Pedal to the metal: Retail fulfillment trends driving fast delivery

After years of aggravating pandemic-driven supply chain and distribution challenges, brands large and small are feeling the need for speed this holiday season and working hard to optimize retail fulfillment.

Long gone are the days when retailers could afford to take weeks to deliver packages to consumer doorsteps. Today, 76% of consumers expect free two-day shipping with minimum purchases of $40 and 61% expect free next-day arrivals, according to a survey by Fabric.

Retailers, of course, have known this since Amazon’s highly automated distribution network set the industry on its ear several years ago. In fact, savvy retailers see a clear connection between sales and their ability to move products from suppliers to warehouses and down that last mile to businesses and homes.

“With faster delivery, we’ve seen a corresponding increase in demand, higher conversion, and more items from more categories brought into a shopper’s consideration for purchase,” an Amazon spokesperson told Insider Intelligence earlier this year.

With each holiday season, the pressure to keep up with competitors or even outflank them with faster and more on-time delivery options intensifies. There are three key trends companies are taking to optimize retail fulfillment:

1. Adding/expanding fulfillment centers
2. Going small with micro-distribution
3. Shrinking the last mile

Adding capacity with new retail fulfillment centers

With the global e-commerce market on pace to cross the $6 trillion mark by next year, according to eMarketer’s Insider Intelligence, retailers are doing their utmost to increase their fast-delivery capabilities. One of the top ways they’re doing this is by opening new, highly automated, large fulfillment capacity warehouses in the markets they serve.

These warehouses, which range from 600,000 to 3 million square feet, employ hundreds of people. In recent months, three of the biggest retailers have announced plans to expand their warehouse facilities:

• Amazon has been setting the bar for retail distribution for a while and is constantly announcing new fulfillment operations. Some industry observers say its warehouse expansion binge during the pandemic left it with too much capacity, leading it to slow construction. But the e-commerce giant has continued adding huge warehouses in place like Davenport, Iowa, San Antonio, Texas, Jackson Township, Pennsylvania, and Arlington, Washington.
• Target has said it will spend upwards of $100 million to expand its next-day delivery capabilities by expanding its “supply chain sortation network” by 2026. The retail giant hasn’t revealed where these operations will be located.
• Walmart in June announced plans to open four next-generation fulfillment centers of around 1 million square feet in Indiana, Illinois, Pennsylvania, and Texas (two are already opened), and recently revealed it will open a fifth by 2026 in Central California. The nation’s largest retailer says these centers will help provide 75% of the U.S. population with next- or two-day shipping.

Micro-distribution follows the customer

In a desire to bring distribution closer to where customers actually live and work, retailers have also been increasingly opening smaller, micro-distribution centers. These are usually freestanding of less than 10,000 square feet but are increasingly located within existing retail establishments in so-called market-fulfillment centers (MFCs).

For major retailers like Walmart, MFCs, with their partially robotic item pickup and retrieval systems, make total sense considering 90% of the U.S. population lives within 10 miles of one of their stores.

Joe Frampus, a managing partner with Avasant, a management consultancy, says a key advantage of the micro model is that it allows retailers to scale distribution up or down quickly in areas as customer demographics or demands shift. For example, college students who don’t have much time for brick-and-mortar shopping due to their busy academic and social calendars are known to be heavy online shoppers.

So, retailers are increasingly locating small fulfillment centers close to college campuses, Frampus says. Similarly, with millions of Americans fleeing big cities for suburban or rural living – and taking their shopping dollars with them – some retailers are relocating operations to those areas.

“These retailers all use very detailed analytics that are continually improving with the introduction of artificial intelligence,” Frampus says. “They’re able to say, ‘You know what? People are moving. So, let’s put something here and remove something from there.’ There’s a lot of that balancing going on right now.”

Rideshares & robots: Shrinking the last mile 

Of course, delivery doesn’t happen if products just sit in large warehouses, micro-distribution centers, or MFCs. Retailers still have to figure out the most efficient ways to get product down that last mile.

The method consumers are most familiar with are those Amazon, UPS, and FedEx trucks running routes from warehouses to final destinations. Heck, it’s not uncommon to have these vehicles coming and going every few minutes during certain hours of the day. But with the growth of e-commerce, traditional delivery methods aren’t enough to fulfill retailer guarantees for two-day, next-day, or even same-day delivery.

So, using data analytics tools, retailers have been experimenting with load balancing and integrating different types of delivery options based on driver availability, traffic patterns during certain times of day, and other logistical considerations.

They’re experimenting with all sorts of approaches and innovations, including:

• Tapping rideshare platforms: Uber, Lyft, and DoorDash drivers have been delivering products – not just people – to doorsteps for a while now. In fact, they’ve been diversifying and competing to pick up and drop off meals, groceries, and items from local stores. They have millions of drivers able to double as couriers capable of delivering things the same day retailers ask them to. Uber even has a whole business for this, Uber Connect. It’s been successful enough that retailers like Walmart have established rival services like Walmart GoLocal to control distribution, costs, and profits. Something to be aware of, though: many drivers expect to be tipped and could slow service to customers who stiff them. In fact, DoorDash recently warned non-tipping customers that they might not get their delivery as fast as those who tip.
• Drones and automated cars: In the future, you could see drones dropping packages at your doorstep or a cool, self-driving robot bringing you a pizza. Amazon has been piloting drone delivery for about a decade; it’s making progress with some pretty cool ones, but widespread use is still far off. Wing, a subsidiary of Google parent Alphabet, has made some progress with 37 drones, reportedly making more than 330,000 deliveries for partners in Virginia, Texas, and Australia. It’s also been working with Walmart, which says it’s made 10,000 safe drone deliveries for 36 stores in seven states. Domino’s, meantime, made a big splash a few years ago with television commercials about self-driving cars bringing pies to people. But we haven’t seen much more on that. Bottom line: this kind of last-mile delivery could happen in our lifetimes, it’s just difficult to know for sure when that might actually be.

Creating a new vision for retail fulfillment

After the pandemic, retailers are vying to reimagine the future of fulfillment with innovative technologies and cutting-edge analytics, AI, robotics, and autonomous technologies. The winners will most likely be the ones that are able to strike a working balance across all of that.

Retailers unable to compete on those level could end up as afterthoughts in the minds of buyers.