September 6, 2017 by Ashwini Murthy

Let’s start with some facts.

In 2016, total retail sales in the US was $4.8 trillion, which was a 2.9% jump from $4.708 trillion in 2015. At the same rate, the figures for 2017 don’t seem any lower.

With the retail industry going through such a rapid evolution, It is only natural to expect the market to grow more accommodating. However, that’s not happening. Retailers failing to keep up with change are left far behind. The only ones surviving are those who were quick to hop onto the omnichannel boat. Let me put on my Captain Obvious cape and point out how Amazon has been leading the e-commerce revolution in the US. They are responsible for almost 70% of the e-commerce sales in the US.

A juicy chunk ($22 billion) of Amazon’s $114 billion revenue in 2016 came from seller commissions and services like FBA (Fulfillment by Amazon). Amazon is surfing the e-commerce wave that they helped create. Amazon has set a standard across the industry by offering a trio of great price, assortment, and service. This industrial standard has proven to be expensive for a lot of retail & e-commerce companies.

They have also managed to profit from the shifting of small retailers and merchants with their third-party seller services. This isn’t a perfect market. Hence, FBA faces competition from other small and medium e-commerce logistics providers. But, due to a highly deregulated market, Amazon is way ahead in the race.

According to PeopleVox’s e-commerce fulfillment survey, 2017, 82% of the e-commerce, multichannel and marketplace reseller businesses taking part in it reported increased sales in 2016. Moreover, 89% are expecting a rise in sales during 2017.

However, only 52% of them were happy with their fulfillment and warehouse operations.

Does that mean more scope for small and emerging e-commerce fulfillment companies?

We at PipeCandy decided to do a little bit of research in how small e-commerce logistics companies and startups are managing to stay afloat. We asked a few such fulfillment companies on what they think will work in their favor and where they face the heat from incumbents like FBA.

Their answers provided a ray of hope for smaller companies in the e-commerce fulfillment industry.

Mike Jones – President/COO, IDS Fulfillment

FBA has many strengths and weaknesses.

For anyone trying to build a brand and a company that has intrinsic value, Amazon is the wrong place to focus.

When a seller signs up for FBA, Amazon has full control over everything right from the data to the customer experience. They ultimately control your business and its value. The seller ultimately ends up competing with Amazon on rules set by Amazon. According to Mike, Amazon’s customer (third-party sellers’) experience is next to non-existent. To add to it, Amazon’s cookie cutter services don’t really work well for brands who aim to build a good customer relationship.

Retail/e-commerce brands working towards getting a market share should focus on brand building. They should have control over important aspects of their business like the supply chain, customer relationship, etc.

This opens up a significant window of opportunity for small e-commerce logistics companies. They can help grow the business of those brand-focused mid-level retailers.

Unless you are already a major international brand, to build a true brand and business equity, e-commerce companies must have most of their revenue originating directly with the consumer, not a third-party, or at least control and balance multiple channels. 

With over 200 fulfillment centers (warehouses), sortation and delivery stations and Prime Now hubs, it is no wonder that FBA has been able to offer same-day or next-day delivery for its Prime members. But, for most brands (non-commodity), same-day or one-day shipping isn’t needed nor practical from an inventory standpoint.

While next-day or same-day product arrival gets a lot of media play, it is not and will not be universally offered or needed for every product or brand, especially for non-commoditized products and brands which garner high loyalty from customers.

We do believe that the parcel shipping-oriented 3PLs will consolidate to some degree as there is value in scale to the economics of the operations and in negotiating parcel shipping rates (and savings for the parcel carriers) and we believe IDS is at the forefront of driving this consolidation. However, this means building scale at well-located facilities but not necessarily at many locations. But again, the US economy is huge and there will remain significant niches for many different types of 3PLs to survive or thrive in various forms.

Background:

Integrated Distribution Services (IDS) is a leading third-party order fulfillment logistics company with additional competencies in third-party warehousing/distribution and parcel transportation management.  This privately held company is headquartered in Plainfield, Indiana.  President/COO of IDS, Mike Jones, has helped lead the company for 20 years.

One of the main trends in the retail industry is the omni-channel presence. Let’s say a company has an omni-channel presence (Brick & Mortar store, e-commerce store, presence on Amazon). Having a seamless integration of all these channels is highly important for well-oiled operations.

One way to achieve that seamless integration would be merging the fulfillment services across all channels. Back-end fulfillment and delivery should be one. That’s what Craig Lennon from Ship-Right Solutions talks about.

Craig Lennon – Director of Business Development, Ship-Right Solutions, LLC

“I think there is no doubt that the Direct-to-Consumer Fulfillment industry, in general, understands the fast-moving momentum of consumer activity shifting to the world of e-commerce and are certainly hoping to benefit from it.”

In order to do business with retail and e-commerce companies, fulfillment companies must find ways to work with major online marketplaces, shopping cart solutions like cart abandonment recovery tools, recommendation tools, etc.

” We have done so with 20+ API integrations and have resources in place to add new integrations on demand. This allows us to seamlessly support our client’s business without start-up delays and added expenses. The bottom line is that, in order to compete in the Direct-to-Consumer Fulfillment and Logistics industries today, you must keep up with waves of change or else you will be left in the dust.”

According to Craig, integration with other existing e-commerce tech/fulfillment tools is one of the major problems that small e-commerce logistics companies will face in comparison to the incumbents

FBA has set the bar pretty high for other e-commerce fulfillment companies. Customers’ expectations have been constantly rising. With same-day and next-day delivery options available, they expect the companies to ship out orders on time, every time or sell things that are out of stock. These warehouse and fulfillment issues should be tackled before they start to threaten customer loyalty and before it results in a massive escalation of overheads and other avoidable problems like increase in returns.

Ashwini Murthy

Content marketer @ PipeCandy

A writer by day. Illustrator by night. Currently trying to conquer the B2B marketing world one baby step at a time. Loves everything outside her comfort zone.