Big Box Versus Online

BY HAL ALTMAN

In years past when a manufacturer or distributor spoke about taking their product to the retail market, it meant the “big box” department stores or warehouse types like Costco, Sam’s or hardware and drug chains.

Today, retail distribution companies, known as 3PL or 4PL logistic providers, have to be able to process and ship for a completely different retail outlet—the Internet.

Companies such as Costco, Walmart, Best Buy, Target and Apple have shifted a major share of their in-store revenue to their respective websites.

OPPORTUNITIES FROM THE WEB
Big-box retailers are now competing with themselves in many ways. History shows them that when they can bring shoppers into the stores and let them roam the aisles, they will in most cases add an additional item or two that wasn’t on their original shopping list.

In 2009, online retail spending in the U.S. totaled $129.8 billion, down from the $130.1 billion from 2008, but still a gigantic bite out of the consumer dollar spent directly in the store.

Retail e-commerce sales for the fourth quarter were 35.9 billion, an increase of 4.5 percent from the third quarter of 2009. The fourth quarter 2009, e-commerce estimates increased 14.4 percent from the same period 2008, while total retail sales only increased 2.2 percent in the same period. E-commerce sales in the fourth quarter of 2009 account for 3.8 percent of total sales, according to the U.S. Department of Commerce.

Those billions in online sales have more than a “trickle” down effect in the big-box retail stores, in many cases it is a disastrous downpour.

Major chains such as Macy’s, Saks, Circuit City, Home Depot, and Sam’s Club and Mervyns have been forced to either completely go out of business, or close stores and lay off workers.

This online bonanza has caused traditional 3PL or 4PL retail distribution companies to expand their services to processing and drop shipping individual orders to consumers, rather than their traditional business of shipping pallets to distribution centers.

Most online retailers use a processing EDI service called a VAN (Value Added Network) to download these individual orders to their fulfillment resources. The fulfillment provider prepares the labels picks, packs and ships and uploads the ship confirmations and tracking numbers through the VAN to be sent to the online retailer.

The fulfillment company has to be prepared to accept individual consumer returns and process these back through the VAN.

The moral of this story is a blatant message to both the fulfillment/logistics providers and the manufacturers or marketers—be prepared to deal with the new duo retail profile. Be able to produce goods that are packaged and designed for individual consumer shipments, and to the logistics provider—get in the consumer fulfillment mode.

If both these groups cannot see the video screen on the wall, their growth and future existence is in question.

Hal Altman is president and co-founder of Motivational Fulfillment and Logistics Services in Chino, Calif. He can be reached at (909) 517-2200.