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FedEx Chief to Retailers: You Need Better Shipping Strategies

Many retailers complained that the severe winter weather took a bite out of their sales, in part because of the challenges snow and ice posed to reliable shipping. However, FedEx Chief Executive Fred Smith counters that retailers need to craft a better approach to shipping and not leave their businesses at the mercy of the elements.

Retailers, according to Smith, routinely under-prioritize shipping strategies, inviting often costly inefficiencies to creep into the e-commerce side of their businesses. Smith said, “No one wants to order something over the Internet, get it three days before Christmas and it is smashed or the label comes off it and the package goes into the ether.” And, according to Smith, retailer negligence on this score, more than the weather, is what really stymied their shipping efforts this last holiday season. He said the lack of a coherent shipping strategy “is a big part of the e-commerce business that really didn’t get enough publicity last year because they were an integral part of the problem even more than the weather and the carrier performance.”

Many major retailers apparently agree. Wesley McDonald, chief financial officer at Kohl’s, recently told a room full of analysts that “operational challenges” at its fulfillment centers weighed heavily on the company’s winter sales performance. “We all have to be…more realistic as to what we can get delivered those last few days before Christmas,” he said.

In an attempt to revamp their shipping protocols, some retailers are forging closer relationships with their shipping companies, treating them as business consultants. The grand shift from brick-and-mortar to click-and-order retail requires novel shipping strategies as well, both to accommodate heavier volumes and to maintain faster delivery times. This means that shipping experts like FedEx and UPS have become much more than instruments of product transportation–they now present themselves as shipping consultants, teaching and implementing new delivery approaches that maximize efficiency and minimize costs.

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Sears is a good example of a big ticket retailer that has developed a close working partnership with UPS. UPS designed software that allows Sears’ customers to track all their orders from the point of purchase to the point of final delivery. The system also helps a customer to search the totality of Sears’ inventory–across all of its stores and warehouses in the U.S.–to locate an item that is locally unavailable. Alan Gershenhorn, chief of sales, marketing and strategy for UPS, speaking to the Wall Street Journal, said, “If a consumer comes to your website and the product’s not available, you typically lose the sale.” But, now a retailer can “pull and display the inventory from both your brick-and-mortar stores and your online inventory, so you’re going to run into that problem less and less.”

UPS also helped the Sears management team determine which of its numerous stores should be designated shipping centers in order to streamline the delivery process and effectively apportion storage space. Sears has experimented with the program since 2012 and, after anointing it a success, extended it to its Kmart stores as well. Sears now fulfills some 20,000 orders per day.

And studies reveal that online shoppers place a premium on convenient, inexpensive shipping. According to the Capgemini Group, 89 percent of surveyed shoppers said they would consider switching to another retailer if the one they used was late delivering an order. And according to Forrester Research Inc., more than 50 percent of the shoppers they interviewed said they would try a new online retailer if they offered free shipping.

Saks has attempted to increase sales by streamlining its shipping methods, too, now working with FedEx. According to a Saks representative, their new strategies helped lift online sales by 15 percent. Ed Stagman, the company’s senior vice president of store operations, said, “We’ve always had FedEx software in our shipping departments, but we’ve worked together collaboratively on how to handle peak workloads.”

Jeff Starecheski, vice president of logistic services at Sears, said that the emphasis on shipping is necessary for retailers to remain relevant as technology transforms the nature of commerce, conjuring new and faster tools. “If you want to go head-to-head with Amazon, you go out and build a bunch of distribution centers.” But what Sears really needed, he said, was a new way to connect with its shoppers. “We’re already close to the customers.”

On December 24, FedEx achieved a shipping on-time rate of about 90 percent, down from 98 percent the previous year, according to SJ Consulting Group, which tracks transportation and logistics industries. UPS hit an on-time rate of 83 percent, compared to 97 percent in 2012.