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Amazon is retail behemoth but isn’t keeping retailers up at night

Fabric survey finds fulfillment challenges, meeting customer delivery demands are top concerns of most brands

The pandemic-fueled e-commerce boom is slowly starting to settle into a new normal, but for retailers, the challenges it created, and the gaps it exposed, have not disappeared. In fact, those issues, such as fulfillment capabilities, remain vexing problems in search of modern solutions.

Retail technology company Fabric surveyed 500 consumers and 200 retailers and brands for a report on the subject. “The 3 Biggest Last-Mile Challenges the Retail Industry is Facing Today” highlights these gaps and offers potential solutions to help retails and brands manage consumers’ e-commerce demands.

Despite the power of Amazon, which holds upward of 42% of the e-commerce market, most retailers are not overly concerned with the e-tail giant. Fewer than 18% of survey retailers responding to the survey cited Amazon as their biggest threat. Instead, most are worried about issues closer to their own businesses — fulfillment capacity, shipping and consumer expectations.

The survey found that 99% of retailers said they have lost sales due to insufficient fulfillment capacity, and they believe another 1 billion square feet of warehouse space will be needed by 2025 to handle e-commerce growth. Retailers also said they lost an average of 22% of their sales due to a lack of fulfillment capacity and expect to lose 30% of sales this year.

The report predicted that if retailers had sufficient fulfillment capabilities, online retail sales would make up 40% of total retail sales. Colin Coggins, chief commercial officer of Fabric, told Modern Shipper that fulfillment operations are facing a number of headwinds.

“Labor and real estate shortages are only going to get worse,” he said. “Retailers and brands need to take a completely different approach to fulfillment, moving quickly in the markets they need to serve the most.”

Coggins said retailers should look toward microfulfillment options to deal with current market constraints.

“Microfulfillment addresses these problems from a number of different perspectives,” he said. “From a real estate perspective, traditional fulfillment methods are extraordinarily throughput-intensive, meaning they require a lot of space that’s expensive and in short supply. Microfulfillment solutions can fit in underutilized and nontraditional spaces close to where consumers live, unlocking a new treasure trove of ideally located, highly available assets.”

Watch: Where is the warehouse labor?

Adding robotics can also help with current and future labor issues and improve efficiencies in throughput, Coggins noted.

“Warehouse jobs were supposed to be jobs of the future, but as it turns out, even with great perks like signing bonuses and free college, they continue to struggle to fill vacancies,” Coggins pointed out. “The ‘Great Resignation’ is impacting all facets of the workforce but warehousing and transportation are getting hit the hardest. Technology is the key to filling that void both in the meantime and the long run.”

Coggins said retailers should seek out distributed network partners that can help them get fulfillment operations up and running quickly.

“Retailers and brands must find strategic partners with a distributed network of fulfillment centers; whether it’s leveraging manual labor or ideally automation, that approach can enable them to increase fulfillment capacity much faster,” Coggins said. “And critically, because the inventory is located in close proximity to end consumers, it enables brands and retailers to provide the fast deliveries that consumers have come to expect.”

Fast delivery, though, is also an area with which retailers are struggling. Rising carrier costs and shrinking capacity is a result of e-commerce order volume increasing 30% in 2021 with the bulk of those deliveries heading to residential addresses, the report noted. Three million parcels per day were being delivered late, and that was before the holiday peak shipping season kicked in, Fabric said. In the last five years, the cost to send a residential package from Chicago to New York City increased 71% even as more consumers are demanding free shipping from retailers.

The final challenge retailers and brands are facing is consumer demands, particularly around what constitutes fast shipping. Retailers typically define fast shipping as two days or more, with 77% using that standard. Consumers, on the other hand, believe fast shipping should be considered next day or sooner delivery, with 61% citing this as their standard.

Labor and real estate shortages are only going to get worse. Retailers and brands need to take a completely different approach to fulfillment, moving quickly in the markets they need to serve the most.

Colin Coggins, chief commercial officer of fabric

Free shipping is another chokepoint, with 58% of consumers believing free two-day shipping is very important or nonnegotiable. However, 40% of retailers do not offer free two-day shipping as an option and almost half of those have no plans to do so, Fabric found.

The same disconnect exists when it comes to same-day delivery. Sixty-seven percent of consumers are willing to pay for same-day delivery, yet 75% of retailers don’t offer it as an option.

Coggins said the disconnect can be summed up in one word: Amazon.

“It’s estimated that 70% of American adults have Prime accounts, and when Amazon rolls out same-day or next-day delivery on millions of items, that instantly becomes the consumer standard. But fast shipping is extraordinarily difficult to execute from a financial, operational and strategic perspective — it’s a stretch for most brands and retailers to provide even two-day shipping within their existing fulfillment infrastructures,” he said.

Retailers do seem to be softening, however, with 73% saying that free next-day delivery will be a requirement to remain competitive in the next two years. Consumers, though, seem to expect this level of service now.

“According to our results, retailers are aware that fast shipping is important; the disconnect is when they think it will be a critical offering,” Coggins said. “For consumers, the appetite for same-day and next-day is already here, but for brands and retailers already struggling to fulfill and dispatch an absolute onslaught of online orders, being expected to do it all within extraordinarily tight fulfillment windows is just too tall of an order.”

Coggins said that while Amazon is not a top concern for most retailers, it is the driving force behind the pressures most retailers face today.

“[Amazon’s] a large, existential force that looms in the background and creates the weather, but retailers spend most of their time focusing on problems that are way more immediate and pressing: They don’t have the space and labor to keep up with skyrocketing online orders,” Coggins said. “Shipping carriers have become enormously difficult and sensitive and expensive to work with. And on top of it all, consumers expect a superior experience or they’ll shop elsewhere.

“This really challenges the narrative that Amazon is what keeps retailers up at night,” he concluded. “The bottom line is that retailers still have not solved the notorious last-mile challenge, and it’s only becoming harder and harder with every day that passes; that’s what’s keeping them up at night because they know that until they solve it, they’re leaving lots of money on the table.”

 Click for more articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and fleetowner.com. Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at bstraight@freightwaves.com.