PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Agenda
•Present key outcomes of the PwC Total Retail Survey, 2015
•How customer expectations affect supply chains?
•What are the strategic supply chain options to be considered?
3Total Retail • Retailers and the Age of Disruption
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
We conducted a global survey to study consumer shopping behaviours and their changes
4Total Retail • Retailers and the Age of Disruption
Russia
US
Canada
Brazil
Chile
South Africa
Australia
JapanChina/HK
IndiaMiddle
East
UK
France
ItalySwitzerlan
d
Turkey
Denmark
Belgium
Germany
Survey now covers more than 19,000 respondents on six continentsOver 1.000 respondents
in Russia
83
80
92
111
135
30
103
65
Russia
Northwestern FD*
305
1,004
Far-Eastern FD*
Moscow
Central FD*
Southern and NorthCaucasian FD*
Urals FD
Saint-Petersburg
Siberian FD*
Privolzhsky FD*
*FD – Federal District
3rd
time
in
Russia
http://www.pwc.ru/ru/retail-consumer/publications/totalretail2015.jhtml
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
E-commerce is disrupting retail all over the globe
5Total Retail • Retailers and the Age of Disruption
Online retail compose a big share in developed countries
While it’s even bigger in some categories…
...which reduces the need for physical stores
Share of online in total retail sales in 2014, %
Denmark 11,0%
UK 12,2%
Netherlands 7,9%
Ireland 8,1%
Finland 9,0%
Germany 7,5%
Online share in % of total category sales in Germany
18%
Apparel30%
14%
20%
Furniture12%
5%
Electronics40%
+109%
+121%
+140%
+165%
Telco53%
2012
2020E
9,6
24,0
28,5Apparel
11,3
12,1
Electronics3,6
Furniture
-16%
-63%
-39%
-7%
0,1
0,2Telco
2020E
2012
Retail sales footprint required 2012 versus 2020, in Mn m2 sales area in Germany
Source: PwC Analysis, Euromonitor
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Online retail share in Russia has been growing steadily
6Total Retail • Retailers and the Age of Disruption
Online retail is steadily increasing its share in total retail
2014
597
3,3%
2013
474
2,8%
2012
365
2,4%
2011
268
2,0%
2010
202
1,5%
1,7%
158
2009
Share of online, %
Online sales, bn RUB
Online sales volume and share of online, current prices
In some categories online has high growth rates, while offline is nearly stagnating
+2,6%+22,9%
+34,7%
2010-2014 CAGRs
Electronics offlineElectronics online
+4,4%
Apparel offlineApparel online
Constant prices
Source: PwC Analysis, Euromonitor
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Based on analysis of consumer behaviour we see that offline and online retail should go hand in hand together
7Total Retail • Retailers and the Age of Disruption
Respondents research for products in-store and then buy online to buy at lower price…
...and do the opposite, research online and buy in-store, to see and touch the product
Buyonline
Researchin-store
80% of respondents have store-to-web experience
Buyin-store
Research online
70% of respondents have web-to-store experience
22%
I wanted to see/touch/try
The item was not in stock in store
1%
39%
36%
To seek advice from store staff
To have delivery
Other
62%
Better prices online 88%
Q: What factors influenced your decision to intentionally browse for products in-store and then purchase those products online?
To avoid paying for delivery
20%
63%
33%
1%
28%
The item was not in stock online
To compare prices of competitors
Better prices in-store
Other
54%
21%
To get the product immediately
To read reviews online
63%I wanted to see/touch/try
Q: What factors influenced your decision to intentionally browse for products online and then purchase those products in-store?
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Key challenges
•Profitable omni-channel
•Responding to changing customer expectations
•Managing complexity
8Total Retail • Retailers and the Age of Disruption
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Omni-channel will increase revenues but require an efficient and flexible SC to maintain margins as well as clear strategy to deal with complexity
8Total Retail • Retailers and the Age of Disruption
Consumer Expectations
• Operating cost impacts
• Inventory cost impacts
• Transportation cost impacts
• Current fulfilment / inventory strategy
• Network constraints / capabilities
• Distribution network strategy
• Omni-channel impact to network • Touch point and channel cost to serve
Itera
tive
Supply Chain Design
Revenues
Cost to serve
Margin ????
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
While service level is a relevant decision criterion for e-shoppers in Russia, it is not the first priority yet
9Total Retail • Retailers and the Age of Disruption
Comments
• According to the recently conducted consumer survey in Russia by PwC, price is by far the most important factor affecting decision making for online customers
• However, there are several supply chain related factors which are considered crucial (5 factors from 16 were chosen by respondents):
– 26% of respondents are seeking for assortment availability
– 21% of respondents consider reliable delivery as one of the main factors for choosing a retailer
• Therefore, optimizing supply chain is an opportunity for e-commerce players to increase market share
Fast and reliable delivery
Loyalty programme
Inspiring online content
Availability of a product
Decision-making factors for online purchasesRussian consumer survey, 2014
Price
Assortment
Trust to the brand
Location and staff
Good returns policy
Superior online customer reviews
21%
18%
18%
20%
26%
57%
22%
28%
26%
27%
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Although younger customers are willing to pay for faster delivery, indicating potential for eTailers to differentiate
10Total Retail • Retailers and the Age of Disruption
Younger users are ready to pay extra for the same day delivery
There is no significant difference between the districts
As this population becomes more relevant in terms of household spend, eTailers can differentiate themselves and at the same time benefit from additional revenue by offering faster delivery compared to peers
However, to leverage this opportunity supply chain network needs to support this
Wiliness to pay for the same day deliveryRussian consumer survey, 2014
51.1%
18 - 24 years
35.7%
61.2%
45 - 54 years
25 - 34 years
33.3%
55.1%
55 - 64 years
52.9%
35 - 44 years
65+ years
Comments
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Judging by our EU survey, service level is more relevant for shoppers in mature markets
11Total Retail • Retailers and the Age of Disruption
No influence Decisive influence0 1 2 3 4 5 6 7 8 9 10
Product price
Adherence of delivery promises
Previous experience with the eTailer’s product quality
Previous experience with the eTailer’s service
Shipping cost
Product range
Delivery speed
Discount campaigns
Recommendations of other customers
Criteria for eTailer Selection
Service level relevant
SURVEY IN EU
Sources: European e-commerce logistics market study, Strategy&, 2013
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Hence, same-day delivery is becoming an increasingly important differentiator for eTailers…
12Total Retail • Retailers and the Age of Disruption
Same-day delivery
Since 2009 Amazon has been offering a same-day delivery service (evening express):– Cut-off: 11am– Delivery between 6pm and 9pm– Only in metropolitan regions: Berlin, Ruhr area,
Cologne, Stuttgart, Frankfurt – not for full product range
– Costs: €13 standard, €5 for Amazon prime members
UK start-up "Shutl" serves customers in Greater London same day, delivering from retail stores– Delivery: 90 minutes after purchase (Shutl Now)– Delivery of an online order within a one hour time slot
on the same day or on any of the following days (Shutl Later)
– Cost: Comparable to standard delivery services
Example same day delivery
In order to offer a "Same-Day" service at realistic rates, certain requirements must be met Service differentiation
– Only for selected product range– Only for certain regions
Warehouse logistics– Stock regionalization is necessary,
either through regional metropolitan regions or through delivery from retail stores
– Hand-over to the carrier has to be effected within a very short time
Distribution logistics– Flexible delivery systems are
required (for example, one start-up uses spare capacities of local carriers at short term )
Logistics implications
By including the stocks of local retailers on Google, a regional same-day service from retail stocks can be provided
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
We expect service level to become a differentiator in Russia as well, which is a key consideration for the network design
13Total Retail • Retailers and the Age of Disruption
Density of distribution network impacts service level Implications for network design
• Service level is highly depended on number of warehouses that are located near the customers
• Hence, to increase the service level eTailers should consider covering areas of high demand (mostly in central part of Russia) by warehouses more densely
• However at the same time price of delivery, willingness of shoppers to pay for it and existence of alternatives should be considered
• In addition, impact of increased service level on revenues needs to be understood before taking decisions regarding the network
ILLUSTRATIVE
Higher number of warehouses increases service level
Warehouse
Radius of one-day delivery
Major cities
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
So, how are retailers responding to challenges?
14Total Retail • Retailers and the Age of Disruption
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Supply chain optimisation – Dixons have addressed key issue of inventory transparency
www.dixons.com
16Total Retail • Retailers and the Age of Disruption
Dixons have integrated their store inventory into their digital channels so that consumers can decide to collect their products from any location that has availability
• Stock data (location, quantity) in real time
• Sharing data between supply chain partners
• Sharing data between stores, channels
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Supply chain optimisation – M&S completed a massive re-organisation recently
Single integrated supply chain across the globe – 4 hubs (Turkey, Sri Lanka, Malaysia, China), 26
Regional distribution centres
Reduced sea shipping time from 9 weeks to 1.5 weeks.
Over 80% stock delivered directly
UK from 110 warehouses to 3
Spent over £150m on website integration with new supply chain
Single view of inventory
17Total Retail • Retailers and the Age of Disruption
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Amazon is effectively managing complexity and cost-to-serve by constructing product-differentiated hub’n’spoke backbone for its supply chain
17Total Retail • Retailers and the Age of Disruption
Hub and spoke network model Network Building Blocks
Amazon uses so called hub and spoke network design model pioneered by Delta in 1955 and popularized by FedEx in 1974. This design maximizes volumes transported between hubs, in comparison to volumes in a peer-to-peer network, thus achieving economies of scale (lower transportation costs per unit/km between hubs, but larger distances between peers). Currently, most postal operators and large retailer networks use this type of network arrangement including USPS, Russian Post, Loewe, Wal-Mart, etc.
In Amazon’s network location of the fulfilment centres is mostly determined by the location of the customer’s demand. There are three reasons for that. Vendors themselves tend to be closer to the demand points; proximity to demand increases on-time delivery, last mile delivery costs more than inbound transportation.
hubs
spokes
Peer-to-peer network Hub’n’spoke network
Big sortable
Small sortable
Non-sortable
Fulfilment Centre
Customer returns
Replenishment Centre
Specialty site
Grocery site
SortationCentre
Books, DVDs, watches
Smaller items
TVs, canoes
Jewellery, clothing
Dry grocery, perishable merchandise
Vendors Amazon Customers
FC
SC
CR
RC
C
C
C
V
V
V
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
To fulfil customer expectations Amazon is deploying facilities in the metropolitan areas and is targeting parcel flows injection into USPS last mile segments
18Total Retail • Retailers and the Age of Disruption
In the USA Amazon network comprises 66 fulfilment centres and 15 sorting facilities. Average area of the facility is 65000 square meters. Catchment area of 20 Amazon FCs covers 95% of the US metropolitan areas. Most orders are delivered within one shipment zone
Geography of the network Network footprint
25000 50000 75000 100000 More
12
2217
2216
Area in square meters
Sources: Business Insider , http://multichannelmerchant.com/
Distribution of FCs floor area
“Amazon will eventually open up as many as 50 sortation
centres. Its aim … is to have access to 7,000 post offices covering 85% of the U.S. population for local delivery, which would put it on par with the footprint of the major carriers’ express services. This would also help the company grow Amazon Fresh, its local grocery delivery service
“That’s because with the sortation centres, Amazon can have
packages inducted into the postal stream at a Destination Delivery Unit (DDU), the postal node closest to the customer.
# of FCs
66
31211616
1176333332
1998 2000 2002 2004 2006 2008 2010 2012 2014
44
Amazon network evolution (# of FCs)
fulfilment hubs Population density
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
Key strategic options to think through
19Total Retail • Retailers and the Age of Disruption
Centralised
Decentralised
Owned network and key assets
Integrated with 3rd party logistics or postal operator
Ground-based
Aviation/rail included
Uniform
Regional
Assortment mix
Modality
Partnership
Automated
Semi-automated
WH configuration
Sorting automation
Network linkage
Multi-echelon
Hub’n’spokes
Integrated supply chain
One size fits all
Separated supply chains
Service level
Uniform
Differentiated
PwC4 July 2015
EDAYS INTERNATIONAL E-COMMERCE CONFERENCE MOSCOW, JUNE 4-5, 2015
19Total Retail • Retailers and the Age of Disruption
Let’s keep in touch!
Ilya Malyarenko
PwC | Senior Manager, Strategy & OperationsOffice: +7 (495) 232-5405Mobile: +7 (965) 104-7968 Email: [email protected]