By Kim McQuilken, President, Spend Management Experts
Can momentum generated in retail at the end of 2017 continue into 2018? Industry experts are optimistic, buoyed by the fact 2017 holiday-season sales reached their highest level since 2011.
According to MasterCard SpendingPulse, U.S. retail spending — excluding automotive — was up 4.9 percent in 2017 compared to the same period last year. Some of the largest jumps were seen in electronics and appliances (up 7.5 percent), jewelry (up 5.9 percent), and home furnishings and home improvement (up 5.1 percent). A more optimistic consumer willing to spend led the charge for both online and in-store shopping. For retailers, lessons learned from previous holiday seasons were also applied.
Assuming this momentum continues, following are four logistics trends you can expect to affect retail in the coming year.
Physical Stores Are Popular Again
First, and perhaps the most important, is physical stores will remain an integral part of the retailer’s strategy. Indeed, retailers are using these physical locations for order fulfillment and returns solutions. For some retailers, such as Walmart and The Vitamin Shoppe, an extra bonus is awarded to consumers who order online and pick-up in-store in the form of a discounted price. This strategy results in savings in shipping costs for the retailer and additional revenue from any potential impulse purchase by the consumer.
Likewise, for Amazon and other online-only retailers, a move is afoot towards establishing or acquiring already-established physical locations. Amazon acquired Whole Foods in 2017 and set in motion the potential to change the grocery market as we know it by not only lowering prices, but also showcasing Amazon electronics and installing lockers to serve as an alternative delivery location for online orders.
Other online retailers such as Everlane are following suit. The online clothing retailer plans to open brick-and-mortar with flagship stores in New York and San Francisco in 2018.
The Last Mile Continues To Evolve
There will be more options for consumers not able to wait at home for delivery. Today there are lockers, convenience stores and, the retailer itself serving as the final point of delivery. UPS introduced its alternative delivery location service, Access Points, a few years ago while FedEx partnered with Walgreens in early 2017 to expand its alternative delivery location service, Onsite, to more than 10,000 locations including Walgreens, Kroger, and Albertsons.
In 2017, Amazon and Walmart introduced a service allowing delivery people utilizing smartphones, special lock, and security cameras to enter customers’ homes when they are not there. Mixed emotions exist with this service but it is expected it to expand to more cities in 2018.
In addition, sales of large items such as furniture and appliances have increased — in store and online. As a result, more transportation providers are offering last mile delivery of these items. To differentiate, providers are introducing value-added or ‘white glove’ services such as installation and removal. XPO Logistics, in particular, has benefited greatly from last mile delivery services for bulky items. In fact, in September 2017 it announced plans to nearly double its current last mile footprint to 85 service hubs by late 2018. The expansion will position XPO’s last mile footprint within approximately 90 percent of the U.S. population, further reducing transit times.
Booming Airfreight Demand Thanks To E-Commerce
Year-to-date through October 2017, International Air Transport Association (IATA) reported a 9.7 percent increase in freight-ton-kilometers. For November and December, industry commentary — as well as the increase in rates — suggests a robust peak season for airfreight. A good bit of the volume gain throughout 2017 was attributed to high value goods such as pharmaceuticals, perishable items such as food and beverage, and e-commerce.
Cross-border e-commerce is estimated to be growing in double digits. China's cross-border online shopping, for example, grew 23.5 percent to $953 billion in sales in 2016 and will easily pass the $1 trillion mark in 2017, according to iiMedia Research, a market consultancy.
Expectations remain high going into 2018 as transport and delivery providers such as FedEx and UPS order new airplanes to expand and update existing fleets. Amazon has also entered the airfreight market by leasing over 30 airplanes through Atlas Air and Air Transport Services Group. Most of their fleet is used within the domestic U.S. market. Amazon partners with other airfreight providers for its cross-border service between Asia Pacific, Europe, and the U.S. Thanks to its acquisition of Dubai-based Souq, it would not be surprising to see Amazon expand its cross-border service to the Middle East.
Meanwhile, in 2017, UPS and China’s largest express provider, SF Express, announced a joint venture to transport and deliver goods on behalf of each company’s customers in respective countries of China and the U.S. SF Express transports and delivers a number of goods on behalf of one of its largest customer, Alibaba, the largest e-commerce provider in China. As such, the UPS-SF Express partnership will help extend Alibaba’s reach into the U.S.
The Amazon Effect
The Amazon Effect, the evolution and disruption of the retail market resulting from increased e-commerce, will continue in retail but will also spread to other industries such as healthcare, groceries, and consumer goods resulting in a massive change in how commerce is conducted.
According to eMarketer, Amazon now represents close to 4 percent of all retail sales online and off in the U.S. In terms of e-commerce, its influence is immense and represents over 45 percent of all e-commerce sales.
How retailers and other businesses position themselves against this behemoth and other non-traditional competitors will be telling in 2018. The important thing to remember for all retailers and businesses alike is to have an agile supply chain in place and be willing to think outside the box.
About The Author
As president, Kim McQuilken oversees Spend Management Experts’ sales and marketing organizations, applying more than 20 years of executive leadership experience to his role. He has been instrumental in defining the strategy that has contributed to the company’s explosive growth. Previously, the former NFL quarterback spent more than 20 years in the entertainment and sports media business, including holding various leadership roles at Time Warner’s Turner Broadcasting System.