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In ecommerce, the path to a sale starts with marketing and a great customer experience that communicates how a brand intends to serve a customer. But when it comes to delighting customers and building loyalty, it’s the brands that follow through with their commitments that really deliver.
As peak season gets underway in 2022, considerations like free shipping, on-time delivery and product availability are continuing to rise on shoppers’ lists, according to the results of a recent holiday survey from location intelligence service Loqate.
“Consumers continue to become more demanding and sophisticated with their delivery expectations. Retailers face the very real risk of losing a customer forever if they let them down,” said Matthew Furneaux, the director of location intelligence at Loqate and a retail and ecommerce expert who has worked with Nordstrom, Sephora, Kohl’s, Ralph Lauren and Michaels through his role.
These rising expectations are the result of two years of change in retail that is reshaping how people shop going forward.
In 2020, ecommerce became more widespread with the onset of the pandemic, leading shoppers to become more comfortable with not just the convenience of ordering from a mobile phone and the selection offered by the web, but also the tools embedded in online shopping experiences. Now, delivery guarantees and package tracking are checklist items for what a consumer wants from a retailer, right alongside the product details and reviews.
In 2021, supply chain backups made consumers more aware than ever of the processes that bring packages to their door. Global shipping issues may have mostly resolved this year, but people don't just forget what they learned, and how it impacted them. As a result, shoppers now may be more apt to consider whether items are in stock, and delivery times.
These factors are shaping how shoppers plan out their holiday shopping in 2022. According to Loqate’s survey, 87% of consumers globally plan to start shopping before December, showing that many plan to get an early jump on the season to address these concerns.
In doing so, they are picking the brands and retailers that they know will be able to provide the items that they want. In America, 52% of consumers report that availability of products impacts their loyalty to a brand or retailer.
“As we all live more of our day to day lives online, many consumers are prepared to extend high levels of loyalty to brands that can meet their needs in a timely way,” Furneaux said. “And in the era of one-touch, next day or even same day delivery, our expectation of stock availability has never been greater. Retailers should be leveraging the power of location intelligence solutions to ensure that inventory is where it needs to be, in relation to their customer locations, to optimize the purchase experience.”
Matthew Furneaux. (Courtesy photo)
At the same time, shoppers want to ensure they will receive items when retailers say they will deliver them. The survey found that 84% of shoppers are concerned about packages arriving on time. This can be make-or-break, as many aren't willing to give second chances after late deliveries. To be sure, it can be a matter of generational expectations, as 46% of Baby Boomers are unlikely to purchase from a retailer after a late delivery. Meanwhile, it’s only a deciding factor for 38% of Gen X, 28% of Millennials and 29% of Gen Z. The point is that delivery is an area that is closely watched by consumers, even though it comes after a sale is already made.
A customer's worries can be addressed on the frontend of a purchase, Furneaux said. Retailers can enhance their checkout with tools such as address auto-complete.
“The good news is that online brands can mitigate many of the risks associated with late or failed delivery by ensuring accurate address and location data is quickly and efficiently captured in the checkout,” Furneaux said. “Even if consumers wish to use their preferred digital wallet, it’s still vital to ensure the address for that particular purchase, especially if it's a gift, is accurate.”
In the end, these data points all offer a reminder that the details are important. This year, inflation is getting the headlines as the force that is shaping holiday shopping, and discounts will surely be a factor in an environment that is expected to be exceptionally promotional. But the back-end of a purchase can matter just as much as the front-end offers that pull them in. Loqate’s survey found that 18% of consumers consider free shipping to be the most important factor in a purchase, while promotions and discounts were at the top of the list for 17% of shoppers.It’s going to be a unique year, but shoppers are carrying the experiences of the last two with them. Nail the basics and meet their expectations, and it’s an opportunity to build relationships that last beyond this season.
Trending in Operations
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
Scaling with sortation centers
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
Improving the ecommerce experience
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.