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.

Saturday, July 5, 2014

Walmart and Busch's

Two fairly nice ecommerce experiences today. The first was a grocery pick-up at our local grocery chain Busch's. We've been long-time customers and fans of their service where for a $6.95 flat fee, they will pick and pack your entire grocery order online for you, and deliver it to your car. Of course this is not the same as home delivery, but to people like me for whom the grocery store is on the way home from most places it's actually pretty convenient.

The second is from good old A single-item order was ready for site-to-store pickup in about an hour. Really, not all that different from food take-out order that's ready even faster than that. I'm not entirely sure what Walmart's plans are for delivery of online orders from stores (hire drivers? crowdsource? sharing economy? third party?), but once they have that figured out, then they have the scale to make promises such as "75% of US residents can get online orders delivered to their homes in 2 hours or less".

Thursday, June 19, 2014

Walmart's ecommerce operations

As some readers may have noticed, this blog is bullish on Walmart's prospects in ecommerce and its ability to take on Amazon. From Internet Retailer, here is some encouraging news in that direction (posted while the rest of the world is focused on Amazon's Fire phone):
[Walmart's] 4,200 stores are within five miles of two-thirds of the U.S. population, the company says. And it’s been using them to fill online orders. A Wal-Mart spokesperson says more than 20% of online orders are now shipped from a store—the majority of those arriving within two days. The company has sped up delivery times by 15% and lowered delivery costs by 22% over the past two years, with store fulfillment and dedicated e-commerce fulfillment centers cited as part of the reason.
@WalmartLabs, Wal-Mart’s e-commerce innovation arm, has been working to optimize the fulfillment and delivery process, the spokesperson says, including developing algorithms to determine the best location for shipping each order.
Two comments. First, the numbers in the first paragraph are impressive indeed, particularly the percentage of online orders that are filled from stores and the delivery cost reduction. Second, the "algorithms to determine the best location for shipping each order" is exactly the kind of research I'm working on. In fact, we do have a draft paper, but we academics work on a much longer cycle than the business world, so it will be a little while longer before the paper can be released. But feel free to email me directly if you want to find out more about what we're doing!

Tuesday, June 17, 2014

Virtual reality and ecommerce

I'm attending a conference on retailing, and here's an interesting thought one of the other attendees mentioned as the "next huge thing in ecommerce": virtual reality. One of the supposed downsides of ecommerce is that customers cannot get the look-and-feel of products that they would in a physical store. Well, what if virtual reality systems (such as the Oculus Rift headset) enable that look-and-feel? Taking it further, what if you could construct an "avatar" that matches your physical dimensions and appearance, so you could virtually try out the apparel/footwear/jewelry/eyewear where fit and look are much more important?

Tuesday, June 10, 2014

UPS/comScore 2014: free shipping crucial, quick delivery not so much

The latest edition of the UPS/comScore annual "Pulse of the Online Shopper" is apparently out. Hopefully I'll get my hands on the complete report soon, but in the meantime, the Wall Street Journal reports from it today:
A whopping 93% of shoppers have taken some type of action while shopping online in order to qualify for free shipping. Those actions range from adding more items to a cart (58%) to choosing the slowest transit time (50%) to searching for a promo code (47%).

Delivery company executives and analysts typically dismiss the notion that e-commerce will generate demand for same-day and overnight shipping, and the new survey adds fuel to their fire. While same-day delivery does provide instant gratification, most customers just aren’t willing to pay the price. And same-day delivery is usually significantly more expensive – especially outside the biggest cities – a cost that most retailers are unlikely to eat.
This is consistent with the position taken by our research team: customers would rather pay less money to get their stuff, instead of getting it quicker (here, here, and here), for example. The report also mentions elsewhere that ease of returns is important, which is something we've also found.