If there’s a silver lining for retailers it’s still a minor part of the top-line rev-anywhere in the economic storm, it’s enue,” Kilcourse said. online. It’s all a result of applying just-in-time While in-store sales sagged in the principles familiar to manufacturing third quarter, online sales were up to the world of retailing enabled by the nearly 6 percent year over year, indi- Internet, said UPS spokesman Norman cating more consumers are hunting for Black. “We are impatient consumers,” he bargains on their laptops or PCs, rather said. “We have gotten to the point where than department store aisles. we expect an instantaneous response.”
That may be down from the rocket-like E-commerce sales hit $34.4 billion in expansion of years past but to many the the third quarter, up 5. 7 percent over the growth in the face of a severe downturn third quarter of 2007. The increase from suggests e-commerce is likely to become a the second quarter of 2008 was only 0.3 more important, even transformative part percent, perhaps signaling the recession’s of supply chains as the recession clears initial impact on e-commerce. shopping mall crowds. Total retail sales fell 1.4 percent from
It’s already reshaping transportation the second quarter to the third quarter, networks as retailers collaborate with dropping to $1.02 trillion. Year-over-year manufacturers to ship items directly to third-quarter sales inched up 0.3 percent. consumers, said Brian Kilcourse, manag- Reports from shopping malls and ing partner at retail analyst RSR Research. stores were worse than the total figures
“All the supply chain costs go away,” reveal, however. Same-store sales for he said. “It’s a competitive advantage. Can November fell 2. 7 percent from the same they grow it? I don’t see anything but blue month last year, according to the index sky for that opportunity, when you start to maintained by the International Council think about the implications of it.” of Shopping Centers. That was the big-
Most retailers’ online supply chains gest drop in the group’s index since 1969. largely reflect their brick-and-mortar The ICSC reported a 0.9 percent drop in operations, says Dave Hogan, senior same-store sales in October.
vice president of retail operations and chief information officer at the National
Retail Federation. But that’s beginning to change as companies see savings from having fewer fixed assets in trucks and warehouses, more flexibility in transportation, lower inventory carrying costs and less costly and risky handling processes, he said.
Retailers are already reorganizing their supply chains to take advantage of the emerging online channel, Black said.
Just getting shipments into the UPS system for delivery to the consumer used to be enough, he said; nowadays, shippers want to be as close to the system as they can.
Although online retail accounts for just 3. 4 percent of all retail sales, according to the Department of Commerce, its weight in the retail space is almost certainly much greater, Kilcourse said.
The big unknown, he said, is the extent to which the online channel has become a lead generator for the stores. “The online retail space continues to grow (though)
Online footwear retailer Zappos built its warehouse in Sheperdsville, Ky., next to UPS’s main air hub in Louisville to take advantage of UPS’s late night pick-up schedule, Black said. This helps Zappos fill orders less than two hours after they are placed.
California-based specialty-gift online retailer CafePress moved its production to Louisville, Black said, allowing the com-
Online Sales Growth
Percentage increase in U.S. online retail sales,
year over year
25%
20%
15%
10%
5%
2Q’07 3Q’07 4Q’07 1Q’08 2Q’08 3Q’08
Source: RSR Research, Department of Commerce
pany to ship T-shirts designed by their customers on the Internet within 24 hours.
Growing confidence in delivery reliabil-ity, said Black, has allowed online retailers “to extend the selling season later and later and later.” Online holiday retailers who used to require one-week’s advance purchase for Christmas delivery have shortened that to two or three days.
Changing consumer preferences are also driving retailers, Kilcourse said. “People don’t just view a store as a source for products,” he said, “they view it as a solution.”
“Instead of the consumer walking into the store, they’re clicking into the store,” he said.
In some cases, shoppers use the online channel to research a product and then go to the physical store to purchase it. In others, they’ll pay for an order online and expect to pick it up at the store by appointment the next day.
This poses hefty challenges for an online retailer’s transportation and IT systems, Kilcourse said. Inventory management systems must operate as close as possible to real-time in order to prevent stock-outs and overstocks.
Because retailers are trying to minimize their inventory at the same time that wholesalers want to consolidate their shipments, aligning transportation is always problematic.
“The notion of push-oriented supply chains is really being challenged by online retailers,” Kilcourse said.
“We’ve seen some pretty remarkable changes over the years as far as the consumer comfort level with online shopping and we don’t see anything that’s going to change that,” said Black.
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