely a money loser for the retailer. Walmart won’t play a money losing game. They have instead focused on offering consumers more choices with respect to how orders are retrieved.

Given there is a Walmart store within 10 miles of 90% of the U.S. population, BOPIS makes a lot of sense for Walmart. The minimum $35 order to get free online delivery from Walmart.com is about as low as Walmart is willing to go.

Investments in pickup towers, lockers and other means for final-mile or yard continue across the retail spectrum. Given the diverse demands from consumers, retailers should likely have lots of options for order retrieval. While free home delivery is the new benchmark, that doesn’t mean retailers should mortgage their future to get there.

Shep Hyken

Some retailers have mastered the last mile — at least for now. (There will always be innovation and improvement.) And those that have not have still most likely improved. Competition between retailers besting each other are good for everyone. Customers are happy with fast delivery and/or convenient pick-up. New processes and methods are being discovered and them emulated by competitors. The rising tide raises all boats.

"Amazon doesn’t make much money on its retail operations. Most other retailers can’t get away with that. So they’ve got to ultimately be BETTER than Amazon."
"The answer to this question requires benchmarking against relevant competitors – something that retailers need to develop a strong interest in."
"The best bet for most [retailers] is going to be to innovate, be willing to run trials, to not be too proud to drop projects that don’t work, and to test, test, test."

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