From Home Furnishing Business
Last Mile – Last Chance to Make a Lasting Impression
2018 by Jane Chero in Business Strategy, Industry
For the traditional furniture retail segment, the delivery function has become an important strategic focus. Historically referred to as the “backroom,” delivery has always been a source of potential headache as well as an opportunity for increased bottom line performance.
Now the last mile is under intense focus as the ecommerce boom makes delivery an important strategic focus. In all industry sectors, the last mile has become the highest growth sector in the logistics industry, as well as the most expensive.
Now logistics is becoming the front line of the customer experience as retailing takes a step back. In essence, can logistics effectively provide a great customer experience at an affordable price? Retailers are challenged to maintain control of the customer experience while losing in store contact.
Simply put, the consumer’s perspective is what I want – while I want – when I want. As recently quoted in a study on logistics, we are now in the age of the individual economy, “Iconomy,” for short. In the latest consumer survey by FurnitureCore, Consumer Intelligence, the demand for immediate satisfaction is evident with more than 24% receiving delivery of their order the same day and more than 65% receiving within a week.
The ability to achieve this objective is driven by the fact that most retailers strive to maintain an in stock position of the majority of their merchandise. From a consumer perspective this was achieved more than 70% of the time.
It should be noted that one of the largest retailers, Ashley with its 800 stores, has achieved that success by not promising same day delivery, but by fulfilling orders from its national network of distribution centers. They are able to accomplish this because Ashley is the manufacturer and can control both the production and logistics. One of the major strategic discussions in logistics across all industries is the DTC (direct to consumer) concept. Currently 52% of all last mile service providers offer DTC as a service. Will logistics providers begin to leverage their expertise with ecommerce customers to enable seamless DTC roll-outs for manufacturers?
The possibility of a manufacturer delivering directly to consumers for their retail partners could address several of the major furniture retailing issues: low inventory turns and obsolescence.
Any discussion of this leads to the fear that suppliers could skip the retailers entirely and sell directly to the consumer. For manufacturers it is a strategy worth considering because of the inability to achieve distribution in all of the 400+ markets (MSAS), especially in the upper/premium price points. Retailers with inventory turns of 3.3x (industry average) produces a poor return on investment.
Ashley is not the only manufacturer/retailer providing last mile services to their retail partners. La-Z-Boy, as well as several accessory and rug suppliers have implemented this model. One of the issues that brought last mile services to the industry’s attention is the ecommerce suppliers offering “free delivery.” But the truth lies in the detail with free delivery meaning to the garage/curbside. The perception is still there, however. The fact is, according to FurnitureCore’s most recent survey, the majority of all purchases were not charged a delivery fee.
Patrick Cory, president of home delivery powerhouse Cory Home Delivery, said white-glove delivery services can be a competitive advantage for brick-and-mortar stores, but it’s critical for them to make consumers understand the differences between white glove service and other types of delivery.
“If you’re taking a box and putting it in the (consumer’s) driveway or taking it to the front door of their house, that’s not delivery. That’s drop-off,” Cory said. “Delivery is when you bring the box – or multiple boxes – inside the home, inspect the product, assemble it in the room of choice, and remove all the trash and packing materials so the consumer can use it immediately.”
And he said it’s also important for consumers to understand that type of delivery can cost an additional $100 to $200.
“If you just have furniture in one small box, or maybe a couple boxes, drop-off could be okay,” said Cory. “But that doesn’t work for someone who just bought a $2,000 sofa or a $6,000 leather sectional.”
While Cory said 99% of his company’s deliveries are white-glove service, Schneider and a number of other last-mile carriers offer multiple levels of service from curbside to threshold to white glove.
“I think there’s some opportunity for misunderstanding (about the type of delivery service), but there’s also a lot of opportunity for the consumer to call for clarification before the delivery takes place,” said Bob Elkins, senior vice president and general manager of Schneider Dedicated Services. “I think it’s driven more by consumer choice.”
Schneider instantly became a major player in last-mile delivery when the company acquired last-mile major Watkins Shepard in June 2016, and Elkins said it continues to be one of fastest-growing segments of Schneider’s business.
What used to be a profit center for traditional retailers has become a loss of about a point on the bottom line. The graphic below presents the results of a recent survey of traditional retailers conducted by Impact Consulting, parent company of Home Furnishings Business.
Traditional retailers have responded to the ecommerce challenge by changing their delivery options. Customer pick-up has been a standard along with white glove installed. Now, many retailers are offering variations from threshold to inside the room of choice. A survey of furniture retailers conducted by Impact Consulting provides an adoption percentage.
What Type of Delivery Provided?
If the consumer was charged for delivery, what was the charge? In the same Impact Consulting survey, the majority of retailers were charging $75-125 for white glove/installed. It should be noted that the variance between markets were substantial. Obviously from the results, it is a competitive element.
There was some variation in how the delivery charge was determined. However, the majority focused on distance.
Interestingly from a consumer’s perspective of delivery fees from all distribution channels, the fee was determined by purchase amount. Traditional retailers may want to consider this perception. In our experience, the consumer is often confused by a charge for a single piece versus a total room.
The most expensive type of delivery is white-glove service that is done same-day or next day. Delivery executives say it’s a popular option in a few hyper-competitive markets, but most don’t believe it will catch on nationwide.
Why? It adds 20 percent to 30 percent to the cost of the delivery, and also results in a higher percentage of mistakes in filling orders.
“I think urgency is important up to a certain point. The majority aren’t willing to wait three weeks … but somewhere between same day and three days is the magic number,” said Rob Davis, vice president of client solutions at Diakon Logistics.
Davis said he understands that part of the retailer’s motivation for pushing same day or next-day delivery is that is takes the consumer out of the market for furniture purchases almost immediately, and doesn’t give them a chance to develop buyer’s remorse. However, he said he encourages retailers to impress the consumer “with a high-value delivery experience” that doesn’t necessarily include same day or next-day service.
“We don’t believe Mrs. Jones has a hard time waiting three days,” said Davis.
Elkins agreed, but said there’s still no question that transit times are contracting and consumers “are wanting things sooner rather than later.”
“We used to deliver Monday through Friday. It’s now ‘I want it delivered after Mass on Sunday’,” he quipped.
The use of third party delivery services has grown exponentially in recent years. But, it is still below 50%.
However, there is significant opportunity for growth. When we asked traditional retailers if they would consider outside delivery, it was a positive response.
Would You Consider an Outside Delivery Service?
Those results weren’t surprising to last-mile delivery executives who spoke with Home Furnishings Business. All said their businesses were growing rapidly, and they believe the market for their services is nowhere near a peak.
“It’s still consistently growing,” said Davis. “Our business has seen about a 15 percent increase, year-over-year, for the last three years.”
Obviously, one of the drivers to using outside delivery is the retailer’s strategy as it concerns ecommerce. In the same Impact Consulting survey, it was obvious that ecommerce is on the minds of the senior executives with over 63% responding yes to the question, “If you do not have an ecommerce channel will you execute in the next 12 months?”
Cory, among others, thinks that strategy might work for a larger regional retailer, but said smaller retailers, especially those who operate in a single market, still have a tough time competing even with a vibrant ecommerce site. He believes the only way for these retailers to survive and thrive is to offer products not available from larger competitors and combine that with top-of-the-line personal service and heavy involvement in the local community.
“If you’re a small retailer and you try to go head-to-head with Bob’s or Rooms To Go, you’re out of business,” Cory said.
Cory and other delivery executives said mattress deliveries – whether the product was purchased in-store or via an online “bed-in-a-box” company – also are becoming more complicated. In-store purchases take more time to deliver because as many as half of new mattresses are purchased with an adjustable bed base, while online merchants are often flummoxed by returns, which average 7 percent, according to recent research by Consumer Reports magazine.
“Adjustable bed bases are heavy, they’re more complex, they take programming, and sometimes they don’t work right,” said Davis. “We may have to cost out our mattress deliveries differently in the future because of all the adjustable bases.”
And for the bed-in-a-box retailers, it’s not only returns that cause headaches. Even the satisfied bed-in-a-box purchaser frequently doesn’t know what to do with the old mattress it is replacing.
“In most states, you can’t just set a mattress at the curb or take it to a landfill anymore,” said Cory.
As a result, he said some online mattress companies have shown interest in retaining a delivery service to pick up old mattresses or new ones the consumer doesn’t like. Some bed-in-a-box companies tell a dissatisfied customer to donate the mattress to a local charity, but it’s increasingly difficult to find charities that will accept used mattresses, he pointed out.
But after the delivery is complete, the need for a third-party provider may not end. There’s also increasing demand for third parties that handle service calls for retailers, and that plays into the wheelhouse of companies such as ServeCo., an Atlanta-based conglomerate of home furnishings-related entities.
ServeCo President Chris Schall, in fact, said third-party service contracts are the fastest-growing part of his business. That’s because retailers easily can become overwhelmed with all the details involved with executing a service call.
“We’re about protecting brick and mortar. They can have the service element that’s necessary for their success, but without expending too many resources,” Schall said. “We tell retailers they should be focused on merchandising, marketing and sales. Too many retailers get lost in service.”
He said ServeCo can handle damage claims, warranty issues, on-site repairs, and even process the paperwork for vendor chargebacks. Plus, the company operates call centers in Woodstock, Ga., and Somerset, Ky., that can handle service questions and dispatch technicians when necessary.
He said that relieves a retailer of the burden of, for example, managing a group of independent technicians and keeping track of billing them individually.
According to Schall, ServeCo clients typically experience a 20% increase in vendor chargebacks, but he stressed they’re not abusing the chargeback process. Retailers who try to do it for themselves often find the process too time consuming and fail to follow up properly, he insisted.
“That’s money that they were already owed, but it was falling through the cracks,” Schall said. “So in a lot of cases, our program pays for itself.”