Supply Chain Matters readers have likely noted from our ongoing industry commentaries addressing the implications of the COVID-19 pandemic that the most profound has the explosion in online buying among global consumers. Large numbers of populations being locked down in personal residences and ongoing fears for not venturing into public venues such as brick and mortar stores provided the perfect storm of online demand.

Online customer fulfillment

Our previous blog reflecting on Amazon.com’s literal blowout financial performance quarter despite suffering major temporary erosion in inventory and shipment response times provided a snapshot of challenges and response. As many Amazon customer likely know, overall same day or one-day shipping fulfillment levels deteriorated significantly in the early part of the second quarter. The online provider’s CFO Brian Olsavsky told Business Network CNBC that the online retail provider was able to recover by pulling “capacity we didn’t think we need until 2021” but demand levels continued to skyrocket.

McKinsey has subsequently indicated that Amazon likely compressed ten years’ worth of sales growth into one quarter. Further, as we pointed out, billions were spent in hiring an additional 175,000 employees in a matter of a few weeks while paying added bonuses for deemed essential workers.

Now there is additional data available regarding how important consumer’s online shopping actions and loyalty likely turned out to be during this period.

Bloomberg reported this week that despite the operational glitches, Amazon was likely able to win some Walmart online customers.  This report indicated that: “when virus-spooked Americans began avoiding stores earlier this year and shifting spending online, far more Walmart customers went to Amazon.com Inc. than Walmart.com.” Indicated was that while Walmart.com certainly benefited from the massive spike to online buying, Amazon benefited more.

Quantification of that trend was described as:

In the first week of February, for every dollar shoppers spent with the two rivals, 66 cents went to Walmart and 34 cents to Amazon, according to Facteus, which tracks credit and debit-card spending for millions of shoppers. In the first week of August, that gap narrowed to 55 cents to Walmart and 45 cents to Amazon.

Additional cited data indicated that Amazon’s web site attracted over 2.5 billion visitors during the month of July, more than many other online retailers. Let that number sink in for a moment. That represents over 32 percent of global population.

The Bloomberg report also cited a Goat Consulting study conducted among a survey of 500 Amazon customers that indicated that 80 percent of respondents believed that delays of a few days or longer were reasonable given the outbreak’s conditions. Bloomberg further indicated that Amazon Prime subscriptions grew 30 percent in the most recent quarter.

We now know from a quantified lens, that other online retailers benefitted by the surge in online buying. Target reported a 10.8 percent increase in same-store sales along with a 141 percent increase in online sales in its most recent quarter. Similar to other online retailers, Target experienced online demand levels that the retailer had expected three years from now.  Once more, unlike some other retailers, a reported 80 percent on online orders were fulfilled from Target’s brick and mortar stores. In May, Walmart reported a quarterly performance with net sales increasing by 10.5 percent and online sales up 74 percent.

The Wall Street Journal’s Tech column observed last week reflected that for the first time in years, Amazon’s share of actual E-commerce in the U.S. actually declined in the recent quarter. This report concluded that as a result of limited product availability, online shoppers visited many other online retail sites, including Walmart and Target. The observation from this report was that Walmart, Target and Best Buy, most of whom have substantially invested in their online operations indeed benefited from Amazon’s stumble.

 

New Challenges Remain

As we have noted in prior commentaries, while the explosion of online buying is surely likely to continue for the remainder of this year, challenges remain in operational performance and scalability.

The second half is the run-up to the traditional holiday fulfillment period which has always provided its own spikes in added order volumes. Now with online retailers largely already deploying added levels of contingency capacity levels including added temporary workers, there is little room for added flexibility. Add the notions that we and others have reported indicating that parcel logistics and transportation providers UPS and FedEx have every intention of leveraging added charges for online shipment delivery, while the Trump Administration portends to cripple U.S. Postal Service levels.

Couple all these notions with alarming possibilities indicated from health experts that the second half could present challenges for both seasonal flu and second-wave corona infection rate rises.

Indeed the battle for online loyalty may not turn out to be about longer-term loyalty as much as which provider can deliver the goods at the lowest cost. It will further come down to the battle of which retailer’s had invested in the right capabilities and agility.

Beyond online customer fulfillment are the notions of digital transformation of key processes. Those companies that can leverage the hard and sometimes painful lessons of the ongoing pandemic into succinct targeted investments in digital-based process capabilities will likely further be prepared for what the new normal provides.

The stakes are indeed huge, and the challenges significant, but the rewards are market-changing in the long-term.

 

Bob Ferrari

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