Logistics

What the 2019 Holidays Taught Us About Fulfillment Capabilities in the U.S.

Compared to retailers and delivery companies, Santa has a relatively easy time over the holiday season. While the big man only has to deliver gifts one night of the year, retailers and delivery companies must deliver items quickly and accurately from Black Friday all the way through to Christmas Eve. 

It’s a tremendously profitable period for brands, but it’s also a major challenge to get everything out the door in time. With retailers and delivery companies operating at their limits, the holiday season also tells us a lot about eCommerce’s ability to fulfill orders. 

So, just how fulfilling a holiday was it for brands, retailers and delivery companies? 

More Pressure on Logistics as eCommerce Sales at Record High

There were more eCommerce sales this holiday season than ever before. That’s according to the Mastercard SpendingPulse report, which was released the day after Christmas. 

Total retail sales over the holiday period grew by 3.4% compared to 2018, with online sales growing by a staggering 18.8%. The growth meant that eCommerce sales accounted for 14.6% of total retail sales over the holiday season (and 15.4% of Black Friday spending).  

Amazon also had a record-breaking season. No hard figures were provided, but the company claimed it shipped billions of items and sold tens of millions of its own devices, reports Bloomberg’s Jordyn Holman

The huge number of online sales naturally put more pressure on logistics. On Cyber Monday alone, for instance, FedEx was responsible for moving 37.8 million packages, says CEO Raj Subramaniam. That was 17 percent more than the year before.

Fulfillment was even used as a sales tool in the Christmas rush. Several incentives contributed to this year’s record sales figures, says Verizon’s Michele Dupré, one of which was expedited shipping. Many retailers confident in their supply chains were guaranteeing delivery by Christmas Eve to attract as many last-minute shoppers as possible.

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Orders Were Mostly Delivered on Time 

Delivery companies naturally had a little more risk to balance this holiday season, writes Bloomberg columnist Brooke Sutherland. “The stretch between Black Friday and Christmas during the most recent holiday season was the shortest it’s been since 2013, a year that will live in logistics infamy after United Parcel Service Inc. failed to deliver gifts in time for their contents to become stocking-stuffers.” 

Those companies handled a hectic business period much better in 2019. Max Garland, a reporter for the Memphis Commercial Appeal who knows the logistics beat as well as anyone, reports that both FedEx and UPS delivered slightly fewer packages on time than the previous holiday season, according to data from ShipMatrix. Between Black Friday and New Year’s Eve, FedEx delivered 94.6% of packages on time (down from 97.6%), while UPS delivered 96.6% of packages on time (down from 98.3%). 

That said, the volume of packages was considerably higher than expected, ShipMatrix Founder Satish Jindel tells Garland. The projected figure was 2.45 billion packages shipped, but actual volume topped 2.75 billion packages. “There is no other industry that handles a spike like that,” Jindel says.

Retailers and brands emerged as clear winners this year, too. Accenture consultancy Kurt Salmon found that the top 10 retailers improved their order times by 18% from 2018 to 1.7 days. Across all 137 retailers he surveyed, 64% managed to deliver orders within a week. Accuracy improved dramatically, too. Among those retailers, there were issues reported on just 27% of orders in 2019, compared to 60% of orders in 2018. 

Fulfillment Innovations Helped Brands Meet Ever-Increasing Customer Demands

The demands on brands and delivery companies have never been greater. Free shipping is all but mandatory in many categories. It’s one of the biggest factors for consumers when choosing between different retailers, says Lauren Freedman, Senior Consumer Insights Analyst at Digital Commerce 360. So, too, is fast shipping. Almost half of shoppers named slow shipping speeds as their biggest pain point when shopping online, writes Bazaarvoice’s Lauren Venticinque.

Brands are going to great lengths to meet these high expectations, though, says The Motley Fool’s Adam Levy. “It’s hard to remember a time when shopping online meant sacrificing immediate gratification for the ability to shop from home.” Amazon, in particular, has been going to great lengths to make as many items as possible available for one-day shipping, Levy reports.

Brands implemented a number of innovations to meet these demands over the holiday period successfully. 

Chief among them was the use of AI for “demand planning and inventory allocation,” write Bain’s Aaron Cheris, Darrell Rigby, Suzanne Tager and Jared Lapin. They cite retailers like Amazon and Stitch Fix, which used predictive demand forecasting to calculate high demand items and then preemptively send them to the areas where those products are likely to be purchased. Other retailers used AI to strategically optimize placement in their supply chain, with high-velocity items located closer to shoppers and low-velocity items located centrally.

Innovations weren’t just centered on technology, however. Old-school deal-making played a role as delivery companies and retailers developed a more symbiotic relationship in 2019, explains Retail Dive Editor Kaarin Vembar. “Some have partnered with courier services to maximize delivery services within brick-and-mortar locations,” Vembar writes. “Others are realizing the potential of buy online, pick up in-store (BOPIS) to save on last-mile costs.”

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Amazon Wins Big in Sales and Fulfillment

The 2019 holiday season also saw Amazon prove its logistic credentials. 

In a year when the eCommerce giant significantly expanded its logistics service, the company shipped four times as many items through Prime One-Day and Same-Day Delivery, totaling more than 500,000 orders. In total, Amazon delivered more than 3.5 billion packages across the globe, The Motley Fool’s Donna Fuscaldo reports. 

The major uptick is a result of billions of dollars being invested throughout the company’s fulfillment operations. This included a new inventory storage service. Amazon Storage and Replenishment let merchants hold inventory close to Amazon’s delivery hubs for significantly faster delivery, explains the team at SupplyChainBrain

The new service aimed to solve several problems facing the company in the run-up to the holidays. The first is the issue of capacity, as Amazon shares warehouse space with third-party merchants who use its platform. To prevent these companies from using too much storage space, Amazon hiked fees. The new service, however, gives third parties access to cheap storage close to — but not in — Amazon’s logistic warehouses. 

We’re Still to Learn How Retailers Handle Record Returns

The holiday season doesn’t finish in December for retailers or logistics companies. There is still the matter of the billions of dollars of returns that are processed throughout January. The figure for eCommerce returns for the 2019 shopping season could reach as high as $41.6 billion, according to research by CBRE and Optoro.

Most returns will have happened on January 2, reports Reuters’ Lisa Baertlein. “Jan. 2 is the busiest day for holiday returns in the United States. U.S. shoppers return more packages than their peers around the globe, spurred by free shipping on orders and returns – costly perks that squeeze retailer profits.” UPS, for instance, expected to ship almost 2 million items back to retailers that day, Baertlein says.

The spate of returns is always the first big test for eCommerce companies in a new year. Failing to handle returns successfully can result in a number of problems, writes CNBC’s Lauren Thomas. When packages get lost in return supply chains, refunds to customers can get delayed and merchandise can go unsold. One leads to unhappy customers; the other impacts the company’s balance sheet. 

Building a resilient, intelligent return system comes with a number of benefits for retailers, writes Amber Trendell, Global Marketing Director at Oracle Retail. “Retailers that have the right technology in place can not only proactively forecast returns and have the right procedures and policies in place to handle incongruent inventory, but also to gather customer insights that can inform future product design and merchandising strategies.”

So, retailers don’t just have a longer delivery schedule than Santa. Their work doesn’t end with delivery, either. Returns are just as important as deliveries. It’s no good shipping items accurately and on time if you don’t have a system in place to handle their return

Images by: Victória Kubiaki, Andrew Kambel, Drew Beamer