Success on any ecommerce platform requires nailing fulfillment and logistics, yet these tend to get a bad wrap for being just a cost center. In this post, we’ll teach you how to actually leverage fulfillment and logistics to your advantage and take your ecommerce business to the next level.
The current state of ecommerce
The COVID-19 pandemic accelerated ecommerce growth in the last two years like never before. Consider the following statistics:
- From 2019 to 2020, ecommerce sales grew 44% year-over-year from $598 billion to $861 billion.
- Over the same period, retail sales only grew 7% year-over-year from $3,780 billion to $4,040 billion. Keep in mind, retail sales includes ecommerce sales.
- Ecommerce penetration into retail sales grew from 15.8% in 2019 to 21.3% in 2020.
- China’s ecommerce penetration grew to 51% this year, making it the first country to surpass 50% of retail sales through ecommerce.
Clearly, ecommerce is growing and here to stay. But at a high level, it also presents some challenges.
Brands trying to navigate this $6 trillion industry struggle to lead their customers through a massive retail channel. Within direct-to-consumer (D2C) alone, brands must decide between D2C platforms, competencies (insights, traffic, content, protect, logistics), D2C plugins, and logistics. Extending that to international markets and adding marketplaces makes ecommerce a monumental task.
While many try to shore up competencies with various Software-as-a-Service (SaaS) tools, Pattern built its own ecommerce acceleration platform that ties all of them together into one tool.
How to use logistics
That said, logistics is an important piece of the ecommerce puzzle that can be optimized for cost savings. Here, there are several leverage points to consider: shipping speed, locations/FCS, return policy, fulfillment options, and inventory pools. Each of these can be calibrated to run efficiently, and every ecommerce platform has slightly different offerings.
For example, Amazon leads the standard on shipping speed, offering its Prime members free two-day, one-day, and sometimes even same-day shipping. As consumers expect faster and faster shipments, it’s important to consider fulfilling orders through Fulfilment By Amazon (FBA). Or if you prefer to customize the consumer experience with special packaging, Fulfilment By Merchant (FBM) may be your option.
Another factor to consider is inventory pools, which refer to how inventory is controlled in the supply chain. Again, different ecommerce platforms will handle your inventory, well, differently. Walmart, for instance, is turning its over 5,000 U.S. stores into distribution centers, thereby getting inventory as close to the consumer as possible and reducing shipping costs.
Logistics as a revenue driver vs. cost center
So how do you turn logistics from a cost center to a revenue driver?
Focus on high-selling products.
Often in ecommerce, we’re tempted to list every product, but shipping rarely sold products to warehouses only compounds costs. Instead, try to predict your inventory needs. If an item sells regularly, you can afford to have a surplus. If not, you don’t want to get stuck with years worth of inventory.
Single or low-priced items under $20 are notoriously hard to sell in ecommerce because by the time you discount shipping and other costs, they are not worth the work. So, consider bundling products or offering sample sets to reduce overall shipping costs.
To drive more revenue, analyze the data and automate your inventory supply.
Optimizing shipping fees
Amazon publishes all their packaging dimensions by category online. So if you’re shipping with FBA, try to configure your product as closely to the desired packaging’s dimensions. You don’t want to waste packaging space by shipping air.
Also check the weights and dimensions of your products and make sure they are audited and listed clearly on Amazon because they won’t verify them for you. This can bring a lot of cost savings that can turn you into an office hero overnight.
Leveraging a 3PL
Adding a middle man to your ecommerce business can feel scary, but sometimes it’s worth it. Since third-party logistics (3PLs) ship orders for many clients, you can benefit from their economies of scale. They offer capabilities that you can leverage.
Plus, Amazon’s clunky multi-click tools were not designed for fast execution. 3PL partners and softwares like Pattern’s ecommerce acceleration platform add a technology layer that can soften the costs of your logistics operation.
The reality of returns
Whether or not to accept returns is a tricky decision that depends on your return rate, brand, and product. 30 to 50% of returns are non-resellable. But if you get a lot of returns or some that are expensive products, reselling might make sense.
Make sure to read customer reviews to see why products are being returned. There may be a manufacturing defect somewhere along the supply chain that you can fix, and that could massively reduce return rates.
Choosing D2C vs. marketplace shipping
D2C (Direct-to-consumer) logistics gives you more control over the consumer experience. From customer acquisition to retention, you can cultivate better consumer experiences by customizing packaging and marketing campaigns. It’s more expensive, but it can be worth it. Plus, D2C makes it easier to do cold shipping and to optimize shipping weight.
When expanding to foreign markets, you need to first think about import/export regulations and distribution. There can be a lot of logistical layers to work through.
Second, try testing out new smaller markets by drop shipping a minimum viable product directly from the U.S. This may cost more time and money, but it helps gauge demand before you fully invest in entering a new market.
Pattern recommends starting off with Amazon FBA Export, then upgrading to Amazon Global Store, and finally establishing a local presence.
The old idea of big boxes on the shelf no longer applies to ecommerce. Bigger packaging just costs more to ship. So package for the new digital shelf with compact packaging. Ecommerce-friendly packaging can also make it easier for you to resell returned items.
Ecommerce penetration into retail is only growing, so think about the future. There is no profitable way to ship air or empty space. So if you sell something like coolers, start thinking about collapsible or fabric coolers now, and making it ecommerce-friendly. Otherwise, you’re on a collision course for non-profitability in the future.
Amazon’s limited shelf
Everyone talks about Amazon unlimited shelf, but that’s becoming less of an option. So be critical of what you’re listing. Listing a product but not giving it the love and attention it needs to grow won’t do.
Here at Pattern, we’ve helped brands dramatically increase revenue and units sold and expand into international markets. If you need help rationalizing your logistics, why not talk through your pain points with our experts today.