The Fascinating World of Amazon Logistics

Jeff Bezos

Jeff Bezos

Word’s out that Amazon is planning on opening its first brick and mortar shop. With such news the retail world is now buzzing with questions:

Is Amazon really going head to head with mainly brick-and-mortar retailers? Should the likes of Walmart be paying attention to such tactics? Could this mean a new way of doing business for Amazon?

The answer is no.

First of all Amazon is not opening actual stores. It’s opening pop-up stores. The big difference is pop-up stores are available for just a limited amount of time. They pop-up and then they pop-off. For example the two stores Amazon is now opening will be in San Francisco and Sacramento and will be open just for the holidays.

Amazon will use these stores to showcase its proprietary mobile devices (tablets, ebook readers, the smartphone). Once the holidays are over – puff – they disappear.

There is, however, one report from the Wall Street Journal, not yet confirmed by Amazon, saying the company would actually be looking for more. This report points to a New York location in Midtown Manhattan that would serve as a permanent physical presence. Again, this won’t be your typical store but rather a location designed to respond to specific Amazon needs.

Such needs would include testing Amazon products, order pick-up, returns and local delivery. Maybe even a drone helipad. Who knows?

Seriously now – with the store working as a mini-warehouse, the company could easily offer same-day delivery to near-by customers. That’s a great way to compete with Google’s same day delivery. These type of operations (pop-up shops and drop-shops) could become mainstream in the future as retailers need to bridge the gap in omnichannel retail AND provide faster shipping.

However, Amazon’s offline presence should be scanned from a different perspective:

Amazon is not moving offline. It is already there.

There are no Amazon stores just yet. Except for a few Amazon lockers and the occasional pop-up stores, the largest online retailer remains a pretty digital presence.

Except for its logistics.

Beneath the magic of Amazon’s online retail presence lays an well-oiled logistics machine. Amazon combines advanced IT systems, human operations, robots, huge warehouses and a complex shipping operation to fulfill its daily orders. And some underpaid workers but that’s another thing.

Inside one of Amazon's Warehouses. Source: Wired

Inside one of Amazon’s Warehouses. Source: Wired

How many products does Amazon ship? Billions.

In 2012 Amazon sold and shipped more than 10 million products each day. The total number of products shipped in the last quarter of 2012 was 1.05 billion. Yes, that is a Billion with a B and it is reportedly the first time in the company’s history when it sold more than 1 billion products in just one quarter.

The number of listed products is also huge. Its top 5 markets all list more than 100 million products, with the US totaling a whooping 253 millions, as reported by Export-X:

The total number of products listed on Amazon's top markets. See more here.

The total number of products listed on Amazon’s top markets. See more here.

Amazon Fulfillment: 83 million square feet of storage and fulfillment centers

You’ve probably guessed that shipping 1 billion products per quarter to more than 200 million customers worldwide requires a bit of work. What you probably don’t know is that such a large-scale operation uses 50 million square feet of storage in the US and 33 million square feet of storage outside US (source).

There is no other ecommerce competitor with such storage and fulfillment potential. Its dominant position allowed for two interesting business models to evolve: The Amazon Marketplace and Fulfillment by Amazon.

To reach sales as those shown above, Amazon lists and sells both its own products and those from 3P (Third Party) merchants. Merchants can join its Fulfillment By Amazon program, ship the product to Amazon’s Fulfillment centers and than leverage Amazon’s Logistics.

This means the company can count on its sales AND influence to shape the future of retail. Its logistics are probably the most useful and under rated tool in expanding globally. While everyone wonders if Amazon will set foot in the offline world, the company has already laid the foundations to what will probably be the future of retail.

Of course, the numbers listed above can only show a small bit of what is required to keep Amazon moving and growing. The operational tools Amazon employs and the processes behind this amazing machine will be uncovered in an upcoming ebook. Until then – check out “Understanding Omnichannel Retail” – a comprehensive report on how online and offline sales are now connecting.

Prestashop 1.6 Review – A Great Choice for Small Ecommerce Startups

Ecommerce startups need flexible, easy to set up and cheap solutions when it comes to software. A few companies provide such solutions and probably the best known is Magento, which can accommodate a wide array of startups.

However, Magento does have some issues and when it comes to small ecommerce companies, it might not be the best choice. Issues ranging from bloated code, unreliable support when it comes to finding the right development team make it hard for small companies to implement it. As you’ll see below there is one contender to Magento’s reign that you should definitely check out if you’re planning on starting an ecommerce company.

Prestashop and Magento keep rising as the former leader, OS Commerce, seems to have its glory days behind it.

Prestashop and Magento keep rising as the former leader, OS Commerce, seems to have its glory days behind it.

That contender is PrestaShop, a flexible and easy to setup open source application.

A brief history of PrestaShop

prestashop-logoThe company that now develops the product was founded in 2007 by Igor Schlumberger and Bruno Lévêque. The duo thought they could bring a better open source solution to the market and they did just that. Bruno, having a background in both tech and business, developed the first version of PrestaShop, which was downloaded 1000 times in the first month. Now PrestaShop runs on more than 185 000 stores world wide and has more than 600 000 registered contributors.

As Bruno Lévêque, founder and company CEO was unavailable at the time for a statement regarding the company vision, I’ll just go ahead and assume that they’re planning on increasing the install base and further develop the application. As they’re pushing forward with the new version, it’s becoming obvious that the two main opensource applications that small and medium companies will be able to chose from in the future will be Magento and PrestaShop. So it’s probably a good thing to know a thing or two about the upcoming champion.

PrestaShop’s Business Model

When deciding what platform to run your store on it’s important to think about the company developing it. How is it organized, why does it exist and of course – what’s the business model? What keeps the company afloat? That way you can know whether it’s here to stay or not.

Fortunately – PrestaShop is developed by a growing company, with offices throughout the world and a very interesting business model: they give out the application as open source but they charge for special modules and themes in the … aham … PrestaShop shop.

The company also charges for support and training services, which might come in handy when the online store or the development team evolves. If you’re more into online documentation – there are plenty resources out there, starting with the Developer Guide.

PrestaShop Version 1.6 has a great back-office design

Well – enough with the talk about the company – let’s get busy reviewing the new PrestaShop v 1.6. I’ll just stick to the back-office but you can have a look at the default responsive frontend theme.

What’s really outstanding about the PrestaShop’s new back-office is that it’s designed for humans. It’s uncluttered (looking at you, Magento), it’s responsive (great for quick use both on the Desktop and mobile devices) and the team managed to arrange the dashboard elements in a way you can quickly access what you need.

The PrestaShop Dashboard

The PrestaShop Dashboard

The top most used reports (such as sales, orders, cart value and others) are displayed on the dashboard and users can quickly check, refresh or change settings for them.

It’s not just the dashboard – all back-office sections are redesigned to provide quick access to data, in a beautiful interface:

orders-prestashop

With the new version users can get access to PrestaShop’s best features without any hassle. My two favorites are:

  • the customers area – there’s a great benefit in having all customer data in one place. With the new version you can get all kinds of info on the targeted customer – previous purchases, groups he’s in, internal memos about the customer, vouchers and more. Back-office operators can thus have access to a birds-eye view on the customer interactions;
  • the stock management – a great feature in PrestaShop is the fact you can also use it as a starting point for inventory and supply chain management. It’s light interface does the job when keeping track of inventory, inventory movement, stats and supplier orders.

PrestaShop is probably a very good choice for small and medium companies that look for open-source solutions. With the new version you’ll have an uncluttered view of your ecommerce operations and you’ll be free to upgrade your system with the help of a growing contributors community.

PayPal to Process More Offline Payments

Ebay subsidiary PayPal is dead serious about taking on a $10 trillion market: the Multichannel Payments Market. To do so it will have to prove its worthiness against older companies, especially in offline commerce.

Multichannel Payments

A steady increase in Ebay's Revenue. Biggest cash cow - PayPal, 41% of total revenue.

A steady increase in Ebay’s revenue. Biggest cash cow – PayPal, 41% of total revenue.

With more than 140 million registered users already, PayPal has the sweetest spot in the online payments today. Its acquisition of global payments company Braintree secured an additional 35 million registered users. As President David Marcus puts it – this is a part of an effort to redefine money and payments into what he calls “Money 3.0″ – a new way of looking at payments and how customers use them.

PayPal owner-company Ebay is at the front of what some would call a commerce revolution led by technology. Its three main branches (The Marketplaces, Ebay Enterprise and PayPal) all work together in this changing landscape.

The Marketplaces (including Ebay.com, Shopping.com and Rent.com) enable C2C Commerce, while Ebay Enterprise caters end-to-end multichannel commerce technology. Ebay Enterprise is the tech, operational management and marketing vendor for the likes of Toys’R’Us, Radioshack, Sony ant many others.

Between these two, the payment processing subsidiary PayPal leads the way in online payments. The company is Ebay’s most promising subsidiary, growing at 20% in 2013. As of 2011, it decided to go offline, allowing customers to handle their money, cards and PayPal wallets in one place.

POS solutions

paypalofflineTo increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the new tablet-based counters. Store owners can easily implement its apps and start charging right away.

In an effort to increase adoption, PayPal started integration with third-party store management solutions such as ShopKeep POS, Booker, or Leapset.

Among its benefits for store-owners, Paypal lists security, quick implementation and an all-in-one approach to accepting payments, scanning barcodes, tracking inventory and sending invoices.

Customers willing to take their PayPal Wallet to an offline store account can pay by swiping their PayPal paycard, using their account or by paying online and picking up in store. Having a larger pool of companies accepting PayPal payments allows the company to securely handle all transactions, allow customers to receive loyalty points and handle all personal information.

Ebay and PayPal will stick together

paypal-growthSince Ebay purchased PayPal, both companies listed a successful increase in revenue. Ebay powered PayPal’s adoption to its marketplace users and in turn PayPal grew up to become one of Ebay’s most profitable subsidiaries, amounting to 41% of total revenue in 2013.

With the help from Ebay, PayPal grew from $600 million in mobile payments to $27 billion in just three years. The figures are posted on the 2014 annual shareholder meeting website, in response to Carl Icahn’s demand to spin PayPal off into a separate company.

Carl Icahn, one of the most notorious corporate raiders in the tech industry, demanded PayPal to be split into a separate company and become listed on its on. The board of directors fought his demands showing that even though the company is open to changes in the future, right now the two are working better together.

Luck would have it that shareholders reached an agreement to keep the companies together and handle the incoming commerce revolution as a whole.

“[...] we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.”

John Donahue, Ebay CEO. Source.

 

Why Do Online Retailers Fail?

A couple of weeks ago someone asked me a great question. It came from an entrepreneur interested in opening an online store. She had a brick and mortar shop, some experience in offline retail, great merchandise. Previously she’d noticed her customers were asking why can’t they order online, so she decided to give it a try.

So there we are – discussing the necessary steps to open the online channel and integrate it with the offline store. As she previously noticed that success in online retail is seemingly random, she asked a question I was not accustomed to:

Why do online retailers fail?

See – most people want to know what makes Amazon, Staples and other large online retailers successful. They figure that if they study these companies carefully they will get to be successful also. It seems intuitive – see who the leaders are and than copy them.

Companies such as Shopify or BigCommerce thrive on the idea that anyone can start a shop online and be successful. If Jeff Bezos can – why can’t I?

amazonjeff-bezos

Jeff Bezos – Amazon

Browse the internet and you’ll find dozens of blogs (this one included) on this particular subject. “How to be successful when selling online”? You’ll get thousands of posts on what makes online retailers succeed. The harsh truth, however, is that most online retailers fail.

You should know that …

Amazon is an exception.

Staples is an exception.

AliBaba is an exception.

Ebay is an exception.

Multi-billion online retailers are exceptions. They are market anomalies. They are not the norm. The harsh truth is that beyond logistics, most of these companies have done totally different things on their way to becoming successful online. They will continue to do so. And they probably won’t share their plans and strategies online.

Even if these strategic plans and key performance indicators were available online – what good would it do? Say you had all the information on how Amazon works. What good will it do? There already is an Amazon on the market. You’ll be a challenger at best.

So there is really no way of making sure your store will succeed. But there is something you could do: minimize the chances of failure.

There are patterns in online retail failure

There is a saying that goes something like: Tell me where I’ll die so I will never go there.

While successful online retail business models are really different from retailer to retailer, failures, I’ve noticed, have common traits. Companies ignoring basic product management, employees not engaged in client service, poor merchandise – they are all things easy to spot when retailers close shops.

Before going online and browsing around for the latest marketing gimmick, have a look at six of the most common things that lead to failure:

1. Lousy and/or not enough products

Commerce hasn’t changed much in the past … umm … thousand of years. The basic concept is simple: you buy a product from the manufacturer, bring it to the customer, get something in return. Of course – the customer needs / wants to be provided with the best merchandise he or she can afford.

Failing to put the product first is the one biggest mistake retailers make. It’s easy to believe that it’s all marketing and you can sell anything. You can’t. At least you can’t do it for a prolonged period of time. Eventually people will start asking for their money back. They will post bad reviews. Your store will fail.

So focus on the product. Find manufacturers that will deliver upon high standards.

Having great products is not enough, though – they have to be plenty. Customers need choices. Of course – you might think Apple does not need variety but the industry Apple is in does. There are plenty of PC’s, laptops and smartphones out there. All at the right price.

2. The wrong price

Pricing is one of the areas most sensitive to error because it can swing both ways. You can either charge too much or not enough.

You can be charging too much and there is nothing wrong with selling expensive products but make sure they’re worth it. Remember – online, anyone can track prices. Customers can feel cheated if your markup is too large.

You can also be charging too little – remember, prices are not weapons, unless you’re the market leader. Even then – prices should be used as a last resort. A cheap product remains a cheap product. Do the math – see if your supply chain and procurement can handle low prices. If not – differentiate with services, a curated selection of products and great customer service.

3. Not paying attention to customer care

Actual Zappos Call-Center

Actual Zappos Call-Center

As an online store there aren’t too many points of contact between you and your customer. Probably the most important is the customer care team. Operators answering the phone are one of online retail’s biggest assets. Or liabilities.

For every Zappos-like company that thrives on great customer care, there are thousands of online retailers ignoring it.

Having a customer satisfaction – oriented team can work wonders for online retailers.

4. Ignoring logistics

Quick – do you know what makes Walmart the largest retailer in the world (both online and offline)? Prices? Sure, but that’s just part of it.

The answer is logistics. Walmart was not always the company we know today. Between 1980 and 1990 the company started a quick expansion program to enable it to match its competitors. In 1981 they tied their stores through a satellite communications system that would enable real-time reporting, as soon as products were purchased. By 1988 90%  of all stores were using barcode readers to handle inventory tracking. It doesn’t seem like much now but back then there was no internet to connect the stores and barcode reading was only just taking off.

Now, Walmart is an astonishing logistics company. This is the key to keeping the company well supplied and one of the most important factors in keeping the prices down.

Amazon, too, is much more than meets the eye. Between the print on demand options, huge warehouses, robotic warehouse management and integrated supply and demand – Amazon means logistics. Retailers failing to improve their logistics will have problems staying afloat.

5. Outdated or limited technology

You wouldn’t be expecting technology to be an issue when it comes to online retailers. After all – online stores are … well … technology based – right? Indeed, but there is much more than a front end when it comes to online retail technology.

Here are a few things retailers need to invest in, if they are to expect to stand a chance:

  • CRM software – you need to know as much as possible about customers and make sure they are satisfied with your service
  • Inventory management – this is a combination between hardware, software and know-how. Online retailers need to know in real time what’s in stock, what is expected to go out-of-stock and where are the slow movers. For starters.
  • Supply chain management – dealing with suppliers is not always easy. Technology can help streamline the relationship between suppliers, retailers and end-consumers. Automated order placement and processing, barcodes, RFID readers and tags to help track packages, inventory inflow and outflow management – these things sound boring and complicated. They are, however, necessary for any online retailer.

6. Bad management

No technology will save a company lead by bad management. And as you might expect this is a combination of factors. There is no single individual usually guilty of sabotaging the company.

One can notice in failing online retailers some patterns – a combination between managers focusing too much on marketing or PR, a rigid organizational structure and the lack of senior expertise.

There is little data on the impact of rigid and poorly prepared management when it comes to online retail. This is due to the fact that online retail is still in it infancy and performance indicators can be  misguiding. It is, nevertheless, one of the most important factors in failing online retail companies.

6 things that can lead to failure for online retailers

So there you have it – the 6 big things that you need to focus on. Notice there are no tips on marketing, website design, search engine positioning and such. These are not critical problems. Marketing, design, accessibility – they can all be easily spotted and fixed.

Unfortunately – it is harder to understand and improve the product range, prices, logistics, customer care and of course – management. But this is where you need to look for a chance at building a successful retail company.