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Bernstein Conference: Direct-to-Consumer, Parcel Cost and Impact on eCommerce

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We discuss two major trends (1) increase in direct-to-consumer, (2) cost pressure on parcel logistics, and their impact on eCommerce market

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Bernstein Conference: Direct-to-Consumer, Parcel Cost and Impact on eCommerce

  1. 1. March 2018 Direc-to-Consumer and Parcel Cost: Shaping the eCommerce Logistics Landscape Bernstein – Motor of eCommerce Conference
  2. 2. Unique Identifier 2A.T. Kearney xx/ID eCommerce growth is the only game in town 0% 5% 10% 15% 20% 25% 30% 35% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Offline Growth Online Growth Diapers Beauty and Personal Care Skin Care Luxury Leather Goods Sportswear Laundry CareFootwear Men’s Grooming Hair Care Luxury Jewellery Fine Wines/Champagne and Spirits Baby & Child Personal Care Vitamins OTCOral Care Dishwashing Luxury Eyewear Bath & Shower Fragrances Luxury Goods Color Cosmetics Apparel Surface Care Designer Apparel and Footwear Online vs. Offline Growth by Category (2013-2016 CAGR) Apparel & Footwear Baby Care Consumer Health Luxury GoodsHome Care Beauty and Personal Care Source: Euromonitor; Morgan Stanley, IBISWorld, Nielsen, Internet Retailer, A.T. Kearney analysis
  3. 3. Unique Identifier 3A.T. Kearney xx/ID DTC Today (% Sales) DTC Growth 20-25% >20% 10-15% 15-20% 10-15% 20-30% 20-30% >15% Trend 1: Direct to Consumer (DTC) a priority for Brands Sample of DTC Growth
  4. 4. Unique Identifier 4A.T. Kearney xx/ID Significant value in pursuing DTC Higher Margins (potentially) Consumer Insights and Loyalty Enhanced Innovation Athletic Shoe Illustrative
  5. 5. Unique Identifier 5A.T. Kearney xx/ID Brands have mainly focused on demand side, but now rapidly pivoting to the supply side … Digital/Front-EndSupplyChain Shop anywhere Order and fulfill from anywhere Smart Phone / Social Media Customer Service Website Digital Stores CRM Digital Wall Retailer / eRetail Ecom fulfillment centers DSD / Drop Ship Right Inventory @ Right Location B&M stores Ship from store / store pick-up Home Delivery PastFocusEmergingFocus Source: A.T. Kearney
  6. 6. Unique Identifier 6A.T. Kearney xx/ID … eCommerce supply chain fundamentally different Pick / Pack / Ship Cost Lead Time Requirement Order Size $0.5-1.0 / unit $3.5-5.0 / unit <1 week <2 days ~30% same day 20-40 units / order 2-3 units / order DTC $0.1-0.4 / unit Weeks to Months 80+ units / order Traditional Wholesale eCom/ DTC Source: A.T. Kearney; Industry average ranges for Beauty and Consumables (e-Retailer) Beauty / Consumable Illustrative
  7. 7. Unique Identifier 7A.T. Kearney xx/ID Brands are actively figuring out their DTC network Channel / Customer OrderProfilegroups Full Cases shipped on pallets Wholesale DTC Stores DTC eCom Units in 1 package Multiple cases, totes and units Pallet / Full Case + FTL / LTL network (stable) Mixed Case + LTL / Parcel network (emerging) • Low growth • Simple operations • Stable • High growth • Complex operations • Requires flexibility 3-6 DCs close to production sites Mostly wholesale and B&M retail 3-5 DCs, close to population centers Parcel to home, own stores, partner stores 60-80% Full Case Pick 20-40% Pallet Pick 50/50 FTL vs. LTL 40-50% Mixed Case / Tote 40-50% Full Case Pick 80% LTL 20% Parcel Eachs + Parcel (emerging) • High growth • Complex operations • Requires flexibility 5-10 DCs close to metro areas Parcel and/or last mile to home, own stores, partner stores 100% Detail Pick ~0% Full Case Pick 100% Parcel Traditional Emerging DTC
  8. 8. Unique Identifier 8A.T. Kearney xx/ID Trend 2: Parcel cost headwinds will also have an impact on eCommerce landscape $0.4 $2.9 $2.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Maintanance and Other Total $0.2 Labor Cost Fuel $0.2 Vehicle Cost With labor constituting 75% of cost of last mile, a 9% inflationary labor environment means 7-8% YoY increases in cost of last mile Estimated last mile cost per package, $ (urban, high-density, e-commerce only route)
  9. 9. Unique Identifier 9A.T. Kearney xx/ID Different segments will be impacted differently Online Basket Size ($ / Order) DC Cost Last Mile Cost • Units / Order • Size / Weight • Size / Weight • Distance • INV co- location Footwear Beauty Consum ables Grocery Attractive economics Unattractive economics Supply Chain Cost Insensitive Cost Sensitive Cost Challenged 1 2 3 Source: A.T. Kearney
  10. 10. Unique Identifier 10A.T. Kearney xx/ID Implications on supply chain landscape • Expand e-Com DC footprint (2-3) • Push fast moving inventory closer to big city areas (5-10 mini DCs or dark stores) • Build select experience hubs (stores) • Utilize store fulfillment to minimize parcel • Optimize (existing) multi-echelon network flows; limited e-Com capacity expansion • Increased spending on next-gen inventory visibility, forecasting, replenishment capabilities • Limited eCom asset build • Push store based inventory + last mile to minimize parcel 3 to 5 Year Implications Cost insensitive Cost sensitive Cost challenged Source: A.T. Kearney
  11. 11. Unique Identifier 11A.T. Kearney xx/ID Additional IC on e-Com supply chain
  12. 12. Unique Identifier 12A.T. Kearney xx/ID Thank you! Please reach out to continue the dialog Michael Hu Partner, A.T. Kearney michael.hu@atkearney.com www.linkedin.com/in/mhuspace @mhu_snowcrash
  13. 13. Unique Identifier 13A.T. Kearney xx/ID Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission- critical issues. For more information, visit www.atkearney.com.

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