This is a guest post by David S. DuBose, Director of Supply Chain Solutions, Sedlak
This three-part series explores a number of near-term and long-term moves retailers can make to eliminate or minimize holiday season fulfillment headaches and ensure their supply chain is up to the task.
By most measures, the 2015 holiday season was one many retailers would like to forget. For starters, sales for the season in the United States were underwhelming, increasing by a less-than-expected 3 percent to $626.1 billion. But an even bigger problem was that operational challenges caused many retailers to have trouble satisfying customers shopping their online stores.
They were frequently out of stock.
One study revealed out-of-stock rates on Cyber Monday were at an all-time high, with 13 out of 100 product views showing an out-of-stock messageâover twice the normal rate. Other data showed a similar problem: Thirty-five percent of online sales volume went toward retailers’ Thanksgiving Day sales, leading to “a lot more out of stocks” on Black Friday than expected.
They also had difficulty delivering online orders.
According to one study, it took an average of nearly seven days, or 20 percent longer than the previous year, for orders placed on Cyber Monday to arrive. The same study found unexpected delays in 9 percent of the United Parcel Service ground orders analyzed, suggesting a network under duress. And UPSâs on-time delivery rate for ground packages fell to 91 percent the week of Cyber Monday, down from 97 percent a year ago.
What Was the Problem?
Why the struggles? The biggest reason was retailersâ inability to accommodate the surge in online shopping, which continues to wreak havoc with retailersâ shipping.
For the first time, more U.S. shoppers in 2015 bought online (103 million) than in stores (102 million) on the Thanksgiving and Black Friday weekend. For the fourth quarter of 2015, retailers sold $107.1 billion online, a 14.5 percent increase over $93.5 billion in the same quarter the previous year, and an amount that represents 31.3 percent of full-year e-commerce sales.
This is the continuation of a long-term trend thatâs been brewing in the past decade (Figure 1): Between 2008 and 2015, the amount spent online on Black Friday exploded from $534 million to $1.6 billion. A similar trajectory applies to Thanksgiving Day, on which a little over $1 billion was spent online in 2015, compared with a paltry $288 million in 2008.
Target provides a great example of a growing online businessâand the challenge it creates: In the fourth quarter of 2015, 5 percent of the companyâs total sales were onlineâmore than double the percentage from the same quarter the year before. This has led to an ongoing struggle with inventory shortfalls. âThe systems were built to continue to replenish as a normal store,â Target Chief Executive Brian Cornell told The Wall Street Journal recently. âNow, weâre shipping from stores. Now, weâre trying to localize items. It has added greater complexity.â
Accompanying this increase in online shopping is the morphing of Black Friday into âBlack Holidayââroughly the period immediately after Halloween to the end of December. More retailers are beginning to offer holiday deals in early November, many of them available online coupled with incentives like free shipping or order online/pick up in store. And special offers often go right up to Christmas or are cycled in aggressively as retailers monitor sales daily. The result: a much longer time for heightened consumer expectations and for retailers to really be on their toes.
How can retailers avoid the ghosts of Christmas 2015 revisiting this year and beyond?
In the next post, we will identify several things retailers can do right now to improve their performance during the 2016 and 2017 holiday seasons, as well as a few longer-term actions that can position them for greater success in the years ahead.
For nearly 60 years, Sedlak has helped retailers optimize their operations to meet peak season volumes and deliver on their promises to their customers. To learn more, visit www.jasedlak.com.
Photo credit: www.flickr.com Portland center stage