How the Future of E-Commerce Will Impact Fulfillment
The increase in e-commerce, combined with the types of purchases consumers are making, will change e-commerce fulfillment in new ways.
The convenience of online shopping is shifting a larger share of the retail marketplace to e-commerce. In 2019, e-commerce was 16.4 percent of total retail sales globally. But recent indicators show a strong rise in e-commerce that will lead to busier fulfillment centers. For example, Sally Beauty saw a 555 percent increase in its U.S. digital growth in the third quarter of 2020 compared to last year, and 163 percent growth in its European arm in the same time period. By 2023, e-commerce will amount to 22 percent of global retail sales.
This jump in online purchasing will lead to big changes for fulfillment centers, particularly as consumers purchase a larger variety of items from the comfort of their homes. The future of e-commerce holds an increase in perishable purchases online, demand for rapid fulfillment, a need for more warehouse space, and more direct-to-consumer brands creating a memorable unboxing experience.
As a result, fulfillment centers will need to find ways to package more orders and ship them out faster. This could mean leveraging automation technology like on-demand packaging systems, as well as finding other opportunities to maximize e-commerce fulfillment operations. Here are some of the big changes that brands and fulfillment centers can expect, as well as what to do to make sure they’re meeting the challenges head-on.
Demand for Rapid E-Commerce Fulfillment Grows
Amazon’s next-day delivery service has reset consumer expectations. Now brands are pressured to meet that new baseline delivery expectation in order to remain competitive. Consumers expect that same rapid fulfillment from every e-commerce experience, but that can pose a challenge for companies that lack the infrastructure to make it happen.
One of the roadblocks to rapid e-commerce fulfillment may be in logistics and the cost of last-mile delivery, which can account for 53 percent of delivery costs. E-commerce retailers may need to rethink logistics, including the possibility of creating micro warehouses. This approach spreads out warehouses geographically and allows goods to reach their destinations faster. In turn, pure e-commerce retailers have the same advantages as omnichannel retailers, which can use their brick-and-mortar locations as micro warehouses by fulfilling orders from in-store stock.
Faster picking and packing will also play a role in fulfilling the demand for rapid shipping and delivery by consumers. In addition to organizing warehouse spaces so that workers can quickly locate items, automated packaging solutions can speed up the process of getting orders out the door.
Automated bagging solutions allow packers to fill, seal and label orders using a single machine. Combining these functions can increase efficiency by 3.5 times, getting more orders out the door with less labor.
Increased Need for Warehouse Space
The uptick in e-commerce means that companies will need more warehouse space. In particular, companies that are purely e-commerce will increase the demand for real estate, since 100 percent of their inventory is stored there versus the store shelves used for in-store fulfillment. E-commerce requires three times the logistics space of brick and mortar.
Even omnichannel retailers will need to increase their warehousing square footage. Before the pandemic created a boost for digital shopping, U.S. retailers grew their logistics footprints by 9 percent to accommodate existing customer orders. In February 2020, Amazon opened two new fulfillment centers in Italy just to meet pre-pandemic demand. Now, with e-commerce growing faster, the demand for logistics space is only expected to increase.
Many fulfillment centers will need to consider how they can better utilize their existing spaces. Increasing square footage is something that will take time: finding real estate, signing leases, and/or constructing new warehouses. To react quickly and meet demand from e-commerce partners and their customers, leveraging solutions like the Pregis MINI PAK’R and other small footprint machines can help maximize existing locations by creating pop up pack stations or turn a retail store into a mini-fulfillment center.
Another option is to use high output packaging systems such as the AirSpeedⓇ inflatable packaging systems to feed integrated delivery systems for packaging materials. Overhead delivery systems allow for the accumulation of materials so packers never run out. These systems are also used to bring the materials to the packer for convenience, productivity, and now for safety reasons. These solutions also have the added bonus of being ergonomically-friendly because they require fewer motions by workers to use.
Finally, on-demand systems can help free up vital warehouse space that can instead be utilized for storing products. These systems create protective packaging like air pillows and wrappable patterns when you need them, so that you don’t have to store a lot of pre-made packaging on site.
Direct to Consumer Companies Will Fuel the Unboxing Experience
Direct to consumer companies are on the rise. In the U.S. alone, direct to consumer sales are expected to grow by 24.3 percent, to $17.7 billion, in 2020. As the name implies, these retailers sell goods directly to the end consumer, without a marketplace like a large retailer (think Target or IKEA), but use e-commerce fulfillment centers to get their products to consumers unscathed.
Since many direct-to-consumer brands differentiate themselves almost entirely on branding, the unboxing experience for D2C companies is critical. Products can’t arrive damaged or out of shape, or these brands risk losing customers to competitors. A Package InSight study found that 73 percent of customers were unlikely to shop from a company again if their products arrived damaged.
Additionally, sustainable packaging is becoming more and more important to consumers and is increasingly impacting future shopping decisions. In fact, 55 percent are more likely to buy sustainable products as a result of the pandemic. E-commerce brands and fulfillment centers will need to focus even more on the unboxing experience, including how orders are packed and the materials that are used.
Sustainable materials have come a long way in the past few years and provide a variety of options to cushion purchases. For example, the Pregis Renew line offers recycled paper, recyclable air pillow and inflatable cushioning, and foam options made from recycled material, which protect products while providing an environmentally-friendly experience that doesn’t compromise performance.
Online Perishable Purchases Increase
The global online grocery market is expected to grow by 24.8 percent annually between 2020 and 2027. Much of this initial increase is driven by the pandemic and shelter-in-place orders being implemented across the world, combined with the need for consumers to purchase groceries online to avoid exposing themselves to the virus. When stay at home orders were implemented, over one-third of US consumers ordered groceries online for the first time ever. These orders have shifted consumer habits, and 43 percent of US consumers are expected to have used online grocery shopping by the end of June 2020. In just the US alone, online grocery sales are projected to grow from 2.6 percent of online purchases to 3.5 percent, or nearly $38 billion, in 2020.
And food items aren’t the only perishables that consumers flock to; during the pandemic, seed and plant retailers reported an increase in order volume of up to 250 percent.
Perishables need insulated packaging solutions and an efficient cold chain network to survive. Food items need to be packaged for optimal freshness, to reduce food waste and prevent bad experiences, like the smell of rotting produce wafting up during unboxing. Less food spoilage also reduces the need for re-shipping, which ultimately promotes a healthy environment. Plants are a separate matter and need the right combination of breathability, cushioning, insulation and coolant (gel or ice packs) to ensure they make it to their destinations ready to flourish.
As these types of purchases increase, brands will need to make sure they’re choosing the right types of packaging to protect perishables, and fulfillment centers will need to become better equipped to pack and ship perishables.
In addition to making sure perishables are stored in temperature-friendly environments, fulfillment centers will also need to identify where they can decrease the time it takes to package and ship those items to preserve freshness. This might require reconfiguring workstations for faster access to insulated materials.
Ultimately, while e-commerce was gaining steam before the global pandemic, the stay-at-home orders provided even more traction. For e-commerce fulfillment centers, it will be critical to adapt to the increased demand by providing the appropriate packaging for the goods they’re shipping, reconfiguring logistics, optimizing existing warehouse space, and looking to improve the unboxing experience. Consumers have expectations, and if they’re not met, a new e-commerce retailer is just a click away.
Want to know more about how to adapt and thrive? We can help. Contact Pregis with your questions today.