Wednesday, August 20, 2014

Amazon to test drones in India?

Apparently, Amazon is considering test-launching its drones in India, in Mumbai and Bangalore, possibly as soon as Diwali in October. Thanks to Atul, my favorite commenter, for this! I have to admit I still remain skeptical of the viability of delivery by drones in the near term, but then this won't be the first time I have been completely and overwhelmingly wrong.

Monday, August 18, 2014

Does shift to ecommerce increase employment?

With ecommerce accelerating in terms of the proportion of total retail, does that mean there is a net loss of jobs or a net gain? On the one hand, we obviously don't need as much staff in retail stores. On the other hand, a lot of the labor that used to be done by the customer now is done by the seller: picking the items and transporting them, in particular. Obviously some of this gets automated, but that still leaves a bunch of work that humans need to do, particularly on the delivery front (at least until driverless cars and drones really scale up in volume).

A recent series of articles from Re/Code, (which I found through one of my favorite websites:, brings up many other related issues, of which one is that there appears to be more and more demand for customers wanting their stuff right away, which leads to delivery via the "sharing economy". I'm completely mystified about how this is supposed to scale and be sustainable (financially and in terms of a source of stable jobs), but then I'm sitting in Ann Arbor and not in Silicon Valley. In any case, the point is that if there really is such demand for instant gratification and the sharing economy is the right model for delivery, then there should be a fairly substantial employment increase from it.

Any pointers for studies/data addressing this directly?

Tuesday, August 12, 2014

Stores and malls shutting down ...

The shift to ecommerce for retail sales is accelerating, with at least one aspect moving faster than I had anticipated: the decrease in foot traffic to stores. The Wall Street Journal reported on August 5 that:
Aside from a small uptick in April, shopper visits have fallen by 5% or more from a year earlier in every month for the past two years, according to ShopperTrak, a Chicago-based data firm that records store visits for retailers using tracking devices installed at 40,000 U.S. outlets. Even as warmer temperatures replace the harsh winter weather this year, store visits fell by nearly 7% in June and nearly 5% in July, according to ShopperTrak.
New data from Moody's Investors Service shows that the shift to online sales has prompted retailers to scale back store openings and will likely lead them to pare back their fleets even more in coming years, as more than $70 billion in lease debt expires by 2018. Growth in store counts at the 100 largest retailers by revenue has slowed to less than 3% from more than 12% three years ago, according to Moody's.
A 5% annual rate of decrease sounds pretty huge! In addition, it was reported at many places (and quite frankly is easy to observe) that traditional shopping malls are also facing tremendous pressure in the form of decreasing traffic and closing stores: see here, here, here, and here. The retail landscape is changing, perhaps faster than some of us expected.

Wednesday, July 30, 2014

eCommerce heats up in India

Just a day after Flipkart raised $1 billion for its ecommerce operations in India, along comes Amazon with its $2 billion investment. For Amazon, the nice thing about its India investment is that it is not in the business of selling stuff directly, but only providing website, logistics, and distribution services for third-party sellers (similar to Amazon Marketplace). Much better prospects for profitability!

Other ecommerce news worth mentioning without commentary: UPS announced yesterday that they are investing heavily in their network for the upcoming season to prevent last year's debacle from recurring, and a very interesting article on Amazon's new network of "sortation centers"---does this remind anyone of what are called cross-docks in traditional retail logistics?

Thursday, July 24, 2014

In-store inventory accuracy and omnichannel retail

One of the main challenges in fulfilling ecommerce orders from stores as part of an omnichannel strategy is that of inventory tracking. Unless you know how many units of the item are available in-store, you cannot really promise on your website that this item will be delivered "within 3 hours" from in-store inventory.

Turns out that inventory tracking is much harder than you would think. Last year, a report in DC Velocity surveyed 177 executives at retailers, and found:
Today, cycle count accuracy levels at DCs that use warehouse management software in conjunction with automatic identification technology exceed 99.9 percent. Accuracy at the stores, however, appears to be falling far short of that mark. Only 30 percent of respondents reported that their store inventory accuracy level was 98 percent or higher. Another 32 percent said store inventory accuracy rates fell between 95 and 97.9 percent, while 15 percent characterized their accuracy rates as between 90 and 94.9 percent. At the low end of the spectrum, 17 percent said it was below 90 percent and, surprisingly, 6 percent did not measure inventory accuracy at the store.
The report goes on to say that integrating accurate point-of-sale data should help fix this, but I'm not convinced that alone will do the job. Inventory inaccuracy and shrink at the retail level has multiple causes (e.g. customers picking up items and then putting them down elsewhere after changing their minds), not all of which can be captured by POS.

For those with interest in probability, we can take this calculation a little further. Suppose inventory accuracy is 96.5% (the median from the survey above), and only 20% of the inventory inaccuracy errors actually are related to stockouts. Suppose also that each customer orders 25 items per order (this is more common in the grocery sector; obviously for apparel it would be much smaller). Then the likelihood of an error within any order is approximately 16%. The probability of a bad order in a day, with 5 ecommerce customers per day is 58%. Changing any of the numbers above even a little bit easily bumps up the probability of a bad order in a day to well over 90%. Omnichannel is challenging!

Friday, July 18, 2014

Return to a store that you didn't buy from?

Yet another survey confirms what most have already found: ecommerce customers value free shipping and easy returns. With respect to the easy returns, in this poll 55% wanted the ability to return to a store. But 16% wanted the ability to "return an item to a store when the retail chain doesn’t have a store in the shopper’s local area." Presumably the way to operationalize this would be for a retailer to contract with say UPS stores or another chain of stores to accept returns at its location. I'm not aware of any retailer that actually does this, but it certainly sounds like an interesting prospect. Anyone know of anyone doing this?

Friday, July 11, 2014

Online grocery shopping: market potential

From a report by The Hartman Group, only about 18% of US households shopped online for groceries in the past 3 months, and only about 4% of US households did more than 50% of their grocery shopping online (as for our household, I think we do about 30%-40% of our monthly grocery shopping online, all at Busch's). This suggests that the overall volume of groceries that are currently purchased online is very small, in the low single-digit percentage points.

However, the same report also states that one-third of "at-store only" shoppers believe that online shopping is more convenient. Additionally, two-thirds live within walking distance to a grocery store, so access is not an issue. This suggests that the upside potential for online grocery shopping is huge. If firms are willing to invest in systems (both the shopping interface and the delivery/pick-up mechanisms) to make it more attractive, we should expect to see the volume of online grocery shopping increase substantially in the coming years. And these investments are certainly happening: As recently reported in the Wall Street Journal, Wal-Mart is investing significantly in its ecommerce capabilities under its new CEO Doug McMillon.