Top 15 Takeaways from IRCE: Fulfillment by Amazon and More

— July 12, 2017

1. Martech is the new advertising. Online and offline have merged, and this has entirely changed the face of marketing ― and advertising. Where there used to be separate treatment for different channels, distinct marketing paths no longer exist, because every physical piece has a corresponding online piece, and this is where technology needs to come into play, says Brian Thompson, director, e-commerce, Winston Brands. "It's not about a single platform doing one thing. You have to use the functionalities in unique ways to talk to your customers.

"Companies are spending more on marketing technology – martech – than on advertising. If you don't have a strong CRM, all the advertising in the world won't do you any good," he says. That "tech" of martech is key. Today, 33 percent of marketing budgets are devoted to technology, and of that 33 percent, 28 percent is marked for infrastructure (servers, networks, storage and cloud hosting).

2. Marketing is not a cost center. It's a profit center. Unfortunately, not all leadership teams look at it that way, says Thompson. "We have to explain what we want that money for. We have to be accountable for every dollar spent."
To project ROI, present a brief but thought-provoking case that lays out the business value ― and make sure to explain that 99 percent of the tech implementations will serve other parts of the business. Touch on these five key points:

  • The problem: What is wrong that we need the tech to fix, i.e., wasting time on tasks, increased email unsubscribes, etc.
  • The options: Review the possible courses of action, i.e. what happens if we do nothing? What solutions are available to fix the problem?
  • The implementation: What should be considered, i.e. how does it fit with current tech stack? Do we have the resources to implement? What about ongoing training?
  • Recommendations: How will marketing use the tech, i.e. what efficiencies can it provide? What cost savings?
  • The ROI: Include things such as time savings, lead generation and site conversion – and also get feedback from vendors.
3. There's a psychology to all of this. Ratcheting up the revenue from your e-commerce site requires careful testing and analysis of what works and what doesn't. "You need to understand your audience," says Marta Dalton, director, e-commerce, Coca-Cola. A wide variety of factors can increase or decrease your conversion rate, and you need to A/B test to see what works. Consider something as simple as a coupon box. Seems like a no-brainer, but it's not. "If you have a site that does not have a coupon box, no one thinks of it. But if you have a box, you're creating the idea that the customer is missing out on something if they don't have a discount code," says Dalton, and that can actually drive people away.

4. Marketplaces are the place to be. Why? Because 64 percent of consumers start by searching on a marketplace, followed by their favorite website, and 50 percent of online retail sales come from marketplaces. Marketplaces allow a company to reach new eyeballs without much if any cost, and their endless aisles bring in customers who are looking for just one product but discover others along the way. Still, marketplaces are not a one-size-fits-all beast. Matt Kubancik, founder of marketplace StreetModa, says there are different strategies for different marketplaces. "There's no good formula. It's a constantly changing game."

5. To FBA or not to FBA? There are many factors to consider before you decide, but FBA can be very fruitful. FBA (Fulfillment by Amazon) can ease the strain on your staff by taking over fulfillment responsibilities and letting you focus on your core business, but it can also erode your profits. Figuring out when, and if, to use FBA is key. For Schuylkill Sports, moving from fulfilling its own products to FBA has been a smart and successful move, and a necessary one. As sales increased — 80 percent each of the past three years ― its small fulfillment staff could no longer handle the volume.

To use FBA, ship your product to Amazon. They'll take it from there: storing, managing orders, picking, packing and shipping, and also handling customer service and returns. It's hands-off for your business. Other plusses? You benefit from Amazon's healthy reputation: there are more than 300 million amazon.com users, the company raked in $136 billion last year, 55 percent of shoppers start their product searches on Amazon and it accounted for $0.55 of every dollar of e-comm growth in 2016. As an FBA seller, you can print your shipping labels through Amazon's Seller Central, which allows you to ship to Amazon using its shipping rates vs. your own. "Trust me, that's a good thing," quips Schuylkill's Ryan Kistler, manager of e-commerce, noting that his own experience was that Schuylkill's costs were three times those of Amazon's.

6. The No. 1 Benefit of FBA is that your products become eligible to sell under Prime. In case you just arrived on this planet, Prime is a yearly membership for shoppers through Amazon that includes free two-day shipping on eligible products, and free returns for all Prime orders. If your products are eligible for Prime, they are more attractive and more visible to Prime members, who are growing at a rapid clip: In December 2013, Prime had 25 million members and by April of this year that number had reached 80 million. Prime members spend an average of $1,200/year vs. $500/year for non-members, and many of them shop for Prime-eligible items exclusively. As a Prime seller, you have a greater chance of winning the Buy Box. And finally, volumes are higher: three to four times more product is sold through FBA than through seller-fulfillment.

7. You knew it wasn't all rainbows and kittens. There are drawbacks to FBA. With all of those benefits to FBA, you might be thinking, "Why not send everything?" Reduced margins, that's why. You're playing the classic game of margin vs. volume, says Kistler. There are FBA fees (which continue to rise), shipping costs and of course the commission (15 percent for most categories) that Amazon takes. There are other considerations, such as inventory reconciliation. This can be problematic because of Amazon's commingling of seller product with its own or because of shipment discrepancies. There is also the problem of handling FBA customer returns (where does that inventory go?) and unfulfillable inventory, i.e. Amazon may determine your products are unsellable, and then you will either have to pay to have it shipped back or relinquish to Amazon.

8. When using Amazon FBA, don't ship your entire product selection. There are best practices to this game, says Kistler. 1) Go deep, not wide. (Schuylkill sold 15,000 of one single SKU color and size.) 2) Consider price points. It's more difficult to make acceptable margins on inexpensive products. 3) Consider the size and weight. Larger and heavier products cost more in both shipping and storage fees. 4) Consider the competition. How many others are selling the same product? How does your price compare to theirs? 5) Consider the frequency of shipments. Amazon FBA fees "go up constantly." If you're not turning product quickly, those fees will take a bigger chunk of your profits. 6) Consider product and category rankings. What is the sales history? Has it sold well before?

9. You Must Win the Buy Box. What is the Buy Box? It's the place where consumers add to the shopping cart. It's prime real estate with more exposure and better sales, and if you don't win it, i.e., if your product doesn't get top billing, you're not going to succeed on Amazon. If you are the only company selling your product, no worries. You own that Buy Box. For everyone else, it's a tough competition. What does losing the buy box look like? For Warehouse Skateboards, it's the difference between five and 500 orders per day, says founder Mike Duncan. With the company's consumers, typically aged 8-24, shopping on their phones, winning that buy box is even more crucial. Warehouse Skateboards doesn't hold inventory, so doesn't use Amazon FBA. Being seller-fulfilled makes it even more difficult to win the Buy Box.

Who gets the Buy Box? Amazon uses an algorithm to choose a winner. Some of the factors that go into the mix are a history of successful sales and your FBA status; the type of product you are selling (not all items are Buy-Box eligible – used items are not, for example) and whether or not you achieve performance metrics given to you by Amazon. Other factors that matter are your 1) order defect rate; 2) pre-fulfillment cancel rate; 3) late shipment rate; 4) how quickly you communicate with your customers (must be in less than 24 hours); 5) customer reviews; 6) the level of inventory you have – if you have just two of an item, you can "say goodbye to the buy box," says Duncan; and 7) fulfillment speed. On a final note, repricers are crucial management tools for repricing your product automatically to keep pace with your competitors' pricing changes, because you will not be able to manage this task manually. It is a myth that repricers presage a race to the bottom, says Duncan. You can set your own maximums and minimums and maintain control.

10. Changing "the way it's always been done" can be applied to so many things you'd never think of. And that's what innovation is: thinking of old things in new ways. Things such as lacing your sneakers. Who would have thought that something so basic held so much opportunity? PUMA. That's who. "We're revolutionizing the way people lace their shoes," says Chris Hardisty, vice president, e-commerce, PUMA. Think of its new Netfit kicks as a double innovation. It's a game-changing product that allows the consumer to launch a new self as well. With the launch of Netfit, created with netted fabric on the top, you can lace up your sneakers however you see fit. It's a feature that opens up endless opportunities for form and function, so wearers can express themselves in design while also getting exactly the fit ― maybe tighter around the toes, maybe looser on the sides — that they want, changing it up anytime for different activities or new ways of self-expression.

11. Personalization is not cheap. Those are words from PUMA's Hardisty. The company invested in "true" CRM and behavioral analytics. From there it analyzed customers and built profiles, and then built its messaging plans, with tech and creative teams working together. PUMA, which Hardisty says "is not what it was 20 years ago," started a reengagement program to bring people back to the brand to show them that it has evolved. "We did selective messaging for reengagement." The results? A 15 percent decrease in emails sent, with a 30+ percent increase in open rates and — best of all ― an increase in revenue from emails of more than 20 percent.

12. Make changes incrementally. Don't bite off more than you can chew at once. Personalization is "not a big bang: you have it or you don't," says FitForCommerce's CEO Bernardine Wu. "You can do it in pieces. Personalize emails before you get to a custom-curated website," she says. That's good advice that Rachel Roy's e-comm manager Christie Porter has taken to heart. Personalized emails are probably the next step for the women's fashion design company.

13. E-comm makes counterfeiting even easier. On any given day, in most countries, nearly half of the population is wearing jeans. That's a great thing for the globally popular Levi's brand, but it also means it's a target for theft. Zach Toczynski, director of global brand enforcement for Levi's, says that online enforcement is now the most important part of his job. "The consumer is going to an e-comm platform, or social media, etc., and they're not sure if it is an authorized place to provide product. With just a photo, it's even harder to tell if it's authentic." Consumers may be fooled by photos that are made to look like Levi's with fake red tabs sewn on, but "when they [receive the products they buy] they may be surprised by the feel and look." For the iconic jeanswear brand, IP is one of its most valuable assets, so staying on top of counterfeits is a priority. With more than 5,014 trademarks in 181 countries, LS&Co. has zero tolerance for copying product. "Last year, we had 3.5 million products removed. We don't want our consumers interfacing with these counterfeits and infringements. … Imitation equals lawsuits. I'm working to make sure these photos don't get in front of our consumers." Third-party marketplaces such as eBay, Amazon, Alibaba and Rapitan are ripe for counterfeits and Toczynski spends time building relationships with these businesses to teach them how to identify crime. The result, he says, it that those marketplaces have become proactively engaged in finding solutions and can detect counterfeit activity on their own. But, he says, you cannot expect the problem to go away. "I'm never going to solve the problem, but we have to keep on top of it, and keep chipping away at these types of listings."

14. Industry trends don't always apply to your customers. Each retailer or brand must grow its omni business in a way that makes sense for its  consumer ―and also must ensure that it has a supply chain to support whatever that growth looks like. "As we set customers' expectations to a new lever, we set the bar ever higher," says Willis Weirich, vice president, logistics, Neiman Marcus. Today, packages are being delivered twice as fast as they were two years ago – 3.4 days vs. 6.3 days, and roughly two-thirds of retailers process orders the same day. That entails greater expense, so simply jumping on faster delivery without taking into account your entire business model and the real needs of your customers can be detrimental to your business. Consider that your quick shipping may result in delivering an order quickly, but that package may sit on a doorstep all weekend. You've incurred greater costs but still not delighted the consumer. "Industry trends don't always apply to your customers," stresses Weirich. As next-day and same-day delivery have grown in popularity, be sure to balance the cost of that speed with the expectations of your customers to determine the right path for your business, he advises. Also, in thinking about your omni strategy, keep in mind the value of physical stores. Eighty-five percent of consumers still value the physical store and 90 percent are likely to purchase when receiving valuable assistance. "We've driven a lot of consumers to the website with free shipping and returns, but I think we can drive people to stores," he says.

15. Feed Your Consumer's Mobile Addiction. Consumers are with their phones 24/7. Use this! Smart retailers should ask themselves: 1) How do we feed her mobile addiction by embedding mobile experiences seamlessly into the consumer journey? 2) How do we use mobile to teach, inspire and play? 3) How do we design mobile with stores in mind, as clients are on their phones before, during and after the shopping journey?  That's what Sephora did, says senior vice president of digital Mary Beth Laughton.  A few examples: It created a "Sephora Assistant" on FB Messenger that allows clients to book a service or class on FB "in between chatting with friends." The idea, says Laughton, is to make the experiences part of a person's other daily activities, rather than an interruption. "Clients are visiting on the go or in time-constrained moments. We're trying to engage her in those moments with exciting products and stores, mobile exclusives and early access, fresh daily content, which is drawing her back in, and bite-sized storytelling, offering inspirational moments that are easily digestible on the go.

In-store, Sephora is engaging consumers via mobile with an app that was built specifically to be a store companion. "We are making sure loyalty points are front and center. Tools and features are right there at her fingertips. She can access past purchases, or scan a product." Mobile also inspires her to return via personalized messages after she's left the store. Sephora is teaching with a Digital Makeover Guide, bringing consumer and sales associate together for a digital makeover. From there, the associate can walk around the store and scan and save all of the products that went into the makeover, following up with personalized pictures, tips and a product list. It is inspiring with its own vibrant online beauty community and it is playing with the "Sephora Virtual Artist" where shoppers can virtually try on beauty products anywhere. Since it launched in 2016, millions of lip shades and lashes have been tried on virtually. How cool is that?

Jordan K. Speer is editor in chief of Apparel. She can be reached at [email protected].

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