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Supply chain execs say 1-day delivery is expensive, but vital for retailers

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Supply chain execs say 1-day delivery is expensive, but vital for retailers

One-day delivery is expensive and erodes margins but is necessary for retailers to stay competitive, supply chain executives and consultants said at the 2018 Retail Industry Leaders Association's Supply Chain Conference in Phoenix.

Jim Gehr, president of retail and transportation in the Americas for DHL Logistics GmbH, said customers now expect the option of one-day delivery, especially in urban markets.

"One day-delivery is becoming the norm," he said Feb. 26 on the sidelines of a roundtable session. "If you're still at two-day delivery, it's almost slow enough that customers are starting to look elsewhere."

Doug Stephens, a retail consultant and founder of the Retail Prophet, said retailers unable to deliver within a day will fall further behind companies such as Amazon.com Inc., which are already trying to figure out how they can consistently deliver within hours of a purchase.

"Amazon is becoming a shipping company," Stephens said during a presentation. "Retailers need to catch up and not let Amazon dictate the conversation."

Providing faster delivery is an issue for many retailers, especially those that already sell low-margin goods. While transporting merchandise from warehouses and factories to stores is relatively cheap, as it is done in bulk and can be scaled, the last mile of delivery to the customer's front door is pricey, Gehr said.

Meanwhile, Dollar Tree Inc. is keeping its focus on its stores, Kevin Jones, a vice president of transportation at the company, told S&P Global Market Intelligence. The dollar store chain already sells low-cost merchandise, making any almost any extra costs on delivery prohibitive. Dollar Tree's low-income core consumer also still largely shops in physical stores.

"Our focus is on bricks-and-mortar," he said. "It's hard to get our product to the customer at the right margin."

Retailers have adopted a number of strategies to meet the one-day delivery demand without sacrificing profit. Kohl's Corp. has put a focus on omnichannel, partnering with Amazon.com Inc. The department store chain announced in September 2017 that it would allow customers to return Amazon deliveries to some of its stores. Earlier that month, Kohl's also said it would launch 10 in-store Amazon shops in some of its Los Angeles and Chicago stores.

Kohl's COO Sona Chawla said the focus on omnichannel helps keep some of the delivery costs low. The omnichannel customer will still often drive to a Kohl's store to pick up their purchase, and the partnership with Amazon brings that customer into Kohl's stores more often. The typical omnichannel customer spends about five times as much as a shopper who is either purely e-commerce or bricks-and-mortar.

"Customers are demanding efficiency," she said during a presentation at the conference. "What they want now is instant gratification. For now, we chose to largely fight back with our stores."

Consumer goods companies have a different challenge. In his presentation, Stephens said the center aisle of the grocery store, which sells items such as shampoo and toothpaste, is becoming increasingly obsolete.

Tim Zoppa, director of transportation operations at Kimberly-Clark Corp., said bulk sales to consumers might be one solution for companies looking to sell low-cost products online.

"While people probably aren't going to order one box of Kleenex online, they might stock up," Zoppa said. "There is some money to be made when that one box of Kleenex is increased to 30 or 40."