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Retail Vendor Performance Management News Round Up for December 2018

Consumers Prefer Cheap versus Fast Shipping; Amazon Private Label Apparel Sales Struggling; The Role of Vendors in Retail Woes

December 19, 2018

by SCDigest Editorial Staff

Consumers Prefer Cheap versus Fast Shipping

A full 88% of ecommerce consumers prefer free delivery versus fast delivery. That according to the annual holiday shopping survey from Deloitte. That is consistent with previous Deloitte studies and many other surveys.

Maybe even more surprising, 66% of consumers said they were willing to wait 3 to 7 days so long as the delivery was free. Which reminds us of a research note from the analysts at Moody's that recently suggested retailers may be spending too much on very rapid delivery capabilities that consumers won't pay for.

Supply Chain Digest Says...

As many brick-and-mortar retailers continue to struggle, a sharp rise in direct-to-consumer (DTC) activity by vendor, spurred by ecommerce, may be partially to blame.

Nevertheless, in October Home Depot, aided by startups Roadie and Deliv in its top 35 metro markets, announced on-line orders made before noon of about 20,000 products - everything from Halloween decorations to power tools - can arrive by van or car the same day, starting at a cost of $8.99.

"We set an overarching goal for our supply chain to be the fastest, most efficient delivery in home improvement," said Mark Holifield, Home Depot's executive vice president of supply chain and product development. Customers "want it cheap, but also want it to be quick.

Walmart also expanded its free shipping program, extending free two-day shipping for millions more products sold by third-party merchants other than Walmart on its web site as long as shoppers spend at least $35.

Meanwhile, Target further upped the ante by announcing it will offer free two-day delivery with no order minimum or membership fee for the holidays. The program starts November 1 and will run through December 22, but if it's successful enough, Target could conceivably make the offer permanent, putting more pressure on the bottom lines of retailers forced to match the offer.

Amazon Private Label Apparel Sales Struggling

Penetrating the apparel market with its own private label line is perhaps more difficult than Amazon realized.

That according to a report by Jungle Scout, a data-research firm for merchants.

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Apparel makes up 88% of all Amazon private label brands, but only 1% of all private label sales, according to the report. Women's fashion, which makes up most of the company's clothing brands, is struggling the most, with more than 4 of 5 Amazon women's clothing brands selling fewer than 100 items per month, according to the report.

"Amazon has invested heavily in women's clothing labels and continues to do so," Jungle Scout said in the report released in late October. "However, our data show that women's clothing performs poorly for them."

The report shows that Seattle-based Amazon's apparel brands aren't benefiting from consumers' greater interest in buying clothing on-line. On-line sales made up about 27% of all US apparel purchases in 2017, up from almost 21% in 2015, according to Internet Retailer.

Amazon has more than 120 brands, about 100 of which were introduced over the past two years, according to TJI Research. Some brands are directly tied to the Amazon name, such as Amazon Basics merchandise and Amazon Essentials clothing, which includes pull-over fleeces, T-shirts and underwear. Other private label brands, including most of its other fashion lines, don't include the Amazon name.

Amazon is seeking to improve its clothing sales with strategies such as introducing a try-before-you buy program last year for its Prime members, which allows customers to order clothing, keep and pay for what they want and ship the rest back. Amazon also entered a partnership with Kohl's last year to let customers make returns at select Kohl's locations.

The Role of Vendors in Retail Woes

As many brick-and-mortar retailers continue to struggle, a sharp rise in direct-to-consumer (DTC) activity by vendor, spurred by ecommerce, may be partially to blame.

Many suppliers and manufacturers are moving from bulk sales orders - even to large wholesale accounts - to selling more at an item or case level. That changes their business model and supply chain, making them rethink relationships with what used to be their entire client base. In many cases, vendors have started to directly competing against their retail customers.

Vendors historically didn't compete with their retail customers, concerned the retailers would drop such vendors or downgrade the assortment or merchandising plans for those vendors.
But those vendor fears are clearly waning.

Smaller and start-up companies now have an easier route to market, not needing brick-and-mortar retailers for access and shelf space. In fact, consumer goods companies, especially in the soft goods sector are increasingly breaking down revenue categories in financial reports to include DTC revenue, where this wasn't being done five to ten years ago.

In effect, manufacturers are telling retailers how much business is bypassing them.
For vendors, instead of selling products by the pallet and truckload, one purchase order to the vendor for 1,000 pairs of sneakers turns into 1,000 purchase orders for 1,000 pairs of sneakers. By directly selling their own items, logistics costs for pick, pack and ship costs for those sales, it's where consumers are going – and in some cases may still result in higher margins for vendors.

How retailers manage this competitive threat from their own vendors will be a critical strategic issue.

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