Retailers dramatically accelerated their e-commerce growth strategies in 2020 due to COVID-19 and increased demand for home delivery. This trend will continue into 2021, as volumes continue to grow, carriers add capacity and service offerings, and shippers evolve their supply chains to meet changing customer needs. The “last mile” in 2021 will be faster, closer, and offer more options for online shoppers.
Retailers have been working with carriers and logistics service providers for some time to adapt to steadily growing customer demand, as they shift from traditional channels to a greater reliance on e-commerce. The COVID-19 pandemic has forced them to figure out how to get their products into customers’ hands more quickly.
Because of this change in demand, the last-mile supply chain in 2020 saw strains. Inventory depletion, carrier-capacity shortages, and a general lack of service options caused issues for retailers during the year. Though problems persist, many shippers have worked to get ahead of the game and position themselves for success in 2021. From shifts in distribution to last-mile network growth, those retailers are ready for the future.
Retailers and logistics service providers are increasing warehouse space, while opting for locations closer to cities. This is a shift away from the traditional model of fewer, larger regional warehouses. While it will mean increased warehousing costs and higher inventory levels, the move can drive down transportation costs and get products more quickly the customers’ hands.
The shift in warehousing strategy also means that regional carriers, local couriers, and gig platforms become a more viable alternative for retailers than ever before. Buoyed by a new distribution model and in response to carrier-capacity issues that plagued shippers for much of the year, many retailers are now working alongside local providers to create a contingency plan to ensure that products arrive on time, even if that means developing an entirely new network of carriers.
Along with changing distribution models, retailers are using alternative delivery locations to increase accessibility. Large retailers are partnering with carriers to offer additional pickup and drop-off locations. UPS has supplemented its network of UPS Stores by working with retailers such as Michaels Co., CVS Pharmacy, and Advance Auto Parts, Inc. FedEx has a similar arrangement with Walgreens Co., Office Depot/Office Max, and recently announced locations in over 8,000 Dollar General Corp. stores.
The resulting economies of scale are significant. Retailers can generate greater profitability by combining shipments to one commercial location, instead of shipping to individual consumers. This strategy allows them to take advantage of better pricing on freight, as well as avoid accessorials such as residential surcharges.
Retailers will continue to take greater control of their supply chains. Many are already providing same-day pickup at their store locations, including curbside options. Through partners, they’re also offering same-day or next-day delivery. Tractor Supply Co.’s partnership with Roadie, Inc. catapulted the company to a successful e-commerce transition in 2020, and others such as Big Lots, Inc. are following suit. A report from Technavio predicts 20.39% growth in the same-day delivery market for 2020, with incremental growth of $9.73 billion.
Outlook
Last-mile expansion will continue in 2021. Retailers will seek creative options to keep costs down and delivery timelines competitive. While capacity constraints are expected to continue, especially considering the demands created by COVID-19 vaccine distribution, the options for shippers will continue to grow. If 2020 has taught logistics professionals anything, it’s the importance of ensuring that one’s supply chain is as seamless and agile as possible. Matt Huckeba is chief operating officer with Spend Management Experts.
