Why Retail Fulfillment Speed is Becoming an Unchallenged Race to the Bottom

By August 13, 2019Power of the Profession
190812 August Cover 1

Every retailer recognizes that consumers want an increasingly convenient shopping experience. Too many retailers interpret convenience as being predominantly about faster fulfillment of those orders, underplaying the importance that a wider range of fulfillment speeds offers more convenience than shortened fulfillment lead times.

Under the shadow cast by Amazon over the retail industry, many companies feel that they must offer faster and faster consumer order fulfillment speeds in order to remain competitive. Gartner has spoken with hundreds of these retailers in recent times. The majority of these companies are in danger of building faster supply chain fulfillment models without possessing a clear mandate from their consumers as to the importance of this requirement to them.

Retailers are swayed by industry analysis and white papers that declare the willingness of consumers to pay for fast fulfillment. However, retailers are not sufficiently arming themselves with the answer to how often consumers would use same-day, next-day or two-day fulfillment if available to them.

This lack of insight creates a default position in which retailers set off in pursuit of faster fulfillment, often in the mistaken belief that without this service, consumers will abandon them for alternative companies. The reality is that consumers choose to shop with retailers for many reasons other than their fulfillment speed. Brand loyalty, products, prices and consumer experience all weigh heavily into the consumer choice on where to shop and with whom.

Yes, order fulfillment speeds are shortening across the industry, and this cannot be interpreted as a passing fad, but this is not the be all and end all of being competitive. Given the choice of seeing their favorite retailers collapse under the burden of debt investment from trying to build a super-fast supply chain or remaining in business with a three- to five-day economy ground shipping model, many consumers would choose the latter. Why else would more than 70% of consumers continue to secure free shipping by opting for the longest lead time available from retailers?

Today, the vast majority of retailers can deliver a consumer’s order within seven business days of order receipt. As consumers, we are being conditioned to expect this speed. We are also conditioned that in the case of made-to-order products, we have to wait eight weeks or more, which we also accept.

This conditioning effectively creates a delivery wasteland between eight days from order placement to eight weeks from order placement in which hardly any deliveries take place. This feels like an opportunity to introduce a different approach — greater convenience through the introduction of incentive-based slower fulfillment lead times than we experience today.

Regardless of the hype around faster delivery and the efforts retailers are making to fulfill more rapidly, consumers don’t want or need to pay for everything they order to be delivered at breakneck speed. Sometimes, the assuredness of a specific delivery date represents the most convenient experience, especially for products that are not required either urgently or for a specific date. For such products, a delivery speed of two or three weeks may be perfectly acceptable to a consumer if they can be incentivized to wait that long.

Such incentives could be any of:

  • A discount on the price of the order
  • Additional items added to the order as a gift
  • A price reduction on a future order
  • Loyalty card bonus points

Take the case of a digital camera. For high-price cameras, consumers will typically upgrade from a less expensive model. Unless the consumer wishes to have their new camera for a specific event — a family wedding or vacation, for example — then there is no real urgency for when this camera needs to be delivered. The consumer could be incentivized by a free camera bag, money off a future camera lens or a contribution toward photography lessons. All of these would not necessarily be offered by other retailers, so the consumer may accept these incentives for a long delivery lead time.

This provides benefits to the retailer in that centralized inventory can be used for fulfillment, perhaps even inventory from another country’s market that has excess inventory. Two to three weeks to ship a product affords the retailer a great opportunity to reduce shipment charges through consolidating this order with others.

Gartner’s retail clients freely admit that significant portions of their assortment do not generate order fulfilment urgency. Therefore, expanding delivery lead times beyond seven business days into an incentive-based two to three weeks accomplishes two things. It meets the consumers’ expectation of a new convenience experience. It also allows the retailer to slow down the relentless march toward faster fulfillment and the race to the bottom — where there will be many more losers than winners.

Tom Enright, Research Vice President, Gartner Supply Chain

Avatar

Author Guest

More posts by Guest