It seems it took nearly 15 years for companies such as Walmart and Target to finally realize that if they didn’t put more focus on eCommerce, their business may be swept up by Amazon.
We have seen Walmart and Target make strategic acquisitions or build partnerships with third-parties to expand their online business, but also improve delivery and pick-up services.
And there is the case of Best Buy, the leading electronics specialty retailer in the U.S. that embarked on a major overhaul of its business in 2012.
The company has made one of the most successful transitions to integrate physical stores and online retail.
Need For Speed
eCommerce is about convenience but also about speed. With Amazon continuing to open fulfillment centers all over the U.S., consumer expectations of when online orders should arrive have gone from weeks to under two days.
It’s probable that early on some big box retailers considered using their stores as fulfillment centers. But the reality is that retail operations and online fulfillment have very different operational requirements.
Even warehouse clubs such as Sam’s Club or Costco are not build to handle large-scale B2C fulfillment.
And traditional regional distribution centers that resupply local stores are normally designed to handle palletized shipments, not individual parcels.
One exception to this fulfillment reality may be grocery stores. With grocery, there is even a bigger need for speed and consumers that will shop online are going to expect delivery in hours, not days.
Amazon acquired Whole Foods Market in a bid to gain traction in online grocery shopping, and supermarket chains such as Albertsons and Publix are working with Instacart to service their online customers.
The “Need For Speed” is not just a video game anymore, but the key element that drives eCommerce success.
IKEA Opens “Next Generation” Regional Fulfillment Center
On Wednesday, IKEA announced they have leased 326,000 square feet of warehouse space in Lakeland, Florida, a popular distribution hub location for many retailers that service the Tampa, Orlando, and Miami/Ft. Lauderdale markets.
This new facility will service most of the Southeastern U.S. and is the latest addition to nine other regional distribution centers the company operates.
But what made the announcement interesting and showed a glimpse of how big box retailers are adapting to the Amazon threat and changes in consumer expectations was this line:
“The fulfillment center will focus on delivering items to customers who order products online. The site will be operated by DHL Supply Chain, a leader in contract logistics and a division of Deutsche Post DHL Group.
With nearly 1,000 suppliers in 50 countries, IKEA traditionally transports products globally to its stores through regional distribution centers. This customer distribution center and others in the future will augment the current U.S. distribution strategy and enhance IKEA’s ability to ensure product availability for customers shopping in-store or online.”
While IKEA did not call this a “next generation” distribution center, the fact they highlighted consumer fulfillment over regional store distribution with this new facility is very telling.
It is also very interesting to note the role DHL is playing in this fulfillment center.
Logistics Companies New Partner for Big Box Retailers?
On the surface, it appears a bit unusual for big box chain to reach out to a logistics provider to operate a distribution center unless they want expertise in B2C fulfillment.
But it appears that is the route IKEA is taking and may be one that other larger retailers may want to consider as well.
In the U.S. DHL does not offer end to end nationwide ground delivery services, but does operate fulfillment centers that utilize other shipping carriers for deliveries.
As we reported earlier this year, DHL has been testing a local delivery service called DHL Parcel Metro in Chicago, Los Angeles, and New York and is expanding service to Dallas, Atlanta, San Francisco, and Washington, D.C. by the end of 2018.
DHL Parcel Metro typically only handles smaller shipments under 25 lbs. But the logistics company does say on their website “DHL may consider larger parcels.”
This seems to indicate DHL may be willing to work with a customer to offer solutions beyond the standard capabilities of DHL Parcel Metro.
To be clear, there is no mention of DHL Parcel Metro in the IKEA announcement.
Presumably, IKEA and DHL will use other shipping carriers such as FedEx and UPS to ship packages to consumers.
But one shouldn’t be surprised if the I-4 corridor (Tampa/Orlando) all of a sudden appears on the DHL Parcel Metro map in 2019.
The Big Picture
While this article mostly discusses big box stores, the implications of the Amazon effect should be clear to any size business selling online.
IKEA realized their customers want fast delivery and it was only going to be a matter of time before Amazon may decide to disrupt their business.
Micro and small online businesses need to adapt to today’s consumer expectations that can only be blamed on Amazon which is fast and free delivery.
There is no getting away from this fact. All one has to do is look at why Radio Shack, Toys R Us, Hh gregg, and other major retailers are no longer around, or large retailers like Sears are on the brink of bankruptcy.
The bottom line is that these big box retailers didn’t properly plan for a consumer shift in shopping.
They either ignored or underestimated the threat that Amazon’s continued push for faster and free delivery would result in such a drastic change in consumer expectations.
IKEA is poised to not allow this to happen in their market. They may have been a bit insulated due to their product inventory as it typically ships in larger packages.
But with Amazon adding more fulfillment space and logistics ability, the giant eCommerce retailer is likely ready to scale up the home furnishings market.
With this “Next Generation” warehouse fulfillment model in collaboration with DHL, IKEA is making sure they can compete head-on with Amazon on delivery speed.
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