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Report That Amazon Has Already Captured Significant Online Holiday Revenue Share

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Business network CNBC is reporting new analytical data made available by Slice Intelligence indicating that Amazon captured nearly 31 percent of all online spending for the period spanning the Thanksgiving through Cyber Monday shopping days.

If this trend is corroborated by other reinforcing market intelligence data, it would represent yet again the significant online dominance of the Amazon shopping platform. Keep in mind that we still have another 22 days of shopping activity remaining before the celebration of the Christmas holiday and Amazon’s reach could well expand.

Other noteworthy findings indicate that online sites of Best Buy and Target Stores made significant online sales gains while Wal-Mart’s online site fell back in the rankings despite having a record number of initial visits.  Macy’s suffered a significant site outage for much of Black Friday and that was reflected in online sales performance.

Data related to just the Cyber Monday period provided by analysis firm ComScore indicates that Amazon, EBay, Wal-Mart, Kohl’s and Target were the most visited retail sites among shoppers utilizing desktops and mobile devices.

The CNBC report further points to major retailers seeing an uptick in the number of shoppers electing to take advantage of the in-store merchandise pick-up option.

Last year, online shoppers waited until the December period to make their purchases, hoping to snag more attractive merchandise discounts and promotions. Going into this year, retailers have generally cut-back on overall inventory investment with the implication that consumers may well experience some stock-out conditions for the most in-demand merchandise.


Initial Indicators for the 2016 Holiday Customer Fulfillment Period

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As we pen this Supply Chain Matters posting on the occurrence of the 2016 Cyber Monday shopping holiday, retail focused supply chain teams already know the obvious. Consumers continue to migrate toward online ordering channels and that presents an added cost challenge for customer fulfillment. The added test for this year will also be which internal teams, supply chain or brand creativity and marketing hold the dominant voice.

Once again, preliminary shopping data from this year’s Thanksgiving and Black Friday shopping holiday periods indicate a continued preference by consumers to avoid crowded shopping malls and physical stores. Most media outlets are currently citing data released by Adobe indicating that online shopping increased 8 percent during the recent shopping holidays. That data is supported by preliminary data from the National Retail Federation that monitored foot traffic among U.S. wide shopping malls. No doubt, other more rigorous quantification data may add more credence to the magnitude of this ongoing permanent channel shift.

Retail focused supply chain teams already know from previous year’s activities that online fulfillment presents added cost challenges in inventory and other logistics costs. This year, many teams have focused on multi-channel inventory optimization and combination ship from physical store fulfillment strategies. Likewise, investments have been made in more automated customer fulfillment centers that can serve both digital and physical channels.

Today’s edition of The Wall Street Journal features a report noting the Gap’s CEO Art Peck’s views regarding the industry’s long fascination with creative brand marketing executives, and that in the end, they have turned out to be “false messiahs.” Instead, the new head of Gap’s business unit is Sonia Syngal, former head of the retail division’s supply chain.  The new focus is now on decentralization in merchandise management, enhanced product demand sensing  and strategies focused more on supply chain agility and response.

Another test for this year will be how much more dominance online retailer Amazon gains in online market share via the combination of Amazon owned inventory and Fulfilled By Amazon online channels. The open question is whether the hosted online fulfillment capability provides a more cost effective channel for small and mid-sized online retailers.

Teams will certainly have more informed data over the coming weeks.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Labor Strike at ABX Air Comes at Most Critical Time

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Yesterday, a labor strike among 250 cargo airline pilots working at ABX Air, a subsidiary of Air Transport Services Group (ATSG) grounded more than 75 flights contracted for both Amazon and DHL Worldwide Express. The move came just before the start of busy Thanksgiving, Black Friday and Cyber Monday holiday shopping events.

As we pen this posting, reports indicate that just before 5 p.m. Wednesday, U.S. District Court Judge Timothy Black granted a temporary restraining order against the strike involving the pilots. That would allow for a temporary reprieve in the labor action if the pilots adhere to this order and continue negotiations over grievances.

Readers will recall that last year, Amazon contracted with ATSG to lease a total of 20 Boeing 767 air freighter aircraft to move Amazon Prime shipments from various customer fulfillment centers across the U.S. and other regions. A posting from Cincinnati.com, noting court documents indicates that ABX is a contractor to DHL, which employs 2,400 at its North American hub at Cincinnati/Northern Kentucky International Airport in Hebron. It operates about 35 flights a day for Amazon and 45 for DHL. Grounded flights may have affected as many as 20,000 individual customers for each aircraft affected.

Striking pilots claimed that ABX’s flight schedule demands have forced pilots to work an excessive number of emergency assignments because of limited flight staff, with little time for rest. Obviously, the timing of the work action, coming just before the busiest period of the year, is added attention mechanism.

Amazon officials have stressed to business media that their ability to do business is not beholden to a single cargo carrier. Reports from The Wall Street Journal and other publications indicate that the backup plan includes reliance on both FedEx and UPS air assets. But, in the case of UPS, airline maintenance workers who maintain UPS’s fleet of aircraft have announced that they have authorized a labor strike affecting the global parcel carrier after contract talks remained deadlocked over the issue of health-care benefits. That situation may come to a head after the ATSG action, as both actions involve chapters of the Teamsters labor union.

All of these developments are obviously disconcerting to B2C providers, online and traditional retailers.  The air cargo industry has a long history of labor concerns given the constant demands for longer overnight flights and constrained staffing levels. It would now seem that the industry has entered a period of increased assertiveness among employees to include labor actions to gain maximum action.

Supply chain transportation and logistics teams should continue to monitor ongoing developments since each of these actions, if they continue, will obviously have cascading effects. Rest-up for tomorrow’s Thanksgiving holiday since the coming days look to be challenging.

Bob Ferrari


Critical Holiday Fulfillment Period is About to Begin and its All Hands on Deck

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Next week officially kicks-off the holiday buying frenzy with the celebrations of the Thanksgiving Holiday in the United States as well as the Black Friday and Cyber Monday shopping events that extend out to the following week. In its recent update on the U.S. online retail economy, analytical firm ComScore predicted that based on prior year sales and order volume trends, both the Black Friday and Cyber Monday periods will represent this year’s expected highest peak in shopping volume, perhaps more so with Black Friday.

In previous Supply Chain Matters commentaries we have advised online and traditional as well as B2C focused supply chain planning and customer fulfillments team to take a cautious but diligent perspective to daily customer buying actions over the coming few weeks. This diligence includes paying close attention to overly optimistic forecasts of expected retail sales among various channels and especially diligent in working with brethren sales and marketing teams in managing what is turning out to be a lighter inventory positioning heading into the prime holiday period. Forms of product demand sensing capabilities are obviously essential.

As business media has pointed out, third-quarter financial reporting by major retailers indicates a consistent theme of reduced inventory levels with expectations for higher margins and lower costs for the all-important and most profitable Q4 holiday period.  The added costs of online fulfillment needs are a special consideration for managing costs. Lower inventory directives compel planning teams to determine the best consensus as to which merchandise will experience the highest sales volumes and when. Such bets were established weeks ago and hopefully monitored continuously. This upcoming period will be the time where tight collaboration with marketing and merchandising focused on the timing and seamless execution of targeted promotions will pay the most dividends.

For the first time, Amazon is charging sellers of the Fulfilled by Amazon program a hefty premium for storing inventory during the November and December timeframe, while offsetting some of these costs by lowering holiday focused fulfillment fees. All Black Friday and Cyber Monday focused inventory was due to Amazon warehouses last week. The cutoff for Christmas holiday focused inventory is December 2nd. That is another weighting for the stakes related to accurate inventory planning. Reports indicate that Wal-Mart has shifted more than half its inventory supporting Black Friday to its dedicated online fulfillment center warehouses. Once more, this retailer has made plans to have thousands of more items from its online catalog available for same-day in-store pickup.

The reality that many Sales and Operations (S&OP) teams often know is that over the next two-week period, there is little time to re-plan, especially with overall inventory levels being low. However, senior management expectations for higher margins and profitability are very high and thus many hopefully well informed decisions will need to be made in a very short time interval. Replenishing hot selling items runs the risk of insuring that this merchandise arrives in time or better, there are enough firm back orders from customers willing to wait. Electing not to replenish implies a plan to make-up any revenue shortfalls with all other existing inventory, thus the need for on-the-fly collaboration in merchandise promotions.

One other critical data point from ComScore’s latest update is that for online buying, the data concerning the correlation of Free Shipping to actual shopping cart completion is compelling.  During the full 2015 holiday period, Free Shipping accounted for 68 percent of all online transactions vs. 55 percent in 2014. Online retailers hoping to preserve margins by allocating more of the shipping expense to customers may experience a challenge. Thus, S&OP teams will be educating and influencing senior executives with data indicating the predictive buying tendencies related to Free Shipping along with the importance that timing has to optimized inventory management.

The other wild card and implied white knight for the next few weeks will be responsive suppliers, transportation carriers and logistics fulfillment networks. We surmise that best-in-class teams have already collaborated with key suppliers on responsive back-up contingency supply plans to be able to quickly replenish hottest selling inventory. The question is what may be sometimes defined as “key supplier.” Is the supplier domestic or internationally based in terms of transportation lead time?  Is the supplier one that we always pay on-time and has consistently made good on commitments? Does the supplier or distributor really have that on-hand inventory?

Regarding transportation networks, a learning that came out of last year’s holiday fulfillment surge was that there were bottleneck vulnerabilities to large carrier’s hub networks. Both FedEx and UPS labored during and after the peak periods to dig out of volume bottlenecks. Likewise, air freight carriers have removed a lot airlift capacity from their networks, and the fallback position appears to be more and more parcels flying in the bellies of commercial airlines. We all know that expedited shipping implies unplanned expensive freight costs and  throw-in any occurrence of severe winter storms and the expense line grows further.

The coming two weeks will be the most stressful among B2C retail teams and this will be the test where the previous investments in people, process and technology are proven.

For our part, Supply Chain Matters will be monitoring ongoing events and providing periodic insights as the surge period unfolds and as the results are tabulated. For those of you working long nights and weekends who need a respite as to the big picture, check us out.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


China’s 2016 Singles Day Online Event Shatters Another Volume Record

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For the past two years, Supply Chain Matters has provided visibility to Alibaba and in-particular, Singles Day, China’s largest online shopping event. As we continually point out, we can sometimes get enamored with online names such as Amazon.com and WalMart.com but Alibaba and its various online shopping sites is indeed an evolving player to reckon with in this era of online commerce and changing retail supply chain customer fulfillment. Last Friday was no exception amid reports that this year’s prominent shopping event across China once again broke records for shopper interest and order volume.

China’s Singles Day is somewhat equivalent to Black Friday or Cyber Monday in terms of an online shopping event. The event was conceived by students in the 1990’s as a mock celebration for people not in relationships, with a desire to give something to oneself. It traditionally occurs on the 11th day of the 11th month or Double Eleven, since when written numerically, November 11th represents “bare branches”, a Chinese expression for bachelors and singles.  Chinese consumers literally save their meager discretionary incomes while researching potential purchases for months in anticipation of this event. In 2015, the online shopping event racked up the equivalent of $14.3 billion in shopping revenues for various Alibaba sites, surpassing that of Black Friday.

Singles Day 2016 was preceded By a nationally televised Internet streaming celebrity entertainment event held in a 60,000 person stadium in Shenzhen hosted by Alibaba Chairmen Jack Ma. A running tally was continually updated on video screen at the Stadium and online, and by 3:15pm local time, the 2015 sales volume number has been exceeded.

In total, Alibaba indicates that the equivalent of $17.7 billion in online sales were processed during this year’s 24-hour event.

Controversy still surrounds this event with critics claiming that orders are either inflated and never ship or prematurely canceled after entry in order to run-up overall numbers. Since Alibaba stock is now publicly traded on the New York Stock Exchange, the U.S. Securities and Exchange Commission (SEC) is providing added scrutiny of reported volumes, and Alibaba is reportedly cooperating in this effort.

Another significance to this event is the overall logistics required to deliver ordered goods to their designated recipients which reside in either high density urban areas or rural areas of the country. While we often report on the likes of Amazon, FedEx, UPS and other parcel delivery firms marshaling their vast networks to process Black Friday or Cyber Monday delivery volumes, Alibaba primarily owns its own parcel delivery logistics entity, Cainiao, along with close relationships with other logistics providers that insure that packages are delivered to expectations amid a number of residential delivery challenges across China’s high density urban and rural landscapes. The online firm estimates that 1.7 million delivery persons and over 400,000 vehicles were deployed to deliver package volumes in 2015. Photos of parcel sorting and fulfillment centers indicate the flood of packages that overwhelm such centers.  Just as critical, however, is the network of delivery vehicles and delivery persons who must navigate complex or vague delivery addresses or who must utilize ingenious means to transport volumes of packages among dense urban streets and alleyways.

As with our prior commentaries, the takeaway from China’s Singles Day online shopping event remains a realization that while Amazon and other online retail platforms can often garner a lot of visibility across the U.S. and Europe regarding sheer volume in a singular promoted event, Alibaba has its own significant capability that continues to break records.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


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