2015-11-18-Bain-_Tis_the_season_for_free_shipping_12页_722kb

BAIN RETAIL HOLIDAY NEWSLETTER Summary

Core Content

This Bain Retail Holiday Newsletter discusses the evolving landscape of holiday shopping, focusing on the "fulfillment frenzy" driven by consumer demand for free and fast delivery, as well as flexible, reliable and seamless fulfillment experiences. The report highlights the impact of Amazon's influence on traditional retailers and examines how they are modernizing their supply chains and adopting new strategies to meet these expectations.

Main Points

1. Consumer Expectations and Macro Trends

• Consumer spending power remains strong, with disposable personal income up 2.7% in September 2015 compared to the previous year.
• Unemployment is at a 2008 low, at 5%, suggesting a healthy labor market.
• Stock market performance was strong in October 2015, with the S&P 500 up 8.3%.
• Despite these positive indicators, holiday sales momentum is sluggish, with October retail sales growth at 3.2% (down from 4.6% the previous year).
• Non-traditional retail sectors (e.g., motor vehicles, restaurants) are outperforming traditional retail.

2. Shoppers' Behavior and Segmentation

• Bain has segmented shoppers into three groups:
  • "Sticklers for stores" (30%): Prefer in-store shopping and make 80% of their purchases in stores.
  • "Omnicannel shoppers" (60%): Shop both online and in-store, with 50% using "buy online, pick up in-store" (BOPIS) in the last year.
  • "Online fanatics" (10%): Mostly millennials and Amazon Prime members, with a strong tendency to complete holiday shopping early.
• Over 75% of panelists have started their holiday shopping, with "online fanatics" completing more than twice as much shopping as traditional shoppers.

3. Supply Chain Modernization and Fulfillment Strategies

• The fulfillment battlefield has evolved from just speed and cost to the overall customer experience.
• Amazon has set the standard for fast, free delivery, pushing traditional retailers to invest in their own fulfillment capabilities.
• Omnichannel retailers are leveraging their physical store networks to offer BOPIS and ship-from-store options, reducing the need for large fulfillment centers.
• Third-party delivery services like Instacart, Deliv, and Postmates are helping retailers offer same-day delivery without significant capital outlay.

4. Grocery Sector and Delivery Models

• Grocers are adopting online shopping models to compete with Amazon and other online retailers, but face challenges with chilled and frozen delivery.
• Walmart, Kroger, and Whole Foods are expanding click and collect and third-party delivery partnerships.
• Instacart now partners with Whole Foods for same-day delivery in 54 metro areas.
• E-commerce growth in the US grocery sector is projected to exceed 15% annually over the next 5–10 years.

5. Challenges in Fulfillment Experience

• Operational issues such as inventory management, staffing, and in-store pickup logistics are causing customer frustration.
• Third-party providers like Curbside are helping retailers improve the in-store pickup experience.
• Amazon is also adapting by introducing Lockers and staffed pickup facilities, though it still struggles to find and retain retail partners.

6. Retailer Strategies and Promotions

• Retailers are increasingly offering free shipping, with 85% planning to do so this holiday season.
• Promotions are intensifying as retailers aim to clear inventory and boost holiday sales, especially with Black Friday approaching.
• Early promotions (e.g., Best Buy, Sam's Club, Kmart) and Amazon's lightning deals are setting the tone for the season.

7. Future Outlook and Retailer Considerations

• Retailers must balance cost and customer experience, investing in technology, inventory systems, and infrastructure.
• Key considerations include:
  • Tailoring fulfillment strategies to the needs of the most valuable customers.
  • Evaluating system economics of different fulfillment models.
  • Adapting store operations to enhance the in-store pickup experience.
  • Investing in new technologies such as RFID, microrobotics, and AI to improve efficiency and customer satisfaction.
• Future newsletter topics include:
  • Issue #3: Half-time report and "All eyes on Amazon"
  • Issue #4: Digical® retail and why stores matter
  • Issue #5: Holiday recap and 2016 outlook

Key Information

• Amazon Prime has over 45 million subscribers in the US, with 80% joining for free two-day delivery.
• UPS and FedEx expect double-digit growth in holiday deliveries, with UPS delivering 630 million packages between Thanksgiving and New Year's Eve.
• Free-shipping thresholds have decreased over the years, with some retailers lowering them to $25.
• In-store pickup is becoming a popular and cost-effective option for retailers, with Kohl's, Macy's, and Walmart expanding their capabilities.
• Customer experience is becoming a key differentiator, with retailers needing to ensure flexibility, reliability, and seamlessness in fulfillment.

Conclusion

As the holiday season approaches, retailers are under pressure to meet rising consumer expectations for free and fast delivery, while also delivering a seamless and flexible shopping experience. The fulfillment frenzy is driving significant investments in supply chain modernization, omnichannel strategies, and new technologies. While Amazon continues to lead in this space, traditional retailers are leveraging their physical presence and partnerships to remain competitive. The success of these efforts will determine whether the holiday season meets its full potential.