Solving the Last-Mile Conundrum: Increased Consumer Expectations and Lower Profitability

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Solving the Last-Mile Conundrum: Increased Consumer Expectations and Lower Profitability

By Cyndi Lago, Capgemini - 04/01/2019

Jason Wu became an overnight success after he designed a gown that Michelle Obama wore at the 2009 Inaugural Ball. A single dress helped propel his career, but reaching that point required years of tireless effort.

Apparel manufacturers and retailers might feel like they face a similar challenge in conquering “the last mile,” or the final step in moving their product from its place of origin and into the hands of the consumer.

If last mile delivery is executed well, consumers will reward companies with increased spend and loyalty. But success relies on an integration with your overall business strategy, supply chain and approach to customer satisfaction.

And realistically, you have no choice when it comes to whether or not to do this. Today’s consumers expect to receive merchandise all but instantly, whether delivery is processed through a retail store, website, mobile app or direct from the manufacturer.

In fact, three quarters of consumers who are satisfied with a retailer’s last-mile delivery will increase spend by 12 percent, according to a new Capgemini study, “The Last-Mile Delivery Challenge.” By contrast, one half of consumers who aren’t satisfied will decrease spend by 45 percent.

If you want to be among the successful apparel companies leveraging the last mile to drive greater consumer spend, you need to do three things today:

1. Understand consumer demands around last-mile delivery.

2. Recognize the challenges and tradeoffs those demands mean for your business.

3. Adhere to six “tenets of success” to master the last mile.

Prêt-à-port?

There are two aspects to the last-mile: manufacturing and delivery.

Last-mile manufacturing — The last mile is altering how apparel companies source materials and components, and changing how and where they handle final assembly. For example, designers such as Iris van Herpen are experimenting with 3D-printed fabrics, and footwear companies such as adidas already offer 3D-printed shoes. One promise of additive manufacturing is that items can be made closer to the customer — eventually in the store or even in the consumer’s home.

Similarly, automated sewing solutions promise new flexibility to apparel companies making goods in geographies that offer lower-cost labor but are distant from customers. At least one Chinese company already plans to use “sewbots” to make apparel in the United States.

More immediately attainable approaches trade higher labor costs for faster, cheaper delivery. That might mean making products close to major ports. Or it might involve local seamstresses that handle final assembly close to the consumer.

Last-mile delivery — Delivery picks up where manufacturing leaves off, with the goal of quickly getting merchandise into the consumer’s hands. A growing number of retailers are experimenting with — and implementing — last-mile-delivery innovations:

·        U.K. department store John Lewis & Partners has tested a service that leaves deliveries in customers’ cars. Couriers use a code for one-time access to the car’s trunk. Amazon has launched a similar service with GM and Volvo.

·        Walmart is also testing a crowd-sourced model in which independent drivers pick up orders from Walmart stores and warehouses and deliver them wherever the customer wants.

·        Target now offers same-day delivery in more than 200 markets, thanks to its $550-million acquisition of delivery startup Shipt.

But getting the right products with the right attributes to the right customers at the right time isn’t just about speed. Because consumers buy through many channels, and their preferences and behaviors change suddenly, you have to be nimble throughout your operations.

You need effective data capture, trend analysis, demand forecasting, supply planning inventory management and more. That will enable you to use the right combination of manufacturing, freight and third-party logistics to place merchandise in the right warehouses, distribution centers and retail stores to cost-effectively meet demand for last-mile delivery.

The need for speed

And consumer expectation is what’s driving the last-mile imperative. Consumers increasingly have access to lightning-fast service across segments — whether it’s same-day shipment from Amazon or same-hour delivery from Wegmans.

The Capgemini study — which surveyed nearly 2,900 consumers and 500 executives in the United States and Europe — bears this out. For instance, 40 percent of grocery consumers now say delivery is a “must have,” and one-fifth will switch stores if delivery isn’t offered. In 2018, 40 percent took delivery at least once a week, and by 2021, 55 percent expect to do so.

Consumers that are happy with last-mile delivery spend more readily. For example, 73 percent are more willing to try new offerings. And 59 percent will buy online whenever they need an item, rather than waiting to purchase in-store.

They’ll also pay an additional 4.3 percent for same-day service. And 53 percent will opt for paid memberships for that delivery.

Even better, satisfied consumers become brand advocates. For instance, 82 percent share positive experiences with friends and family. And 58 percent share positive feedback on social media.

By contrast, shoppers punish retailers who fail at last-mile delivery. Nearly one-half will stop buying. Those that continue to buy will spend half as much. And 55 percent will switch to a competitor with better delivery.

But last-mile delivery presents apparel companies with several challenges. For starters, heightened expectations are leading to dissatisfaction. In the Capgemini study, delivery services averaged a Net Promoter Score (NPS) of -9 (though scores varied widely by geography, from +9 in the United States to -29 in France). Top complaints were high delivery prices (59 percent), unavailable same-day delivery (47 percent) and late delivery (45 percent).

What’s more, as demand for last-mile delivery increases, so do costs. In the grocery sector, last-mile delivery now accounts for 41 percent of supply chain costs — more than double any other category of spend, such as sorting and warehousing.

On average, each last-mile delivery costs $10. Of that, $2 is typically absorbed by the retailer, and $8 is passed to the customer. But consumers say they’re only willing to pay an additional $1.40.

Last-mile tenets of success

Apparel companies will need to conquer these issues. If you miss the last-mile target, you’ll risk decreased customer satisfaction and brand advocacy. If you undercharge, you’ll cut into your already-thin profit margins. If you overcharge, customers will balk. If you simply ignore the last mile, your competitors will gain an advantage.

With those factors in mind, there are six tenets that can point the way to last-mile success:

1. Be nimble. The last mile is new territory for apparel companies. Be prepared to improvise and course correct.

2. Leverage both digital and human. Technology won’t solve everything. The last mile requires investments in both IT and people — and both have to work together.

3. Embrace the ecosystem. Best-in-class last-mile experiences involve not only you and your customers but also your suppliers, partners and service providers.

4. Solve for the crew, too. When you transform business models and service offerings, you also change how people work. Consider the impact on staff.

5. Think circular, not linear. Customer journeys don’t follow a straight line. The last mile is wherever the customer happens to be, and that point will change over time.

6. Recognize that not all moments are created equal. Some experiences affect the customer relationship more than others. Last-mile delivery is gaining in importance. Invest accordingly.

Finally, don’t make the mistake of considering the last mile as distinct from the rest of your business. Instead, think of the last mile in the context of your overall business strategy, supply chain and approach to customer satisfaction. Look at last-mile manufacturing and last-mile delivery together. Leverage your data analysis, demand forecasting and supply planning. When you’ve done that legwork, you’ll be ready for the final step to the last mile.

Cyndi Lago is vice president in the North American consumer products and retail market unit at Capgemini, a global leader in consulting, technology services and digital transformation.