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DG&A's Transportation Consulting Blog

Amazon launched a new mobile phone, the Fire Phone that could be a true “game changer,” not just for mobile communications or retail sales but also for freight transportation. Let me tell you why.

Unlike other cell phone manufacturers, Amazon is looking for e-commerce business, not mass profits from mobile phone sales. That is the raison d’etre for this phone. Like Apple, they have created an entire ecosystem. Unlike Apple, their ecosystem is not based on selling just computer hardware and software such as iTunes, iPads and iPhones. Amazon wants their hundreds of millions of registered users to buy books, consumer electronics, toys, household supplies and toasters from their massive warehouses of products.

Amazon has a huge inventory of data on consumer preferences and purchasing behavior. It can tailor its marketing messages to specific target markets and then cross-sell them on purchasing other lenses for a camera or tennis clothes to go with the purchase of a new tennis racquet. Amazon’s Firefly technology allows the user to point the phone at an object and then be transferred to an Amazon website that will sell you the product. This is a neat trick (e.g. clever software) that will allow impulse buyers to obtain instant gratification.

Last but not least, the purchase of the Amazon Fire phone provides the user with a free one year subscription to the Amazon Prime $99 a year freight delivery service. So as the user sees a product in a magazine or store, the Fire Phone can take you immediately to a website that will sell you the product and suggest others that you may like. With another click on the Fire, the user can then arrange to have the goods delivered to their home or office within two business days. Clearly the Amazon Fire is trying to create a new e-commerce business model. Like every other new business model, it will take some time to gain traction. If, and more likely when it does, it could dramatically change the world of freight transportation.

The Amazon Fire will allow consumers to “point, shop and ship” almost anywhere, any time. The speed and simplicity will appeal to anyone who prefers to look at a photo and shop without going to a mall or even searching online to find an object. Of course, the Fire Phone has a number of other interesting features like 3-D imaging and an enhanced camera so it can compete with other mobile phones.

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E-commerce purchases make up 5 percent of Sales in the United States and about 3.4 percent in Canada. These relatively small percentages may cause retailers and trucking companies to downplay the role that e-commerce is having and will have on this sector on this sector. This would be a huge mistake.

Dramatic changes are coming to almost all facets of the retail sector. In the home entertainment and book distribution segment, retailers are changing product lines and the customer buying process experience. A trip to the local Chapters or Indigo store will open your eyes to the types of transformations under way. As online music sales have escalated in recent years, CDs have been almost totally removed from store shelves and books constitute a much lower percentage of the floor space. In their place, you will find dolls, toys, gifts, glassware, e-readers and tablets, blankets and a host of other items. Since so many Dell computers and other high tech products have been purchased online for the past 20 years, consumers are very confident in buying products in this manner.

A visit to the local Loblaw’s store will highlight a much larger footprint and a greatly expanded product line. Take-out meals, sushi counters, organic and non-organic food counters, in-house restaurants and a host of other changes have greatly expanded the size of these giant stores. Staples, Toys “R” Us and Best Buy Co. Inc. are shrinking their store space, expanding stock rooms for e-commerce distribution or shutting certain outlets. Toys “R” Us is converting more store space to backrooms to fulfill its growing number of online purchases. Later this year it will begin allowing customers to pick up their online orders at its stores.

Meanwhile in the United States, Amazon is investing in distribution centres in the major markets so it can provide same day delivery to its customers. This will allow them to take direct aim at a range of retailers in these markets. As they increase their e-commerce business, they will continue to draw more business away from traditional retailers.

Retailers are scratching their heads as to the appropriate footprints for their stores, the correct assortment of products, the marketing approaches they should use for their brick and mortar operations and e-commerce operations and whether to shutter or add stores.

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In last week’s blog I provided an overview of Omni-Channel Retailing, a very important transformational change that is taking place.  This change will have a profound effect on the retail and freight industries.  In this blog, I will outline some of the impacts that it likely to have on carriers and LSPs.

The catalyst for the changes to shipping processes and pricing has been Amazon Prime. Back in 2005, the online retailer announced free two-day shipping on qualified items. Designed to enhance loyalty and fuel top line sales growth, the Amazon Prime program has had a huge impact on Amazon’s success in recent years.

The impact has rippled through the retail and transportation industries. Brick-and-mortar retailers, in particular, have scrambled to devise strategies to counter free shipping.

In response, retailers are deploying a variety of solutions that leverage one of their best assets—their stores. This coupled with the growth of mobile commerce and social shopping, has seen the emergence of a new approach that represents a kind of boundary-less retail, where the silos between brick-and-mortar, catalog, and Internet retailers have disappeared—at least as far as the consumer is concerned. This is what many are calling omni-channel retailing.

The transportation and logistics companies that wish to be effective in the Omni-Channel arena must align their service portfolios and infrastructure to meet the needs of the retailers and consumers who will be increasingly operating in this environment.  To gain a better understanding of where omni-channel retailing is going, UPS commissioned a research study of 3000 consumers.  ComScore, a leading digital analytics firm, performed the study.  The result is the 2013 UPS Pulse of the Online Shopper: A Customer Experience Study.  Here is what they learned from a carrier perspective. 

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Omni-Channel Retailing is a subject we are go to be hearing a lot about in the coming years. This is the first of two blogs on this topic.  In the first blog I will provide an oveview of what the term means and then outline the implications for shippers, retailers and consumers.  In the next blog I will outline the implications for freight transportation companies and logistics service providers.

It is helpful to define some terms to understand what is taking place.  The chart below and some of the content in this blog are taken from an article entitled Omni-Channel Supply Chains Designed for a Retail World without Boundaries by Randy Stang, Vice President of Customer Solutions for the Retail Industry team at UPS.  The chart captures the various retail models visually.

Over the past decade, retailers have been migrating from the basic Single Channel model of store to consumer retailing to the utilization of multiple modes (e.g. store and e commerce).  Multichannel retailing is the use of a variety of channels in a customer’s shopping experience.  Such channels include: retail stores, online stores, mobile stores, mobile app stores, telephone sales and any other method of transacting with a customer. Transacting includes browsing, buying, returning as well as pre and post-sale service.

As the name implies, Multichannel retailing involves serving customers through a discrete set of distribution options.   Pioneers of multichannel retailing include Macy's, Next PLC, John Lewis and Neiman Marcus. The pioneers of multichannel retail built their businesses from a customer centric perspective and served the customer via multiple channels before the term 'multichannel' was used.

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Canada is going through some dramatic evolutions and revolutions in the world of retailing and in retail distribution.  The changes are very evident every time I visit or drive by my local shopping mall, the Yorkdale Shopping Centre in Toronto.

The mall has gone through another major expansion.  Microsoft and Apple have stores a few feet apart.  The number of American chains (e.g. Victoria’s Secret, William Sonoma) continues to expand.  Some high end chains (e.g. Holt Renfrew, Harry Rosen), that have been in the mall for decades, are in the process of major expansions.  The upstairs food court has been totally transformed and upgraded.  In addition to the old standbys, (e.g. Chinese, Thai, Greek food), one can now buy lobster grilled cheese sandwiches, high quality Indian food and a host of new treats at the mall. 

So what is going on out there?  There are a number of discernible trends taking place that will have a direct impact on freight transportation in Canada. 

Mergers and Acquisitions

Loblaw’s is in the process of buying Shopper’s Drug Mart, Sobey’s has bought Canada Safeway and Hudson’s Bay Company is buying Saks Fifth Avenue.  This will certainly lead to warehouse rationalization, the cross-selling of specific items (e.g. President’s Choice Products) in Shopper’s Drug Mart stores, carrier consolidation and a host of other transportation related changes.

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