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.

Retail Logistics: A Moving Trend

BY HAL ALTMAN

For the last decade, retail merchandise from the Far East was synonymous with the ports of Los Angeles or Long Beach. It was an accepted fact that merchandise being manufactured in Taiwan or China would move through these two major ports on their way to your favorite retail store.

In a peak year of 2006, over 15 million sea containers passed through these two ports forcing them to work 24-hour shifts, seven days a week. Thousands of applicants would show up for a hundred openings when these ports had to increase workforce. The retail economy was literally driven by the success and growth of these ports. Compare this to last year’s slump in retail and direct response business where these two ports handled a little over 11 million containers.

Run the calendar a mere four years and the impact looks completely different. Why? The economy and competition has reached out and given growth and opportunity to not only new American ports, but also sites in Canada and Mexico.

Ports in Vancouver, Canada; Manzanilla, Mexico and Lázaro Cárdenas, Mexico, are all now attracting retailers along with additional U.S. ports in the Gulf Coast and East Coast. Smaller ports in Savannah, Houston and New Orleans are bringing in merchandise on a regional basis.

IT’S A LOCATION MATTER
Retailers are willing to pay a little more and even wait longer for their merchandise, thinking that closer distribution hubs and stores are better than having everything coming through Southern California.

That’s all said and good for the steam ship companies and the ports receiving this additional work, but that doesn’t do anything for the logistics companies dealing in goods for both direct response and retail that previously came through Long Beach and Los Angeles ports.

The challenge to stay in business and profitable now requires the retail logistics divisions to provide their customers with multiple receiving and shipping locations close to these secondary ports.

Coupled with the additional costs of multiple warehouses, staff, overhead and the reduction of close to 30-percent shrinkage in overall container business, it now puts an even heavier burden on the existing companies dealing in both direct response and retail distribution.

It appears the major buying habits of most retailers won’t be changing until mid 2010 or closer to Christmas 2010, but it is never too early to prepare.

Direct response merchandisers have been trying to figure out if it is more cost effective to drop ship individual consumers and retail accounts from multiple locations with still no conclusive evidence either way.

With lightweight items (under 10 pounds) arriving on the West Coast and with favorable negotiated outgoing UPS/FedEx/USPS rates, it‘s not always a for-sure savings by taking the West Coast container cross country to drop ship zone 6-7-8.

Combine high costs of fuel and rail charge, sending 10 or 20 containers a month to various locations in the Midwest or East does not always look as good as it sounds.

Major direct response merchandisers selling to retail can easily use up to 50 containers a month (depending on item cube and weight) and multi-warehousing becomes a costly and timing issue.

It is easier to process regional orders for retailers if the merchandise is “store” ready and does not have to be tagged, sorted, re-packaged or configured, or in need of any additional value-added services.

It is important as a merchandiser—who combines direct response with traditional retail sales or chooses one versus the other—to bear in mind the logistics of where, how and when your merchandise arrives. Consider the many costs and demands of your customers, and then match these to your logistics provider.

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