John McGuire
John McGuire 23 August 2017

Maximising margin in the last mile

The last mile is a concept that seems to keep creeping into the retail agenda, mainly because it’s a common tripping point for businesses, who are facing fresh logistical challenges in terms of how, where and how quickly converted sales are fulfilled.

Delivery has become the new currency for retail, providing businesses with a clear competitive edge. From a customer perspective, there has never been a better choice of delivery options; in a major city now it’s entirely possible to get an item sent to your home within an hour, or collected in-store in less than 30 minutes. For the retailer, however, reacting to the continually rising bar on delivery can dramatically impact margins.

Walking the tightrope: Speed vs cost

Retailers have a tightrope to walk, especially when global giants, such as Amazon, can afford to run fulfilment at a loss. This means they need to carefully balance satisfying customer needs and making the greatest feasible profit on sales. And this balance becomes critical to achieve when you consider that retailers’ last mile margins are set to decrease by 1.5% by 2025, according to OC&C Strategy Consultants.

To counteract the growing cost of fulfilling online orders, many omni-channel retailers are developing their ship-from-store capabilities, or putting renewed effort into click-and-collect. This can provide a great opportunity for online shoppers to browse in-store, and potentially, increase their basket before payment. But store inventory needs to be carefully managed to stop omni-channel customers impacting direct in-store sales by disappointing consumers with empty shelves.

This underlines the need for retail organisations to adopt an omni-channel approach in their delivery strategy – both in terms of a real-time view of inventory across all channels, to make the most profitable fulfilment decision, and satisfying the needs of online customers when they reach the store to pick up a purchase.

Returning profit

Returns are the silent profit drainer for the retail industry. And no matter how strong profits are, if the customer does not keep the item then that contribution to the overall profit will be taken away. Indeed, a sale is not a sale until the customer decides to keep it, and returns cost UK retailers £60 billion each year, according to Clear Returns.

However, a returned item is not necessarily a lost opportunity, especially if it was purchased from a relatively new customer who may be exploring the brand, and trying to find the right product for their size or style.

In addition, if an item is taken back to a physical store this then presents a new sales opportunity. For example, data from Doddle shows that almost half (48%) of shoppers will buy something else when returning an item.

To ensure businesses maximise on the potential profit of returns being resold, retailers need to carefully manage items coming back into their stock pool. By having a real-time view of inventory across channels, retailers can accurately assess where stock needs to be, based on demand, increasing the chance of returned items being re-sold at full price.

Boosting the bottom line

With increasing marketplace competition, fuelled by rising consumer expectations, squeezing margins on fulfilment and returns, retailers need to look to their technology infrastructure to maximise profitability in the last mile. Walking the tightrope between supply and demand, aided by a single view of inventory, will allow for a better understanding of where stock needs to be to run most profitably. This way, the most sales are converted and fulfilled in a cost-effective manner, to maximise retailer margins and ensure satisfied customers.

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