24 August 2022
Retailers employ AI to address cart abandonment, improve fulfillment
Check out new machine learning and automation capabilities at Levi's, Gap Inc. and Dick's Sporting Goods.
Check out new machine learning and automation capabilities at Levi's, Gap Inc. and Dick's Sporting Goods.
When operating at scale, systems-level improvements make all the difference to margins and metrics for success. This means growing will require solving problems in routine parts of the business, and processes that are repeated over and over.
In ecommerce, these optimizations can come in the shopping cart where consumers make decisions about whether to check out, or in the fulfillment network where efficiency can bring advantages in speed.
As retailers are doubling down on growing their own ecommerce channels, they are seeking out AI and automation to make the kinds of process changes that can help them stand out to customers, and get more profitable in the meantime.
Here’s a look at three retailers that are adopting new technologies:
Levi's logo. (Photo by Austin Burke on Unsplash)
Ecommerce provides choice, but the work to sync up what consumers want with a retailer’s processes to get it to them creates layers of complexity within a supply chain.
At Levi Strauss & Co. a new platform is using AI to help the fulfillment process fit the customer experience, inventory and the costs involved in the steps to ship an item out.
Called Business Optimization Of Shipping and Transport engine, or BOOST, the system can locate specific items within Levi’s assortment, even if they are not within the ecommerce-specific inventory.
“What BOOST is optimized to do is fulfill ecommerce orders more effectively,” said Louis DiCesari, Global Head of Data, Analytics, and AI. “When somebody goes online to make a purchase, we have distribution centers where we keep inventory specifically for those orders. One of the things we can do with BOOST is broaden that search for available product to include stores and allow the engine to choose the best fulfillment option for both the consumer and our bottom line.”
Levi’s, which is embracing a DTC-centered strategy as it seeks to grow digital sales, offered the example of a consumer who wants to purchase a trucker jacket in a particular wash. The jacket may be out of stock in a distribution center, but BOOST can locate the jacket at a store near the consumer, and make it available.
The system also seeks to resolve the issue of split shipments, in which customers receive more than one package when ordering multiple items from Levi’s. It considers shipping, packing and labor into its calculation, while finding a path that gets an order to the consumer in the simplest form.
“The beauty of it is that we’ve been able to automate all of this so it’s really a decision-making engine, not just an information engine, allowing our teams to focus their efforts on other value-adding initiatives,” DiCesari said.
Currently, the system accounts for 40% of eligible ecommerce orders. Levi’s is expecting that number to be 100% by Black Friday.
Inside a Gap Customer Experience Center. (Courtesy photo)
At Gap Inc., holiday preparation includes expansion in the fulfillment network that puts automated systems alongside people who are working to ship out orders to customers.
The apparel company in August opened an 850,000-square-foot Customer Experience Center in Longview, Texas. It is outfitted with robotics systems and automation technology that is designed to optimize employee processes for speed and efficiency. It also expands processing capacity in the fulfillment network by one million units per day, bringing total capabilities to four million units per day.
“Peak season is now, and we know with peak season comes increased demand, increased hiring and increased opportunity to delight our customers,” said Kevin Kuntz, Head of Supply Chain at Gap Inc. “As we continue to deliver on our growth strategy, the launch of our Longview Customer Experience Center is another opportunity to further unlock the power of technology and automation, evolve the way we work, diversify our business, and deliver an exceptional experience for customers.”
The expansion comes after Gap Inc. expanded another Customer Experience Center in Fishkill, NY, adding technologies including automated receiving, multi-level pick modules, enhanced returns processing capabilities and new automated storage retrieval systems.
With the supply chain enhancements, Gap is also seeking to make its network available to other retailers. It recently launched a new initiative called GPS Platform Services, offering logistics and fulfillment capacity to DTC and B2B businesses.
Drawing on a network that includes 13 distribution centers and a workforce of more than 9,000 people, capabilities of the service include ecommerce fulfillment, storage, warehousing, packing, shipping and returns processing.
With this new offering, Gap joins a group of retailers making logistics and fulfillment capabilities available to other retailers. Amazon has a massive fulfillment network and is making plans to deliver directly for other retailers, while Shopify is building a fulfillment network of its own that was accelerated by the recent acquisition of Deliverr. Among fellow retailers that are synonymous with the mall, American Eagle Outfitters also recently launched a network called Quiet Platforms following a pair of supply chain-related acquisitions last year, and has been loud about its intentions to build a group of partners to compete with the largest companies.
Rather than a move to take on others, Gap’s launch may be best interpreted as a sign that in-house fulfillment networks are becoming commonplace among retailers, especially as they seek to build out direct ecommerce channels and take lessons from the supply chain chaos of the last year that showed how there are benefits to owning systems. As ecommerce grows, these networks may even become a requirement for retailers seeking to reach scale. Offering the resources of these networks to others is a recognition of a business opportunity that emerges when one stands up a nationwide network. Gap probably can’t compete with Amazon’s vast logistics operation, but the growing size of the market for delivery as a whole means there is potential to bring some businesses under its wing. That can still be an asset. Plus, it could help the bottom line if there is success. Gap, Inc. reported a decline in sales across its brands in the first quarter, so turning its network into a business opportunity could help. Adding efficiency through automation will only increase the likelihood that its services for others will be profitable.
At Dick’s Sporting Goods, AI is helping to address a prevalent disconnect in ecommerce experiences: Shoppers put items in a cart, but don’t ultimately check out.
Through a partnership with predictive shopper engagement platform Metrical, Dick’s has a tool to analyze real-time customer data about a shopping journey, and provide relevant content that encourages engagement and ultimately helps ease the path to purchasing the items placed in a cart.
“Cart abandonment was a key strategic area for us to optimize at DSG,” said Miche Dwenger, VP of ecommerce experience at DSG. “We tried both third party and in-house developed solutions but none delivered the results we wanted because they lacked a predictive capability. Metrical’s predictive AI engine not only improved cart conversions, but its ability to dynamically present personalized content including messages, offers, and other relevant information has enabled us to dramatically improve the customer experience.”
Metrical is also providing tools as Dick’s seeks to create a connected shopping experience across online and offline shopping.
“A key part of improving customer lifetime value is ensuring the digital and physical store experiences complement and support each other seamlessly,” Dwenger said. “As we gain insights, we’re able to make more informed recommendations in both environments. In addition, Metrical works seamlessly with other vendors in our tech stack, including product recs, email marketing, text messaging and more so we are currently exploring opportunities to expand AI’s use into additional applications.”
Going forward, Dick’s wants to expand its use of AI. It believes the predictive capabilities of this technology will ultimately help make shopping experiences more personalized.
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.