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Ever thought what happens behind the curtains before a new product hits the shelf? Or what makes customers decide they love product A but definitely hate product B, although they are almost identical? Or what makes great products … well … great?
Many have and there is no clear answer to these questions. What works when Apple launches a music player may not work when Microsoft does it (Remember Zune?). There are many variables involved and no matter the size of your R&D budget, sometimes things are not going to go right.
But there’s only one way to see if the product is really fit for the market. That way used to be simple and a bit risky. Teams including marketing, product development, engineering and manufacturing experts would dream, design and build products. They would test the products on selected customer groups and if the results would look good, they would push the product to the market.
However even involving budgets, experts, consumer insights and marketing bucks, sometimes products flop.
Two things changed this: crowd-sourcing and crowd-founding. Together they’ve formed a type of customer experience previously unknown: the pretail.
In the past, teams were involved in trying to guess what customers would want. Now we can just go ahead and ask the them.
Pretailing is a term describing any activity introducing customers to brands or products, before the retail process. It assumes that using crowd-founding sites such as Kickstarter, inventors and innovators can test their concept before involving big budgets. Essentially they are asking potential buyers to invest their dollar-power in their product.
This, in turn, creates an experience previously unknown to the consumer. The consumer is effectively buying into a vision. Pretailing creates a new type of sales channel that works before the product is even manufactured. Unlike traditional retail, this type of commerce can shed light on what the market wants at any given time.
Online stores such as Quirky, Threadless or Japan-based Muji have one thing in common. They use their communities to find the right ideas and products to design and develop. Quirky is focused on inventing cool gadgets, Threadless leverages its designer community to create t-shirts and Muji sells home&deco products designed by the consumers.
They all engage in pretailing. By tapping into the collective minds of their communities they can ask for the type of products most customers would purchase. Before they manufacture and sell, they ask what to manufacture and sell. This in turn creates a sense of belonging to the community for the customer. For the retailer, it decreases the risk of manufacturing and stocking up on lousy products.
Crowd-founding is another way of tapping into the market and pretailing. We all know Kickstarter but other, more product-oriented crowd founding platforms fare even better for this concept.
CrowdSupply and OutGrow.me are just two places where you can see what customers have backed before manufacturing. The products we can see there range from open source toothbrushes to one-wheel skateboards.
The results are amazing. With unlimited creativity comes an unlimited supply of innovation. And by tapping into a large market of early-adopters, only the products that are really fit for distribution get funded and survive.
Big retailers have picked up on the trend and are now using pretailing to test new products and improve their logistics to fit the estimated demand. Apple, for example is one of the companies that showcases products before they are available in retail stores, interacting with developers and customers to improve the experience.
Beyond the crowd-founding and crowd-sourcing, pretailing can come from anything involving large numbers of potential customers. By tapping into online traces, retailers can get insights on potentially succesful products.
Pretailing can start with a simple research with Google Trends. It can be an analysis on the search trends on your own web store.
It can just as well be an overview of the most popular trends on Instagram. For example Crane & Canopy releases new high quality duvets basing their decisions on Pinterest and social media trends.
The conclusion is that in this highly competitive market, retailers need to engage their customers before they start the retail process. Pretailing means tapping into the wisdom of the crowds and extracting the perfect products before competitors do. It is not only a matter of product development but a matter of understanding the customer and providing the best experience on the market.
For a very long time, retailers used a linear approach to the supply chain. It meant that merchandise flowed in just one direction. Products would move between the manufacturer, the wholesaler, the retailer and onto the sales channel. This sales channel meant the brick and mortar store, in all its variations, for a very long time.
With the internet revolution came the concept of eCommerce, where customers would place the orders on an internet store front and they would receive it at home. Medium and large retailers used the same method of silo-management to the online store.
The "silo" approach meant that each new sales channel would be treated as a separate silo, independent from the other stores. That worked for the previous concept of brick and mortar stores, so it had to work for the ecommerce approach, too, right?
Not quite. The concept of having an online store work as a separate operation doesn't fit the profile for the new consumer. The fact is that there are very few exclusive online shoppers. People like to spend time in stores, touching merchandise, they spend time on social media, get informed, place calls to ask for info and generally live in a complex world that mixes online and offline experiences.
Customers demand new options from retailers, things such as "buy online, pick-up in store", "order in store, receive at home" – just some of the many challenges retailers face right now, trying to connect with the new consumer.
To go from being a retailer to being an omnichannel retailer, companies need to step up their game. And it's not just marketing or hardly operational shopping programs. Customers demand a real change in the way they are engaged. Companies such as Macy's have invested in creating experiences that handle multiple journey maps for their customers and the results are satisfying.
To achieve this, retailers need to adopt an omnichannel supply chain. The biggest difference between this type of approach and the previous is the fact that it is omni-directional. Whereas the classic supply chain was mostly linear, flowing from one place (manufacturer) to the other (customer), the omnichannel supply chain flows across many boundaries.
To achieve relevance in the omnichannel age, retailers need to be ready to handle:
The omnichannel supply chain is not easy to achieve. Medium and large companies are caught up in a web of systems and processes that may have worked 10 or 20 years ago but they are now obsolete. The linear approach to supply chain management and marketing is really not their best bet. The change in consumer behavior is irreversible and the omnichannel supply chain is one of the most important changes in today's retail.
So you've got this far. Starting an Online Store is a lot easier when you've got the right info and this is the place where you can find it. It takes a lot of drive do get through Part 1 and Part 2 of this guide, so good for you!
During this part of the guide, you'll get a better understanding of what fulfillment means and how to build a company that can effectively manage orders and ship the right products to the customer.
Good, good fulfillment. Yeah! But wait …
Good question! Although the term fulfillment is used quite a lot, not everyone has a clear grasp on the whole idea. I mean – why fulfillment? Well, it's actually a pretty simple concept. Order fulfillment is anything that has to do with fulfilling your promise to the customer. That promise is you're going to ship the products they've purchased, those products are going to be in good condition and they will arrive as soon as possible.
Fulfillment also covers the reverse process (also called reverse logistics). That means getting merchandise back from the customer. That type of operations happen:
So basically when your ecommerce business is fulfilling an order, it is actually making good on its promise to deliver merchandise in the best way possible. Although the concept is not that really hard to grasp, making it happen is a little bit harder.
In order to make sure your fulfillment operations you'll have to look for the answer to four very important questions:
Fulfillment is probably the most complex and tedious part of ecommerce. It is also the one thing that is the least talked about in terms of ecommerce. It's not flashy and it's not cool. It's complex, involves a lot of tweaking and a lot of work to getting it right. While most ecommerce guides will point out to the importance of picking the right shade of orange for the "Buy now" button, few will speak of how important fulfillment is.
Just to get a glimpse of how important fulfillment is – think of your car. While having the right color and the right type of leather is important, the car won't start without an engine. Fulfillment is the engine that keeps ecommerce going.
There are just five basic steps in fulfilling ecommerce orders. Four of them are mandatory and one is optional. Hopefully you will cover this last step as few times as possible. These five very important steps are:
Overview of the Fulfillment Process (including returns)
Customers will place the orders through one of your sales channels. It may be your online store, on the phone or through a mobile application or a pop-up store.
There is a great variety of order management software out there and later on on this guide will get through some of them. It matters less what you will be choosing later on. What matters from a fulfillment standpoint is what the order info should contain. Here is the minimal information you will be needing:
Most of the time, you will be receiving more info from your order management tool but these are the essential blocks of information to keep in mind.
Before moving on to the actual order fulfillment bullet points I have to make a point. You don't HAVE to fulfill the orders yourself. Some companies outsource their fulfillment to other companies. My advice is you should keep most of your fulfillment operations within your company. You won't be able to ship products across the globe but you can pick, pack and carefully wrap orders for your customers.
When medium and large online stores are fighting each other over consumer mind share, we only see the marketing and superficial aspect of this battles. But the fact is, underneath all this visible struggles, the real battles are won in the warehouse. Your real chance for success stands in picking, packing and shipping the right products, within the timeframe you've promised.
It may seem hard to handle fulfillment operations and it sure is. But because it is hard, you have to master it before the competition does. Walmart and Amazon, two of the largest retailers in the world, are also two of the best supply chains in the world. It's not that these companies have developed spectacular fulfillment operations because of their huge sales but the other way around.
Glad we've got that out of the way. Now – what's the best way you can receive products in your inventory?
It all starts with an order to your supplier. It is usually called a "Purchase Order" as you are placing an order to purchase products. We will assume that you have already set up an agreement with your suppliers and they will ship the products. You will probably pay as you place your order, when the order arrives or at a given time after the order has arrived, if you have agreed as such with your supplier.
Once the products have arrived at your warehouse you will need to:
( Basic check list when receiving products from the supplier )
Placing the products in the inventory is a very important part in receiving the products. The better you keep track of where the products are, the less time and effort you will need when picking and packing the products.
When placing the products in storage you need to keep in mind some very important aspects:
Hopefully at this point you have managed to get the products in your inventory, they are correctly marked and stored and you are ready to pick said products for the orders you are going to be shipping.
Once you have the products in the inventory and orders are coming in, it's time to process these orders.
Order processing is split between four main areas:
Picking is probably the most time consuming part of order processing. It also gets a lot more complicated as your business grows and it may be prone to errors. Having more products in your inventory will increase the complexity of picking the right products in the fastest way possible.
If you've managed to place the products in the right spots (as stated in the step above – receiving products) your chances of correctly processing orders increase big time. The reason is it will be easier for picking staff to move fast through the aisles and pick the right products.
To have a streamlined picking process that works just as well with 10 orders per day or 1000 orders per day you have to decrease the chances for errors. To do so, your picking staff will cycle through these steps:
( A basic example for a picking list )
Packing is the next step in the fulfillment operation. Once the products have been picked from the corresponding aisle, shelf or bin, they are sent to the packing station where they will be split into orders and prepared for shipping.
The packing operation is usually split into these further steps:
Once the products are placed in the right package, a quality control station will check for any errors that may happen.
Quality control personnel will usually check for one of the following errors that may appear:
Once the products have been picked, packed and quality control made sure there were no errors in the order management process, the package is ready for shipping.
Online stores usually partner with one or more shipping companies to deliver the goods. The shipping station will check the package weight and direct it to the right shipping partner.
Most shipping companies will provide you with a general framework on how to handle packing and preparing for shipping. Here are the most popular ones:
When these companies (and others) will charge you for their shipping services they will take into account some (or all) of the following variables:
Once the orders are picked by the shipping company, the order status is constantly updated so customers and the online store knows where the packages are at the moment.
When the products are delivered the status is updated and the order is confirmed. After this point the product is in the customer's ownership and any reverse process wil be treated as a return.
Oh, returns – can't live with them, can't live without them. Just kidding. A clear and friendly return policy is what sets the likes of Zappos.com apart from the competition. They will let you return the products you've purchased within 365 days, free of charge and as their return centers will check the products you will be credited within 7 days with the money you've spent.
Ecommerce customers love a great return policy and you need to be ready to handle one. The logistics involved in such a return process are usually dubbed reverse logistics. This means you will reverse the steps mentioned above.
Basically you will unship the products, unpack, unpick and un-order everything.
If you offer free shipping, you will have to handle the shipping costs from the customer to your return center (for small and medium companies, the return centers are the same as the fulfillment facilities).
Now, the big problem when getting information on handling returns is that most of the resources out there are either
What will follow will hopefully be a bit more relevant and a bit less boring. The big idea you have to keep in mind is returns are the reverse process of everything you have read so far.
You will have to tailor the following concepts to your specific company structure, accounting, IT systems and processes.
That being said there are three main areas you need to focus:
There are usually three main options to do this:
Once the products are back at the fulfillment center you will have to get them back into inventory. The process is similar to what you would do if you were to receive goods from your supplier. The main differences are:
Once the products have been checked and returned to the inventory, you will need to issue a refund to the customer and inform said customer of these changes.
And … that's it.
It may seem complicated right now but keep in mind that thousands of online store owners are doing all these things. Now that you've got the basics, you will be able to deal with most of the operation challenges you will face. If there is anything else you need to know – just ask in the comments sections bellow.
This concludes this part of this guide. This is probably the hardest and the most important part of making your store run smooth. It involves many operations, usually lots of people and it needs to be built in such a way that it will easily scale when your company is growing at double digits.
Next week we will focus on branding, designing and choosing an ecommerce platform for your online store. See you soon!
Last week we've covered the basics of starting your online store. We've talked about choosing your market and your particular niche, We've covered the main questions you need to figure out before you start building your actual store. Finally we went through the main business models and scanned some of the most innovative and interesting implementations in B2C (business to consumer) ecommerce.
Now that we've covered the basics, let's turn your idea into a real store. This part of the "Starting an Online Store" guide will show you how to register your business and how to build the operational basics for your store. At the end of part two of this guide you'll know how to find the right ecommerce suppliers, integrate your business with said suppliers and set the prices for your products.
Note: This part of the guide is intended to work as a guide mainly for readers in the US. That's why some of the acronyms and type of companies you'll find in here are going to be aimed at those of you registering your business in the US. If you are registering your business elsewhere please leave a comment as to where you intend to register your business and I will try to get back to you with more info.
That being set, most of the information you'll be reading here is in essence applicable in other countries or regions. Even though business structures may have different names and have slightly different usage in different parts of the world, their purpose remains pretty much the same, as globalization tends to level the playing field.
Sure, planning and building your business is a great way to spend your time and effort. But you also need to work as a legal entity.
There are basically two ways you can register your business:
You can start as a Sole Proprietorship (the most popular type of business for ecommerce entrepreneurs) and move to other forms of businesses as your chances of success increase.
If you are the sole owner of an online business, the Sole Proprietorship (also known as DBA – "Doing Business As") is the easiest form to register and manage your business. It actually works as an alias for the individual doing the business. Because of this, the owner is personally liable for the company. That means that all debt is imputable to the owner. However, as Sole Proprietorships are usually low-liability businesses, a lot of startups work under this type of legal entity.
The second big option in starting an un-incorporated business is the General Partnership. In Partnerships, more individuals get together to start some kind of business. Just like the Sole Proprietorship, Partnerships are easy to set up and manage and because partners share equal control on the company, the liability and profits are also shared.
Like I've mentioned above, the second category of companies falls under the "corporate" model. When you're incorporating your company you don't become a corporate behomoth and you don't automatically get billions in revenue, as you'd expect. It just means you're operating under a different set of rules. Plus you get to do a lot more paperwork and pay some extra taxes.
Pros of incorporating the business
The most important reasons to incorporate your company as an entrepreneur are liability protection and documenting deals with partners.
By far liability protection is the most important reason to incorporate your company. Under a corporate structure, your business is treated as a separate legal entity. If things go awry in your business (and sometimes they do) the company is liable for paying all debtors, not you. That, of course, if you have been operating your business in a legal manner.
Basically, registering as a corporation will keep your assets (house, car, golf clubs) protected from any issue that might arise operating the business.
The second important reason to incorporate your company is documenting a business deal with partners. Whether you are raising money from investors or selling shares in your company, you need a corporate structure to do this.
Cons of incorporating the business
You may hear other reasons why you should incorporate your company, things such as tax benefits, business credit and transferable ownership. But don't rush to register your corporation just yet. Most entrepreneurs are doing just great running un-incorporated business in the beginning. Tax benefits are usually tangible when your company is already successful enough. So if you are just a startup, you can probably forget about tax benefits.
Building business credit means companies are evaluated independently from their owners but that doesn't necessarily have to be a good thing. If you are a startup with no cash in the bank, no sales and no clear plan, that fresh business credit won't be of help much.
Finally, saying an incorporated company is a lot easier to transfer to other individuals or companies leaves out a very important aspect. Before transfering your company (hopefully selling it for lots of cash) you need to build this company. So again – this won't help you that much either.
But the biggest disadvantage small businesses that incorporate have to face is paperwork. Lots of paperwork. You will have to fill in state reports, organize annual meeting and deal with involved bureaucracy.
Then there's the fees. You'll be paying fees for legal council, tax filling and others. Professional help is not cheap. Plus you get the minimum franchise taxes and others. These amount to thousands of dollars in fees, which is a bit much for small business owners.
So incorporating a company is no easy feat. Or better said – it's not easy to manage an incorporated company if you are a small business owner.
But if you do find yourself in need of incorporating the business, here are the most important type of corporations you can choose:
You have probably heard one thing or two about LLC (Limited Liability Company). It's the most popular form of business among small and medium businesses, including online store owners. It combines what is called pass-through taxation for its members with the limited liability corporations provide.
Although not technically a corporation, it is a great choice for those that want to join a limited liability partnership. It basically works as partnership or sole proprietorship in terms of taxation. This means the owners (called members) pay taxes on the LLC's profit directly. The company doesn't fill taxes separately, which makes things a lot easier to manage.
This types of businesses are actually pretty young as a commercial concept. The LLC structure was first formed in 1977 and now it's accepted in all US states and a throughout most of the world.
At the heart of LLC stands the "Operating Agreement", a document signed by all members, setting the rules under which the company will be managed. It covers things such as profits sharing, company management, adding or removing members and more.
The LLC is the most popular choice in the world right now for forming partnership, usually chosen by groups of up to 5 members.
Although starting and managing a LLC is less complicated than a corporation, it is still more complicated than starting and managing a sole proprietorship or a partnership. You will probably have to hire a legal counselor to help you with the set up and operating the company.
The Regular Corporation is … well … the corporation. A company organized as a corporation is a separate legal entity from its owners (called shareholders). The company can thus protect owners from liability issues or company debt.
The corporation provides advantages such as:
Once the corporation is set up, it will pay taxes separately from its owners. This can lead to double taxation as companies are taxed on profits and once those profits are distributed, shareholders will also have to pay income taxes. The double taxation problem is solved by incorporating as a S Corporation (see below).
Corporations are not necessarily ran by its owners. The shareholders own company stock. This gives them the ability to elect Directors, organized under a board of directors. Once this board of directors is set up, they appoint Officers (CEO – Chief Executive Office, CFO – Chief Financial Officer etc.), which are the people that actually run the company on a daily baisis. Of course, if you own 100% of stock, you can appoint yourself as the one and only director, be the officer and run the company.
On the other hand, if your company will be owned by more individuals, the Board of Directors and the Officers will run the company. Both the Board of Directors and The Officers have to abide to an internal company document called "Corporate Bylaws". This document sets the rules on operating the company and can be extended or modified as the company evolves.
The Corporation is a lot more formal than the LLC and of course, the Partnership or the Sole Proprietorship. The records have to be carefully maintained, there is a mandatory yearly Directors and Shareholders meeting and every decision has to be documented and reported.
Although the corporation is harder to form and maintain, it is the oldest and most reputable form of business organization.
When registering as a corporation, you should take into account the S-Corporation. By filling in the appropriate tax election form to the Internal Revenue Service, the company will be taxed as a Sole Proprietorship or a Partnership.
The main advantage for you and your partners is that income and profit is passed through to the shareholders, thus solving the double taxation problem mentioned above.
Even though you've solved the double taxation issue – you're still stuck with the paperwork and specific regulation, which can be a burden for online retail startups.
To wrap things up, here is a rundown of the main types of incorporated business structure you can choose, each with its own pros and cons:
Once you have decided on whether you're registering your business as a sole proprietorship or incorporating it you can check the specific regulations for your state here and start the registration process.
You've figured out your market, planned on how you'll build and run your store and what your business model is. You've registered your business and you are ready to go. Or are you?
Well hold on there, you still need to have those products you're selling. That means you need to source your merchandise from suppliers.
Generally speaking, suppliers are those businesses or individuals that are willing to supply you with products priced below end consumer value. Still a bit unclear? Well say you will be selling plain t-shirts. You know you can buy those t-shirts for $20 at the closest store. If you do buy t-shirts in that store, you will be buying them at end consumer value. You are the end consumer. Because you cannot price them at a higher level you are basically stuck with them – hence the "end" in end consumer.
What you need to do is go find yourself some suppliers that are willing to sell you those t-shirts for less than $20. Why would they do that, you say?
Remember the whole B2B business model? Some companies just work this way. They manufacture the products or sell them in bulk and let other companies sell directly to the end consumer.
( The basic operations needed to run your store )
When dealing with suppliers you have to be ready to make a commitment before they agree to do business with you. This commitment can come in many forms but usually it's one of the following:
Once you've made a deal with one or more suppliers you will be selling your products right on your store. When the orders start pouring in (or maybe just trickle in the beginning) you have to make sure customers receive the products they've paid for. This part is called "fulfillment" as in fulfilling your promise to send the product to the customer in exchange for the payment you have received.
Fulfillment means any task done inside or outside the company that assures the right products are shipped to the customer. Usually this means:
We will talk a lot more about fulfillment later on in this guide but for now I just wanted to give you an overview on the usual processes in handling orders and shipping products to the end consumer.
Fulfillment can be done either within your company, by the supplier or as a mix between the two. Let's have a look at these scenarios:
Usually, most online retailers (such as yourself) choose a combination between the two and maybe some other processes.
( The example below is illustrated in the figure above. Combining basic operatiosn with supplier drop-shipping. )
For example, let's say you partnered with two suppliers (see figure above). Supplier A will provide you with plain t-shirts. Supplier B brings in sneakers. After you start your store you receive two orders. Customer X is asking for 2 plain t-shirts. Customer Y is asking for a plain t-shirt and a pair of sneakers.
You will have to treat these orders differently. Order number one, the one where customer X paid for 2 plain t-shirts is forwarded to Supplier A and he will dropship these items and then invoice you for the products.
Order number two is a bit more complicated. You will have to ask supplier A to send you one plain t-shirt (if you don't already have it on your inventory) and Supplier B will send you a pair of sneakers. You will be invoiced on those products and once you have them in your warehouse you can pack and ship them to the customer.
You can also choose to work with external fulfillment services, such as Fulfillment by Amazon. These services relieve you of the burden of picking, packing and shipping your orders. For a cost.
By building and interlinking separate operations such as those mentioned above, you are actually building what is called a supply chain. The supply chain means any interlinked process that enables you to move products from the manufacturers or wholesalers to the consumer.
The supply chain is not a static structure. It can and it will change as your online store evolves. As you add new suppliers to your supply chain, your ability to distribute products to consumers will increase and so will your revenue. But speaking of adding suppliers to the supply chain …
Yeah, how DO you find suppliers for the online store? Now that you've got a sense of why you need suppliers, how to negotiate and deal with them, let's have a look at how to actually find them. When you're looking for merchandise suppliers you'll see that you have two big options when choosing, each with its pros and cons. These two options are domestic suppliers and overseas suppliers.
Assuming you are in the US, using domestic suppliers will be a very viable option but you should also consider the second. Overseas suppliers can be a great addition to your supply chain. They can be used when in need of additional product options or lower prices. Let's have a look at the pros and cons of using these two types of suppliers.
( Directories providing links to domestic US suppliers )
The most important thing you need to remember when dealing with overseas suppliers is that you have to be very, very careful. If you are inexperienced, you should ask for professional advice on how to get the best deals and protect yourself from fraud. Also – if you do find yourself in need of doing business with overseas suppliers, choose to contact those that provide a local sales office or agent or order using established marketplaces that provide escrow payment options.
( The most reliable services that connect you to B2B suppliers overseas )
Although the services mentioned above are a great way to find the right suppliers, you can also do your own digging and search for independent manufacturers or wholesalers.
There is no standard way of doing this but some tips may help you get closer to your ideal suppliers:
So hopefully you now know a thing or two about finding suppliers and you're going to get the best deal possible. Great! What's next? Oh, yeah, prices:
When it comes to pricing, you have two rather simple concepts to always keep in mind:
Basically, the prices of sold products have to cover the sum of these expenses. The bottom line is always the same: Profit = Revenue – Costs.
Your company will report a gross revenue by selling products. Profits come when you are selling enough merchandise, at the right price, to cover your costs.
Of course, it's a bit more complicated than this but you get the picture. You have to price your sold products where you can be profitable. However, prices need to stay competitive to the market. This means that there's a balance you have to keep. Prices should be big enough to keep you in business but small enough to be competitive with other online retailers.
1. Markup on cost means you add a certain percentage to he cost associated with the product. It is usually a standard percentage somewhere between 15% and 40%, enough to keep you profitable and your prices competitive.
The formula works like this:
Item cost + (Item cost x Markup Percentage) = Price
Say for example we are selling plain t-shirts, with a cost of $20. We've set the markup at 30%. The the price would be:
$20 (Item cost) + ($20 x 30%) = $26
2. Manufacturer suggested retail price (MSRP) is another way small businesses can set their prices in such a way that they are profitable but not too expensive. MSRP is the price the manufacturer recommends to resellers so they don't start price wars that can benefit no one. This type of price setting leaves out a lot of options for the online store owner and should not be a general rule in the long run.
Above are just two of the simpler ways prices can be set to attract the consumers. We will get into a lot more details in the "Marketing your store" part of this guide so stay tuned.
For now, this concludes part two of the "How to Start an Online Store" Complete Guide. Part three will focus on building your fulfillment operation (picking, packing, shipping and returns) and how to build a brand identity and the actual store front. See you soon!
Featured image source: https://www.flickr.com/photos/27017674@N06/8915361750
If you are here you're probably thinking about opening an online store and you need some help to get your business up and running. The good news is you've come to the right place. This guide contains all the information you need to get your business started.
I'll guide you through the most important steps in starting an online store. You'll notice that, just like a car, the things that make an online store are usually under the hood. Of course, an efficient web store and a carefully crafted logo are important but even more important are the products you sell, where do you get them from and how you fulfill your promise of sending them to your customer.
Basically there are ten main areas you need to focus on when starting your online retail business. These are:
That's a whole lot of bullet points. Of course: an online store is still a business and businesses are not simple. If you're trying to build a business because you need money fast or because you're tired of your day to day job, you should stop reading this post right now.
The truth is building your store or any other type of business is hard work. Seems obvious, right? If it were easy, everyone would be running their own business. It's hard but if you are ready to take on this challenge, prepare yourself with grits and start chewing as much info as you possibly can. The more information you have and the more data you gather, the more likely you are to succeed.
This guide will work as a framework, an outlook on what you have to do to maximize your chances for success. Depending on your current location and specific market factors, you may need to adapt as you go but you can rely on this framework to guide you through.
So let's dive in:
There are three very important things to take into account when starting your online store and looking for your niche:
The first thing you have to understand is that your business has to provide value for other people. Just as people do, businesses strive for purpose. Without providing value in a clear and straightforward way, you cannot expect your business to be successful.
Find out what people need or want. A combination of both is great but if you have to choose, go for need – it is way better in the long run. Find out how you can supply these products or services. This is the value.
The second thing you have to take into account is that other online stores may provide the same kind of value. Do your research. Google the type of products you want to sell. Check Google Trends to see how the terms for your products have evolved throughout the years. Compare the number of product searches with the number of companies providing the same type of value you're planning on offering.
There is a dynamic between demand and supply that you cannot ignore. You are looking for a market that is booming but there are not many competitors. And that's were the third point comes in: you have to provide value for lots of people. You may like hoodies for cats very much. But it is probably not such a great idea. You are addressing people in your country (don't think you're going international just yet), who own cats, who think that dressing up cats is a good idea and who like hoodies. A pretty small market, don't you think?
The lower the market size, the lower your chances for success. The higher the market size, the higher are your chances at building a great business.
See the graph below on where you'd want to place your business in:
So there are two great combinations that you can choose. Both need as many customers as possible. You should strive for a market where there are plenty of people ready to buy your product.
The ideal situation is the one in the lower right corner. That's where few companies will compete with you and there are plenty of customers willing to buy your products. But to position your online shop there, you need to identify a need before the competition and quickly get as much market share as possible. However, in this situation, you'll need to market your products and your brand, advocate product usage and purchase. That means actually building a market. This is no easy feat for a startup.
The upper right area shows a combination of many competitors and many customers. This means this is an established market and you're more likely to succeed if you prove yoruself better than (part of) the competition. With slight adjusments to the business model, you can compete to established leaders (see below for innovative ecommerce models).
Once you have discovered the kind of product(s) you will be selling it's time to start building The Plan. You will notice that I'm using the term "the plan" and not business plan. That is because this is your plan. It has to come as a natural idea and set of targets you want to acomplish in the future with the business you're building.
There are nine big questions you need to answer here. You have to be as pragmatic as possible when answering these questions because when you start building your online store there won't be any place for wishful thinking.
These questions are simple but the answers are usually not:
Answering these questions will get you thinking and preparing for the future. You will notice that these are actually the questions you need to figure out the answers to when building a business plan.
However, take your time to think through these questions. Find information to support your expectations. Question your own assumptions because the market will surely do so. If you've taken into account all these questions you are likely better prepared to starting yoru online shop. Remember, "failing to plan is planning to fail".
You're probably thinking the ecommerce business model is pretty straight forward. You post some goods online, someone orders them and then you ship them and collect the big bucks.
Well, that is why you need to know that even if the logistics and operations may look the same in all ecommerce business, the differences can have a huge impact on how you're building yours.
I'll walk you through the 4+1 main segments of ecommerce business model. Than we'll look through different implementations of the B2C model (business to consumer), the one you're probably aiming for.
B2C Ecommerce is the most popular form of commerce online. The B2C stands for Business to Consumer and that's exactly what it means.
Online retailers (aka "The Business") will stock goods, post them online and sell directly to the customer ("The Consumer"). The Consumer will reach the web shop, browse and hopefully buy the items posted online. When this happens, the operational team will be notified. They will pick the merchandise from the warehouse shelf, pack it and ship it to the consumer.
(Illustrating the B2C ecommerce model)
Most of the online shops you are familiar with are focused on this type of ecommerce business model. Some examples you might be familiar with are Walmart.com, Target.com or HomeDepot.com.
But B2C is not just for the big players. Many ecommerce startups employ this type of business model. For example Bonobos.com and WarbyParker.com are doing just great selling directly to the consumer.
Bonobos is a fashion ecommerce retailer for men. The company manufactures and sells its own line of men wear and its main selling point is it makes shopping easier. How it does that? You'll find out later in this guide.
WarbyParker.com sells stylish eyeglasses and sunglasses directly to the consumer. It is a great example of finding the right type of product at the right time and packaging it with the right type of social activism twist. When you buy a pair of glasses from them, a social mechanism makes sure that part of the money you've paid go to those in need of eyewear in the developing world.
But wait, isn't Amazon a B2C ecommerce site, you might ask? Glad that came up. See, Amazon has started as a B2C online shop but since then it evolved past a single model. Most of its sales are still directed at the end consumer but Amazon also ships items to businesses (B2B ecommerce) through its Amazon Supply outlet. It also brings other sellers (businesses and consumers) in contact with its own customer database. This means Amazon is indeed the largest online retailer in the world, but it's not just a B2C ecommerce website.
Another business model that works great is the B2B Ecommerce model. In this model Businesses sell merchandise to other Businesses through an online shop.
You might wonder why even mention this model. I mean, couldn't those listed above just allow businesses to buy from their shops? Of course they could and most do. But here, I'm talking about a different type of companies, different type of products and most of all – different number of items purchased and different pricing.
(B2B model illustration)
Say you're a company manufacturing hoodies for cats. Supposedly your market is not as popular as the smartphone market and your factory can ship 1000 beautiful cat hoodies every year. You could, of course, open an online shop and ship these hoodies directly to the consumer. But you'll find out that it implies development costs, marketing costs, customer service costs and you just want to be in the factory all day, trying to finally manufacture the perfect cat hoodie.
Along come Business A and Business B. These companies are probably retailers and have an established commerce operation, with a huge database of customers and they think they can sell 500 hoodies this year. And they want everything you manufacture.
Before these companies came along you've done the math and thought: "My cost for each manufactured hoodie is 10$. I'll sell these hoodies for 20$ and make a nice proffit." But then you went on and started selling on your own and saw that including marketing, shipping and other expenses your cost rose up to 18$ and you're actually making only 2$. Not that much, is it?
But now both Business A and Business B decide they can offer you 15$ for each hoodie and they are going to buy everything you manufacture. On one hand they are offering you less than your asking price but in the end your earning 5$ instead of 2$ so you decide you're better off selling directly to Businesses.
This simplified scenario is the basis of the B2B ecommerce business model. It means that businesses (either manufacturers or wholesalers) sell directly to businesses and offer incentives to those that buy in bulk. The usual incentives are lower prices, extended payment conditions, free shipping or custom manufacturing.
Some of the most popular B2B ecommerce sites are Quill.com, AmazonSupply.com and of course AliBaba.com, the largest B2B marketplace, connecting businesses in China to buyers all over the world.
(Business to Business to Consumer business model graph)
This is a rather new type of ecommerce business model. It stands for Business To Business To Consumer.
How does it work? Say you have your own stocks and you're selling your cat hoodies through your very own ecommerce website and it works pretty well. But you're thinking – why not sell more?
So you think of new sales channels, the type of opportunities where your cat hoodies can sell even better if exposed to a larger number of customers. Kinda like Amazon or eBay.
Larger retailers, such as Amazon, offer you the possibility of selling on their own website. You supply the goods and post them on the Amazon Marketplace, for example, and next thing you know -bam! – your cat hoodies can be purchased by Amazon's customers. Depending on your decision you can either fulfill orders on your own (receive orders from Amazon, pick, pack and ship yourself) or just let them handle the logistics, through their Fulfillment by Amazon program.
So we've covered businesses selling to customers and other businesses. Shouldn't consumers sell to other consumers too? But they do and this area is actually booming.
Consumers usually meet other consumers through online marketplaces. By far, the most popular is eBay.com, the place where anyone can sell and buy anything. Even though eBay hosts businesses also, we will focus on the individuals selling their items through these type of systems.
The online marketplaces enabling C2C ecommerce help sellers post their goods online and buyers to find them.
There are many mechanisms in place to handle these transactions, things such as product showcasing, selling, payment and feedback. But if we were to look at what makes C2C marketplaces work this has to be the network effect and peer review. The network effect means that the more people engage in trading goods in a marketplace, the more people will come and more successful the marketplace will be. This effect also ensures seller and buyer lock-in: the more people are buying or selling, the harder it is for someone to leave the marketplace. The reason – where else will this person find so many customers or merchants?
The second big feature that defines C2C marketplaces is peer review. When you're buying or selling through this type of systems, you really don't know who's on the other end. And because relying on luck and having faith in the good character of people is not the most efficient solution, marketplaces introduced peer review.
When someone buys from a merchant and they get what they asked for, they offer a positive review. When they don't, and things take a turn for the worse, they slap the merchant with a negative review so others know the merchant is not to be trusted.
The same goes for the merchant. If the customer doesn't pay up or somehow tricks the merchant – there's always a bad review at hand to get things leveled.
Once these reviews start pilling up, they start working as a certificate of good standing (or bad standing). If you are a honest merchant or customer, you won't leave the marketplace that stores this certificate. That's because reviews are a valuable asset that help members trade in better conditions.
Why mention all these? Because building a C2C marketplace is really, really hard and expensive. For example eBay lost $100 million trying to enter the Chinese market before giving up to AliBaba. It's that kind of expensive so I would rather advise against building a general C2C marketplace if you're a startup.
You could, however find a niche where individuals are willing to trade with one another and cater to that specific niche.
For example: Etsy.com is famous for building the biggest handcrafted C2C ecommerce community. Uber and Lyft bring individuals in need of transportation in contact with those able to provide these type of services. In fact, Andreessen Horowitz, one of the leading Venture Capital firms lists Online Marketplaces as one of the most promissing directions for startups.
Yes, C2B (Consumer to Business) eCommerce is a thing. It might look a little off but there are great ways to start an C2B ecommerce business. There are also some great established services that help connect individuals to the businesses in need of their products or service.
(Consumer to Business Ecommerce Business Model)
Take this blog for example. You see those banners posted on the side? These ads are served through AdSense (a Google program that connects advertisers and website owners). What AdSense does is connect the individual (in this case a blogger) to those businesses in need of relevant advertising. In return for posting these ads, the blogger gets paid everytime someone clicks an ad.
Reverse auctions are a great way for individuals to post how much are they willing to pay for a certain product or service. A C2B Ecommerce site can collect these auctions and forward them to companies willing to fulfill them. For example – the basic model behind the likes of Groupon.com or LivingSocial.com is a combination between B2C and C2B. Companies post their offers but the consumers have to vote by purchasing these offers. If the minimal number of offers is not met, the offers are not activated.
Another great example of the C2B ecommerce model is Elance.com. The website is one of the first businesses that connected freelancers to potential contractors (usually businesses). Freelancers would go online, post their capabilities and those in need of their services would hire them for a limited time or project based.
Monster.com is another great C2B example. Yes, people posting their resumes and getting recruited is a type of commerce where The Individual is pitching The Business to buy his services (aka hiring).
If you're an one-man startup, this can be a great way to setup something quickly. In fact, most freelance developers or graphic designers practice this type of commerce. Either through large marketplaces such as Elance.com or just by posting their resume and portfolio online and getting orders through a simple contact page.
These are the four most popular and used business models but they are not all. There is a separate class of ecommerce business models that has to do with the government. When the government wants to buy products or services from businesses it will post the tenders on a G2B (Government to Business) portal that handles auctions and offers.
If the businesses want to market their their offers to the government, they will employ a B2G business model. See that? G2B vs B2G – pretty simple stuff.
A final model is G2C – government to citizen. Using this model, government authorities can auction goods directly to the consumer. It also works as a way of connecting citizens directly to the authorities and decrease bureaucracy when issuing documents or collecting taxes.
So you've glanced through all these great ways of starting an ecommerce business and you finally decided on one of them. The vast majority of online shop startups are built on top of the B2C business model so the next part of this guide will focus on a few innovative ways of implementing an online shop.
The basics all stay the same. You are still an online shop owner trying to attract the right kind of consumers and provide them with products they will love. But how about some inspiration from the most innovative business models out there?
Remember Bonobos.com we've talked about earlier? Well their whole selling point goes something like this: most men don't really like shopping. They like to wear clothes that make them look good, without spending too much time choosing. We can make this happen.
That is especially hard when you're an online store and your customer can't see, touch or try on the product your selling. But it can be done. To make it happen, Bonobos mixed its great designs with few things to keep the customers happy and relaxed:
The key take away is if you're building an online store, it has to solve a problem. Bonobos solves the "shopping for clothes is boring" men problem and promisses the right fit without the headaches of chasing a pair of pants all day.
There's a whole post on Netonomy dedicated to Flash Sales. Basically, these type of online shops sell discounted merchandise to registered members.
Take for example Ruelala (pic above). Customers have to provide the shop with their email address to register as a member. This means that basically anyone who enters the website is also subscribing to an email newsletter.
In exchange customers get discounted, usually designer or brand name products. If you like to know more about this ecommerce model, please click here.
Most online shops have thousands of products listed. This is a great advantage over brick and mortar stores which have to actually stock on all those products. Online shops can stock on the minimal amount and later on deal with orders through supplier dropshipping but more on that later.
A new trend emerged that deals with showing just the right amount of products customers need in a given period and ship those products in a subscription based model.
Take Manpacks.com for example:
What Manpacks does is list just the minimum amount of products men need in any given month. Customers setup their pack and receive it every month, based on a subscription.
There are many advantage in starting such an online shop:
Are you familiar with the term crowd sourcing? It basically means asking lots of people to do something for you or your company. In this case, we're talking about designing products.
What Threadless.com did was build a community around the concept of designing t-shirts. Designers would submit their designs and the community would choose what t-shirts were sold. In exchange, the website shared revenue with said designers.
Of course, going against Threadless now is probably not a great idea but you can always build a business by channeling people's passion towards a commercial goal.
Mass customization is an ecommerce segment that's growing really fast. Customers want to express their creativity and they are ready to pay for this.
This type of online sales are technologically advanced and need three really important things to function:
For example Nike launched NikeID, a great way to customize their products. After a successful trial period, the program extended to many of the company's products.
If you'd like to find out more about mass customization, you can get more info at "Is Mass Customization the Future of eCommerce?"
The final innovation I think you should take into account is 3D printing. Using specially designed machines you can build 3D objects and sell them to customers.
3D printing is a technology that is actually yet to take off but it sounds really promissing. For certain products it can mean a reinvention of manufacturing and commerce. Imagine having your customers build the product in your store and having this product instantly printed and shipped. Imagination is the only thing that could limit what can be done with such technology.
Shapeways for example, started in 2007 as a marketplace for 3D Designers willing to design and sell their ideas. In 2012 it has passed the 1 million products sold threshold so there really is a market out there.
Because it is connecting designers to buyers, Shapeways is a C2C marketplace but probably the future will show 3D printing is not restricted to individual designers so B2C online shops might also leverage the trend.
This was the last of the six innovative ecommerce trends you could use to spark the right idea for your future shop. This ends part one of this guide. To wrap things up let's walk through what you've learned here. First – the importance of finding the right niche and how you cult do that. Next, you've learned about the necessity of building your Plan when starting an online shop and the questions you need to answer when building said plan.
Last but certainly not least, you've discovered the main business models you can use to build your shop and six of the most innovative B2C ecommerce models. Pretty good for a day's work.
Featured image source.
Achieving clarity in Omnichannel Retail is no easy task. Retailers, especially large ones, need to get all departments, all sales channels, suppliers and fulfillment operations on the same page.
And that’s just the first step. Then comes the IT integration where legacy systems are connected to a central management tool that handles at least inventory transparency, CRM and order management across channels.
Omnichannel Retail is not mainstream right now. It is still in its infancy. Sure, some are more advanced than others and some companies are building the future faster than others. But the truth is omnichannel is a need to be fulfilled for most retailers.
And here come the knights in shiny digital armor to rescue the day. The following 5 vendors have built omnichannel retail capabilities ready to be plugged into existing retail ecosystems. They are now the go-to elite for large retailers in need of upgrading their IT infrastructure.
Shopatron was founded in September 2000 by Ed Stevens and Sean Collier. Since then, it has evolved into an integrated SaaS platform that connects offline and online orders management, making it easier for customers to purchase from retailers.
The company offers specific omnichannel solutions, most important being:
Shopatron targets midsize retailers and its main benefit is the advanced order routing. The platform combines online and offline sales and claims inventory visibility across channels.
NetSuite was already rocking a great SaaS ERP product and a fully flavored ecommerce solution when it acquired OrderMotion in 2013. Now the company can provide inventory management across channels, a single customer view, business intelligence data and omnichannel order management.
The company, among the first to bet on SaaS platforms, is now one of the fastest growing companies in the field, closing 2013 with $414 million in revenue. The revenue is up 34%, which is a big win for the company initially backed by Larry Ellison.
NetSuite started as NetLedger, envisioned as an online accounting tool, that later turned to an wider array of company management tools.
The past two years have been very active for NetSuite in terms of omnichannel related acquisitions. In 2013 it acquired Retail Anywhere, a POS solutions company. In 2014 it acquired both Venda, an ecommerce SaaS company, and eBizNet Solutions, a company focused on WMS (warehouse management system) solutions.
Netsuite has decided omnichannel is a perfect mix when it connects companies focused o separate blocks in the retail chain.
PayPal is not the only jewel in eBay’s pocket as it seems. eBay Enterprise (formerly known as GSI Commerce) is one of the fastest growing and biggest companies providing technology and consultancy for omnichannel retail.
The company delivers four big solutions to its customer base:
Unlike the other companies on the list, eBay Enterprise goes beyond software integration and into marketing and operations. In terms of retail solutions, eBay Enterprise provides support for commerce integration across channels. The company integrates the main sales touch points, with the help of its omnichannel tools:
The omnichannel operations tools cover a lot of ground and can be used in fulfillment operations, customer care and store based fulfillment.
IBM stands for a lot of things and among them it had to be omnichannel retail also. The tech giant offers technology to retailers in need of:
Its Websphere Commerce solution connects both online and offline sales through its different versions. It handles cross-channels inventory visibility, distributed order management and scales as you would expect from IBM.
At the core of IBM’s order management and inventory tools you’ll find components IBM acquired in 2010, when it purchased Sterling commerce. The transaction cost IBM $1.4 billion but brought in 18.000 global customers.
The Websphere commerce is a great fit for large companies and powers some very well known brands, but it is somewhat a not so great fit or midsize retailers.
Hybris, now a part of SAP, is probably the best fit for omnichannel retailing. Hybris is a dynamic company focused on growth and delivers constantly on market needs.
The omnichannel solution is scalable and built on a modern and flexible architecture, that allows interaction with all interfaces. Its order management solution, inventory and commerce application are built to work together seamless and easily connect with other systems.
Hybris’ solutions work both B2B and B2C and can handle inputs from multiple inventory sources and outputs on multiple sales channels. Moreover, the solution features a central content management system that enables retailers to push content across a multitude of interfaces.
As of 2013, Hybris is a part of SAP, making it a global powerhouse connected to the world’s most popular (well, at least used) ERP.
So that’s it – these are the best of breed. Of course, there are more out there that deliver great products and I could name Intershop, Demandware or even Oracle. They, however are less inclined to omnichannel or have a really new found love for omnichannel retail. The vendors mentioned above are leading the pack in omnichannel retail implementation, especially for large customers.
Amazon is testing drones and Google is building self-driving cars. At the same time Mercedes and Volvo are each developing its own solution for moving goods by truck in a driver-less manner.
Building driver-less trucks or at least improving the truck’s autonomy in a way to improve the driver’s performance could be huge for logistics.
How big? Well, in 2012, the US logistics industry totaled $1.33 trillion, 8.5% of national GDP. In that year, truckers moved 9.4 billion tones of freight, 68.5% of all freight transported in the US (source). To say that trucking is big is really an understatement. The trucking industry is backbone of global logistics. Without it, there would be no retail as we know it.
But moving billions of tones of freight is no easy task. To do so, truckers need to eat, rest and be alert during the whole trip. The trip itself has to be as fast and as cheap as possible. Otherwise, logistics would become useless or too dangerous to drivers.
Volvo, Mercedes and others are tackling a very difficult task: how could one improve the trucking industry in a way that can replace drivers in the future, but be met with joy by said drivers. Technology may replace truckers one day but today, they are the one in charge so truck makers need to make their job as easy as possible without making it useless.
Volvo has joined European backed project SARTRE that aims to make highway driving safer with the help of road trains. Simply put, car and truck drivers can join a group lead by a professional driver. While in this highway group they can relax and the cars will do most of the work by just mimicking the leader car.
This will mean fuel efficiency, safer roads and of course longer trips which logistics companies could really use. The video below shows a demonstration on how cars can connect through wireless technology and copy the leader car movements. The technology could hit the roads as soon as 2020, if legislation is in place.
“It never gets tired. It’s always 100 percent and sharp. It’s never angry; it’s never distracted” said Dr. Wolfgang Bernhard, the Daimler board member for trucks and buses.
This year Daimler launched a truck prototype dubbed “The Future Truck 2025″. The truck can accelerate, steer and stop by itself. It can also go up to 85 km/hour (52 miles/hour), it navigates with the help of a built in GPS system and looks a bit like a starship. The driver needs to get the truck on the highway, merge with incoming traffic and hit the “Highway Pilot” setting. From that point on, the truck driver can recline in his comfortable chair and take a break. At any point, the system can be overridden by the driver.
However, The Future Truck 2025 won’t be joining our highways for a few years from now. Legislation for self-driving cars or trucks is not yet in place but Daimler is patient enough to get us and legislators prepared for it.
Once these trucks will hit the market, drivers will be ready to carry more freight, ship orders safer and farther. Logistics companies will improve costs and will be able to increase their reach. In the end – technology will do what it has always done: make everything faster, better and cheaper.
So why not bet everything on ecommerce? Why change direction again and include those “old” brick and mortar stores, and warehouses and such? Why build omnichannel retail facilities?
Short answer: because the customer is not a robot. The customer does not have to shop online. It will shop online when it feels better.
Ecommerce is indeed a revolution in the way we do business and indeed it has changed the retail landscape but consumers still exist in the physical world. Consumers do spend time online but they also walk by store fronts, they like to touch the products they buy and they like to see how fashion items, for example, look like in real life.
That means that real life stores will continue to exist. But so will online stores, sales call centers, interactive kiosks and marketplace outlets.
Retailers need to figure out how to connect all these channels. This new wave of customer centric retail is called omnichannel retail. The term means that no matter the sales channel, everything behind the scenes is connected. The inventory is universally available to all stores. The customer info is available on all channels also, so he or she can be instantly recognized and offers personalized. Product info is also available cross channels but most important – Fulfillment can be managed on all possible points so as to serve the customer in the timeliest and most effective manner.
One of the biggest challenges in omnichannel retail is fulfilling orders cross channels. Today, retailers that deal with both online and offline sales have to split fulfillment in two separate areas, each with specific operations.
The first is offline fulfillment, namely what happens in brick and mortar stores. Offline sales have been optimized to run on a pretty specific supply chain, not very flexible. It starts with the manufacturer, continues with forwarding merchandise to the wholesale buyer and then products end up stored in the retailer’s warehouses and stores.
Because ecommerce came as an addition to existing sales channels, it was added to the existing supply chain as a type of extra store, with its own specific operations.
However things got complicated when the web store had to split into the mobile store, the interactive kiosk, the marketplace outlet and others. Then customers wanted to buy online and pick up offline. But they didn’t stop here: they wanted to order in the store and receive home, ask for inventory info in the offline store and more. Pretty soon they started demanding it so now omnichannel retail is a question of customer service.
Retailers realized that what the retail world is facing is both a huge challenge in terms of customer demands and a huge opportunity. Those companies shifting their business strategies to fit the new, empowered consumer, will be the leaders of tomorrow.
But to do that, retailers need to develop new order management software hubs. These order management hubs need to connect all fulfillment options to all sales channels. That means that all stores, all warehouses, all suppliers, all drop shippers need to be connected and managed by an order management tool that filters orders from all stores, both online and offline, interactive kiosks, call centers, mobile apps and others.
Some companies are handling omnichannel orders just great. Others need to improve their policies and most of all their IT infrastructure. To do that they have to figure out what factors need to be taken into account when fulfilling orders. Here are the top 6 most important:
1. Proximity to customer – this obvious indicator will track which is the closest fulfillment outlet that can ship orders to customers.
2. Inventory levels across all fulfillment outlets – that includes inventory levels in the warehouses, stores, goods in consignment, drop shippers or even supplier and manufacturers. Yes, sometimes it can be more effective to ship directly from the manufacturer or the supplier than it would if the goods were shipped from the store or the warehouse.
3. Order split costs – orders that have more than one product per customer sometimes need to be split to multiple locations that have the products in stock. Products can be shipped individually or shipped to a single fulfillment facility (store or warehouse) and then shipped to the customer. Ideally, orders are fulfilled from the same point but sometimes that is not possible. In this case, the order management software should recommend the most efficient route products should take to the customer.
4. Information on customer history – fulfillment has to factor in the customer previous purchases and behavior. Retailers have loyalty programs that offer better costs and features to more loyal customer. A speedy fulfillment, complimentary gifts or just a thank you note may be outputs from the customer history.
5. Fulfillment capacity per location – estimating the maximum fulfillment load for each location can help prevent overload situations where store associates have too much orders to fulfill and can’t manage their day-to-day tasks. It can also prevent overloading several warehouses and leave others with zero workload, just because a specific area has placed more orders.
6. Seasonal fluctuations – stores get really crowded on holidays and store associates are way better answering customer questions than they are packing orders. Seasonal fluctuations need to be taken into account when implementing omnichannel retail.
There is no shortage of logistics needs in the world. As the world gets smaller, more products have to be moved. Recent changes in consumer behavior helped increase the volume of moved goods. Almost $19 trillion worth of goods were imported and exported in 2013, 5 times as much as in 1990.
This 19 trillion market is stuck for the moment with two very big problems leading to ineffectiveness. The first one is technology infrastructure. As goods move to and from very different countries and cultures, there is no unified backbone for making shipments happen. As such, logistics are somewhat slow, compared to other areas in the commerce landscape.
The second big problem is the last-mile delivery. The likes of FedEx and UPS are great at moving goods from New York to Shanghai and the other way around. They’re not really that great at building local delivery networks, able to ship goods fast and cheap. As you might notice, this is a bit of a problem for ambitious retail companies such as Amazon, Walmart or Alibaba, aiming for global dominance.
But worry not.
Investors have picked up on the opportunity to disrupt the $19 trillion market and have turned their investments to logistics companies. According to Crunchbase, investments in logistics startups went from 0.1% of total investments in 2012, to 1.37% in 2014. The total amount invested in 2014 in logistics startups ($1.8 billions) means an increase of 1370%. That is a sure sign that something big is really just around the corner.
As the market is ripe for disruption and investors are generously tapping into logistics, a lot of companies will be showing up on the logistics radar.
Among all these, here are 5 companies that might be the model these investors are looking for:
After Jeff Bezos announced Amazon is building a drone-delivery service, a lot of people (me included) were questioning whether this could be real or just a PR stunt. It seems that not only is Amazon serious about the drones, but it is also very focused on building the model for the next generation of logistics operations. It has invested more than $14 billions since 2010 in its warehouses.
It has invested in robotic fulfillment operations, purchasing and integrating Kiva Systems. Becoming one of the most automated fulfillment and shipping company, it leads the way in large scale ecommerce logistics. As a result, the company is improved its operations vastly. In 2012 it managed to ship 10 million products per day, leading to 1.05 billion products shipped in the last quarter of 2012.
It may come a shock to those reading this but the cargo industry is really in need of some technology updating. A lot of work in the freight (cargo) industry is done with the help of emails, spreadsheets and … fax machines.
Freightos aims to change all that with a SaaS product that connects those in need and those offering freight services. Unlike the previous way of managing shipping costs, Freightos provides a cloud application that can allow for real-time responses.
Remember the thing about the last mile the likes of FedEx just can’t handle? It turns out they really don’t want to handle that last mile. Large logistics companies in Hong Kong outsource 70% of their local operations, estimates Gabriel Fong, CEO of Hong Kong GoGoVan.
The company employs Uber’s taxi-hailing model to connect van drivers and those in need of moving goods. They basically replace the old and ineffective call center with a mobile app.
GoGoVan estimated that 35 000 of Hong Kong’s vans are owned by freelancers. These freelancers usually subscribe to a call center which can forward requests and lease radio communication equipment. It’s usually ineffective for both the van-driver and the customer so GoGoVan decided there is a market there.
Right now GoGoVan has 18 000 vans registered with their service so things are going great.
Uber started as a car-sharing service but soon turned into a multi-billion company, available in 45 countries and 200 cities. It has done that by allowing those with an acceptable vehicle play cab-driver for anyone willing to pay.
The company so far successfully dodged cab regulations and managed to change the way people move in the urban environment.
Lately they have figured out that if they can move people from point A to point B they can also do that with merchandise. After experimenting with a fast delivery service called UberRUSH, trying on a Corner Store service and shipping Christmas Trees, Uber got it: It can do logistics.
Specifically – urban logistics. After all – it really is not that hard to adapt the model to minivans (see GoGoVan above).
I can’t wait to get my online orders delivered in a black luxury sedan. Hear that, Uber?
Think about this – is there actually such a thing as an online customer? Or an offline customer? Or even a mobile customer? Definitely not. Consumers like to skip sales channels and fulfill their goals in the best way possible. Your customer can research for products online, ask friends for references on social media, test them in the brick and mortar shop and finally purchase in the web store. So it makes no sense treating customers as stuck in a sales channel. The Omnichannel experience, where every consumer can use given sales outlets as she sees fit, is now pretty close to utopia for many retailers.
But others are dedicated to making omnichannel a reality for their customers.
“Our goal remains to help our customers shop whenever, wherever and however they prefer, and to use the entire inventory of the company to satisfy demand,” Terry Lundgren, Macy’s CEO
As other retailers are facing declining sales and decrease in customer loyalty, Macy’s seems to be thriving. The company has seen recent increase in sales overall and a sharp increase in online sales (48% in 2013).
How did they do it?
Macy’s has lots of experience in customer service but the digital revolution took most retailers by surprise. Macy’s has dedicated a large portion of its yearly budget to improving customer experience through technology.
The company’s cost of sales rose to $139 million in 2014 second quarter. This increase was caused by “omnichannel business and the resultant impact of free shipping” which means Macy’s is betting big on its customers’ experience.
The results are great. Just short after Apple Pay was announced, Macy’s announced it will implement the technology in all stores. The company already allowed customers to store their coupons on the Mobile Wallet, that could be accessed anywhere – online, on mobile devices or in store.
Macy’s also partnered with Shopkick to increase brick and mortar traffic in its New York and San Francisco stores and now the company is rolling out the shopBeacon technology. The beacons give retailers the ability to push information directly to the consumer’s mobile device. It can welcome shoppers as they walk inside Macy’s stores, send out specific deals and recommendations and can be used as a way to redeem loyalty rewards.
Interactive kiosks were used to improve customer experience throughout brick and mortar stores. The kiosks vary in size and complexity, ranging from simple browse and order applications to more complex features. The “Beauty spot” kiosk, for example, improves Macy’s cosmetics section with an electronic make-up consultant. The system advises potential buyers on makeup and skin products that are best fitted for their needs.
Even store associates are empowered when answering customer needs. The company is now testing mobile and tablet POS that can connect to real-time inventory and offer quick responses to customer needs.
And if we’re talking about real-time inventory, you should know that Macy’s has been working hard at improving cross-channel operations:
In 2010 Macy’s piloted a store-fulfillment program in 10 stores. The idea was that if the company can connect inventory from individual stores, it can manage inventory better. As merchandise was sold sold online, stores would be able to ship orders directly, depending on their inventory levels or allow for in-store pick-up.
The program was a success and the company increased the number of stores that could ship orders. 13 more stores were added to the program in 2011. In 2012, 292 stores were shipping orders. In 2013 – roughly 500. The process will be finally completed in 2014 when all 800 stores will be able to fulfill customer orders.
As these stores began fulfilling orders two things happened. First – orders could be shipped faster, with the ultimate goal of same day delivery, thus improving customer experience. The second big change in Macy’s fulfillment was that using stores meant inventory turnover greatly improved.
With store associates empowered with real-time inventory data, orders began to increase. The store associates could locate items in other stores, and ship that item from that point, directly to the consumer’s requested address.
Macy’s discovered that the nearest store may not always be the best choice to ship the product. Sometimes a product sold in point A could have a really slow turnover so it should be shipped whenever possible. On the other hand, the same product could be in high demand at point B, closer to the customer.
The company didn’t stop here. With stores able to fulfill orders, the Order Online / Pick Up in Store program began in 2013. It was first tested in 10 stores during fall 2013 and began rolling out to all stores in 2014.
It’s not just the stores that improved their fulfillment functions. Macy’s is now expanding its direct-to-consumer fulfillment center in Goodyear to a mega-facility of 960 000 square feet which will be soon followed by an even bigger fulfillment center in Tulsa, in 2015.
So Macy’s is quick to implement omnichannel policies but is it worth it?
It’s worth it, all right. As you can see in the chart below, Macy’s revenue has been steadily rising, as opposed to some of its main competitors. It seems that 2010 was a real turning point for the company. And what year is that? Right, the year the company began to implementing omnichannel retail.
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