Canadian Ship-To-Store Programs Benefit Both Consumers And Retailers

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1 A Forrester Consulting Thought Leadership Paper Commissioned By Purolator November 2014 Canadian Ship-To-Store Programs Benefit Both Consumers And Retailers

2 Table Of Contents Executive Summary... 1 Canadian Consumers Embrace The Convenience Of Omnichannel Shipping Options... 2 Ship-To-Store Options Are Valuable For Both Canadian Consumers And Retailers... 3 Challenges Exist For Retailers Implementing Omnichannel Shipping... 6 Best Practices For Implementing Omnichannel Shipping Options PL/Carrier Partners Can Help With Retailers Omnichannel Shipping Strategy... 8 Appendix A: Methodology... 9 Appendix B: Demographics/Data... 9 Appendix C: Endnotes ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2014, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to [1-RHA7MZ]

3 1 Executive Summary In the age of the customer, empowered consumers are using the technology at their disposal to research and purchase goods over the channels of their choosing. Online retail sales will continue to grow in Canada over the next five years, and customers doing research on the web before making an in-store purchase will grow at an even faster pace. 1 As retailers develop their online selling capabilities, a growing number are looking beyond selling directly to the consumer. By investing in omnichannel capabilities like ship-to-store, retailers can leverage infrastructure capabilities and offer differentiated value propositions to their customers. A fully integrated ship-to-store program can increase conversion rates, raise customer retention, and yield operational cost savings. In addition, it offers the consumer options in terms of preferences for receiving items. This is why leading retailers have launched and are now promoting this service aggressively. In April 2014, Purolator commissioned Forrester Consulting to evaluate Canadian omnichannel retail capabilities from the perspective of both consumers and retailers. To do so, Forrester conducted an online survey of 709 Canadian shoppers who have made an online purchase in the past six months, and got the perspectives of eight leading North American retailers that have implemented a buy-online, ship-to-store program. Forrester found that Canadian shoppers are utilizing omnichannel capabilities like ship-to-store today. They rated a variety of omnichannel retail capabilities as very important to the online shopping experience. These programs have significant benefits for both consumers and retailers: Consumers cited cost savings and order security as the primary value delivered by these programs, while retailers see cost savings as well, with the added benefits of increased store traffic and incremental in-store selling opportunities. Optimizing the existing retail distribution model for omnichannel can be challenging, but our interviews with retailers at the forefront of omnichannel shipping revealed several key best practices to getting your program off the ground successfully. KEY FINDINGS Forrester s study yielded four key findings: Challenges exist and are tough to spot until implementation. Our interviews identified several key challenges in implementing a new ship-to-store program, including difficulties integrating key systems, new training needed for in-store employees, the physical limitation of existing stores, and the need for new fulfillment algorithms and inventory forecasting models. Having a good partnership with retail stores is key. A successful ship-to-store program involves key stakeholders from ecommerce, retail operations, IT, and logistics. It is important to have a good partnership with the retail stores, as they will be responsible for new fulfillment tasks. This includes providing training for them on packaging and carrier logistics tools and giving the store credit for ship-to-store transactions. Retailers should invest in an order management system (OMS) to capitalize on omnichannel capabilities. One way to combat some of the challenges around integrating legacy systems and the need for new fulfillment algorithms is to invest in a complete OMS. Retailers should engage a third-party logistics provider (3PL)/carrier to assist with their omnichannel shipping strategies. Retailers can work with their 3PL/carrier partners to potentially increase the cost, efficiency, and customer experience of their new ship-tostore programs.

4 2 Canadian Consumers Embrace The Convenience Of Omnichannel Shipping Options To gain insights into Canadian consumers appetite for omnichannel shipping and fulfillment options like ship-tostore, as well as the perceived consumer benefits of such programs, we surveyed 709 Canadian consumers who have made an online purchase in the past six months that was either shipped to their home or a store for pickup. With regards to the current state of omnichannel shipping, we found: A variety of shipping options is important to consumers. We asked Canadian consumers to rate the importance of different omnichannel capabilities when shopping online. Not surprisingly, 95% of consumers rated the ability to buy online and have the order shipped to their home as important or very important, making it the most important of the shipping options. However, Canadians also rated shipping options that provide convenience and confidence as very important. Our survey shows that 73% of Canadian consumers think that the capability to buy online and pick up at a point of convenience (like a post office, shipping center, or parcel locker) is important or very important (see Figure 1). In addition, 73% of consumers rated the ability to buy an item online, when it was not available at the local store, and have that item shipped to store for pickup, as important or very important. Canadian consumers are utilizing shipping locations other than their homes. Consumers cited having a variety of shipping options as important, and they are actively taking advantage of them today with retailers that have expanded their menu of shipping methods. In the past six months, over half of customers purchased online and shipped to a location other than their home (see Figure 2). Our survey shows that 28% of Canadian consumers have shipped an online order to a place of convenience, and 23% have shipped to a store for pickup. Consumers are finding value in returning online orders to physical stores. When it comes to returning items purchased online, consumers find that the ease of returning items to a store is as appealing as the convenience of returning the order via shipment. Thirteen percent of Canadian consumers have returned an order purchased online to a store in the past six months; 12% have returned an online order via shipment from home. FIGURE 1 Today s Customers Demand To Have Omnichannel Services Available That Provide Both Convenience And Confidence How important are the following capabilities while shopping online? Not at all important 2 3 Very important Buy online and have the item shipped to my home A clear indication of when items I order will arrive if shipping an item to a store, pickup location, or home To be able to buy online and return my purchase to any store View if my local store has a product in stock To be able to buy online and return my purchase via a shipment Store locator Buy online and pick up at a point of convenience (e.g., a post office, shipping center, or parcel locker) Buy online and have my order shipped to a store for pickup (when the item was not available in my local store) Reserve online; pick up and pay in a store (available for me to collect the same day) Buy online and pick up in-store (available for me to collect same day) 4% 6% 11% 9% 17% 18% 26% 24% 35% 36% 95% 91% 86% 89% 80% 79% 73% 73% 60% 61% Note: answers of don t know excluded

5 3 FIGURE 2 Canadian Consumers Are Using The Store Today To Both Pick Up And Return Online Orders When shopping online, which of the following, if any, have you done in the past six months? (Select all that apply) Bought online and had the items shipped directly to me 87% Used a store locator tool to find your nearest store 65% Looked up local store inventory online 60% Bought online and had your order shipped to a point of convenience (e.g., a post office, shipping center, or parcel locker) where you picked it up 28% Bought online and had your order shipped to a store where you picked it up 23% Returned an order you purchased online to a nearby store 13% Returned an order you purchased online via a shipment 12% Reserved online and picked up and paid in a store (where you collected the same day) Bought online and picked up in a store (where you collected the same day) 11% I have not done any of these activities in the past six months 1% 11% Ship-To-Store Options Are Valuable For Both Canadian Consumers And Retailers Ship-to-store programs provide value to both Canadian consumers and retailers alike. For consumers, the chance to save money on shipping is a powerful motivator, and being able to pick up an online order from a store location has other benefits like security and privacy for their online purchases. For retailers, these programs generate additional foot traffic in stores, which can lead to increased order value and additional selling opportunities. Our survey and interviews with leading North American retailers revealed: Consumers see potential financial benefits from picking up an online order in-store. We asked survey respondents to select the potential benefits of having online orders shipped to the store rather than their home. Two-thirds of respondents would choose to pick up in a store if it saved them shipping costs, and half would pick up in-store if they were to get their order faster than home delivery, for the same price (see Figure 3). Canadian consumers are clearly motivated to save money, and they will sacrifice convenience in order to do so. Removing shipping costs has made all the difference for our consumers, especially with heavy or oversized items. VP ecommerce, sporting goods retailer In-store pickup can provide consumers with order privacy and security. Canadian consumers see benefits to being able to pick up online purchases at a store beyond saving on shipping costs. Forty-five percent of respondents said they would use in-store pickup if they did not think they would be home during the delivery window, and a further 28% like the security that ship-tostore provides. Another 23% said they use in-store pickup to surprise people at their residence with gifts. Both of these benefits were echoed in our retailer interviews. Gift giving for us is huge. Our customers use shipto-store a lot for this. VP omnichannel strategy, toys and games retailer Visits to pick up items in-store are opportunities for retailers to increase order value. Canadian consumers are motivated to pick up in-store to save money, which is why ship-to-store and ship-from-store are becoming popular options. They are also willing to potentially spend more money when completing the transaction. Sixty-three percent of survey respondents said they would be

6 4 FIGURE 3 Ship-To-Store Options Can Have Financial Benefits For Canadian Consumers When shopping online, which of the following are reasons why you would choose to have your purchase shipped to a local store for pickup rather than having it shipped to your home? (Select all that apply) To avoid shipping costs (if it was free to collect at a store) 67% If I could get my purchase quicker (e.g., in one day instead of four) for the same price 50% If I knew there was a risk I might not be at home during the expected delivery window 45% I like the security of having it shipped to a store rather than to my home when I am not there to receive it 28% I use it when I want to surprise a person at my residence but don't want him/her to receive the shipment 23% If I was able to pay for my purchase with cash in-store 18% I find it more convenient to collect from a nearby store than have it shipped to my home I use it to keep my purchases private from the people I live with/in my community Other (please specify) 3% 11% I would never choose to pick up my purchase at a store 13% 7% influenced to purchase other items in-store while picking up an online purchase if they were offered special deals or discounts in-store (see Figure 4). Even more powerful, 50% of respondents would be influenced by a coupon that accompanied their order confirmation notice. A ship-tostore option will end up creating incremental foot traffic, and combined with some creative marketing, it can create excellent opportunities for cross-selling and increasing order value. These findings were confirmed by our interviews with retailers. All of the retailers we interviewed reported additional in-store traffic as a result of their ship-to-store programs. Some of the retailers were experimenting with putting pickup locations in the back of the store, to see if that created more opportunities for sales. Offering in-store returns is another way to generate foot traffic and protect against fraud. Another capability highly desired by consumers that can benefit retailers is the ability to return online purchases in-store. If consumers have to bear the costs of paying for return shipping, 60% will prefer to return the item to the nearest store (see Figure 5). Even if return shipping is free, 37% of consumers prefer the convenience of being able to return items to the store. As we have seen previously, getting consumers into brick-and-mortar store locations opens up new selling opportunities for retailers, and offering in-store returns is another way to generate instore foot traffic. All of the retailers we interviewed had programs allowing store returns for online purchases. Another benefit that retailers saw from omnichannel return policies is reduced return fraud. Previously, it was easy for customers to commit return fraud, bringing items to a store for return that retailers could not check to make sure they purchased from that retailer. With the ability to tie a return to an original order, retailers were able to better identify fraudulent returns. The ability to tie a return to an original order not only helped with fraud, but also helped us identify problematic serial returners. VP ecommerce, literature and music retailer

7 5 FIGURE 4 Pickup In-Store Generates Foot Traffic And Creates The Potential To Increase Order Value If you were to choose to pick up an online purchase at a local store, what would influence you to buy other items while in the store picking up your order? (Select all that apply) Special deals or discounts in-store 63% An ed coupon with my order confirmation that can be used toward an additional purchase in-store 50% Something that catches my eye at checkout 32% Possibility to earn loyalty points or other benefits If the retailer recommends items related to the purchase I came to pick up 19% The retailer providing the opportunity to demo/try on the items purchased 17% The retailer having my items already packaged/bagged and ready to go 14% Other (please specify) 1% 30% Fifty percent of customers would be influenced to add to their order using a coupon on the confirmation. I would not be interested in picking up other items 20% FIGURE 5 Canadian Customers Will Return Online Orders To Stores, Even If Shipping Is Free Which of the following would be your preferred option if you had to return or exchange a product that you had purchased online if Return the order to the nearest store of the online retailer I purchased it from Ship the order back to the online retailer by dropping it off at a point of convenience (e.g., post office, shipping center, or parcel locker) None of these; I would never return a product purchased online 17% 17% 23% 37% 45% 60% I had to pay for the return shipping myself The return shipping was free Over a third of customers still want the convenience of returning to a store.

8 6 Omnichannel options can save the sale that may go to a competitor. Retailers were quick to highlight that offing a ship-to-store option can often help to save the sale if a product is not available at a local store. In addition, according to our consumer survey, retailers risk losing up to 17% of customers to competitors when shipto-store and local stock are not available (see Figure 6). Ship-to-store can reduce overall carrier costs. When a consumer selects home delivery, packages often ship free due to shipping policies and promotions, leaving the retailers to cover those shipping costs. With ship-to-store programs, customer orders can be packed with store replenishment and shipped in bulk to avoid single package shipping costs. One retailer we interviewed said it saved six figures in carrier costs by using pallet shipments to carry ship-to-store orders. However, if retailers do not have merged distribution centers (that carry both store replenishment inventory as well as online order inventory) these savings may not be realized. Challenges Exist For Retailers Implementing Omnichannel Shipping As we have seen, omnichannel shipping programs like buyonline, ship-to-store programs can provide myriad benefits for both Canadian consumers and retailers. However, implementing these programs successfully in stores is not without challenges, and many retailers found themselves facing many problems they did not foresee until they were in the middle of implementation. Retailers considering implementing these programs should be mindful of: Challenges with connecting disparate systems. The No. 1 challenge mentioned by retailers was getting legacy systems to work together between the online and store channels. Retailers may need to invest in new technologies, such as a complete order management system, to ensure the proper technology infrastructure is in place for a successful ship-to-store program. FIGURE 6 Retailers Risk Losing 17% Of Customers To Competitors When Both Ship-To-Store Services And Local Stock Aren t Available If an online retailer offers an option to buy online and pick up in-store, but the product you are looking for is not currently in stock at your local store, which of the following would you be most likely to do? Purchase from the retailer online and ship the product to my home 32% Look to see if the same product is in stock at other stores near to where I live Purchase from the retailer online and have the product shipped to my local store for me to pick up 17% 27% Look for the same product at another online retailer 15% Abandon my purchase completely 4% Other (please specify) 1% When this capability is not available, retailers force customers to consider other options. Don't know/not sure 4%

9 7 Cultural changes for in-store employees. In-store employees may be resistant to the new shipping models, due to the new tasks they will have to perform, as well as the new skills they will need to learn to perform those tasks. You need to sell the vision to the stores that they have something to gain from supporting and executing online orders, one retailer told us. Store employees may also need additional training around new operational processes for handling ship-to-store orders, such as training for packaging and using carrier logistics tools. This is a real change for these employees, so do not underestimate the need for solid change management practices during implementation. Physical limitations of existing stores. Chances are existing retail stores were not designed as a place to hold items for pickup. Most stores will not have footprints that were designed to store large or high-volume items. These limitations need to be kept in mind when retailers implement omnichannel shipping programs and must decide which items can be shipped to the store and which stores are eligible for the new program. Retailers may also need to install additional infrastructure, like additional shelving, scales, and shipping materials. The need for new fulfillment algorithms and inventory forecasting models. Retailers new to omnichannel shipping will need to manage their fulfillment algorithms to make sure that orders are shipped in the most efficient manner and consistent with the retailer s goals. They will also need to create new models for forecasting omnichannel inventory. Best Practices For Implementing Omnichannel Shipping Options Canadian consumers have embraced the cost savings and convenience of omnichannel shipping options and are actively using them today. Savvy retailers are recognizing the value and myriad of benefits these programs can provide, and they are using these insights to build business cases for installing or expanding their ship-to-store capabilities. Our interviews with retailers that have successfully implemented these programs uncovered several best practices to follow when beginning the omnichannel journey. To ensure success, retailers should: Focus on a single omnichannel offering before branching out to others. The different omnichannel offerings, like ship-to-store; store-to-store shipping; and buy online, pick up in-store all have their own complexities and challenges. Retailers we interviewed advised starting with a single offering, such as ship-to-store kiosks, as opposed to trying to tackle them all in one fell swoop. Retailers may have to modify their first program several times before they get it right, but the experience will make the next implementations run smoother. Distribute ownership of omnichannel elements to those with operational expertise. Retailers that have launched successful ship-to-store programs have involved key stakeholders from ecommerce, retail operations, IT, and logistics in their initiatives. All of the retailers we interviewed stated that multiple department leaders owned the operational execution and delivery of their omnichannel programs. For these programs to be a success, that operational expertise was needed for each aspect of the program, from the online sale to the distribution center to the store. Invest in a complete order management system. One way to combat some of the challenges around integrating legacy systems and the need for new fulfillment algorithms is to invest in a complete OMS. An OMS capable of handling omnichannel capabilities is essential to successfully implementing a ship-to-store program. Reward stores with credit for their participation in omnichannel shipping programs. With omnichannel transactions, retailers need to decide where to give credit for online purchases that involve the store. All of the retailers we interviewed gave credit to the store for all ship-to-store and store-to-store shipping transactions.

10 8 Doing this provided a variety of benefits, including addressing employee satisfaction, offsetting needed payroll increases for store employees, helping measure inventory issues with in-store stock, and allowing inventory planners better forecasting for local store demand. The goal is to have the store employees look at the online channel as a teammate, not a competitor. As one retailer put it: position shipping or delivery options as a part of the retail customer experience that differentiates service. The goal is to have no more disconnected silos of self-interest.... the company is just selling. SVP integrated retail, home goods, and clothing retailer 3PL/Carrier Partners Can Help With Retailers Omnichannel Shipping Strategy One final best practice for retailers is to engage experts outside of their company to advise and assist with their omnichannel shipping strategy. A 3PL/carrier may be able to help retailers with the transition to a ship-to-store program. Retailers should engage with a carrier to: Leverage APIs to integrate shipping, tracking estimates, and returns into retailers internal applications and across their supply chain to save time and increase efficiency. Offer shipping estimates, pickups, and tracking capabilities for both internal users and customers on retailers websites. Negotiate shipping rates to include a built-in margin over shipping costs. Find ways to reduce internal administrative costs and order errors by automating shipment creation and product returns. Help manage seasonable distribution challenges and optimize supply chain costs by managing seasonal inventory through shared/seasonal warehousing or distribution centers. Provide logistics training to store staff on how to create shipments, receive deliveries, pick and pack orders, notify customers of orders upon shipment arrival, and do various inventory management activities. Customize pickup and delivery times that are in line with off-peak periods of the day/week. This allows retailers to

11 9 Appendix A: Methodology In this study, Forrester conducted an online survey of 709 Canadian shoppers who have made an online purchase in the past six months to evaluate Canadian consumers appetite for and behaviors around retail omnichannel services. Questions provided to the participants asked about omnichannel shipping services like ship-to-store, behavior when shopping online, and preferences in returning online items. In addition, Forrester interviewed eight North American retailers that have implemented omnichannel shipping services. These retailers are all Forrester clients. The study was conducted in April Appendix B: Demographics/Data FIGURE 7 Survey Demographics Province Ontario 39% Quebec 21% Gender Male 50% Female 50% British Columbia 14% Alberta 12% Saskatchewan 4% Age Manitoba 4% Nova Scotia 3% % 18 to 34 32% Prince Edward Island 2% Newfoundland and Labrador 1% 35 to 54 39% New Brunswick 1% Yukon Territory 0% Nunavut 0% Northwest Territories 0% Education Post-graduate degree 7% Some post-graduate school 2% $100, % Income Under $50,000 34% University undergraduate degree 15% Some university 7% Completed college/technical school 22% Some college/technical school 12% High school graduate 26% Some high school 8% $50,000 to $99,999 42% Elementary/grade school 1% Note: Percentages may not total 100 because of rounding.

12 10 Appendix C: Endnotes 1 Source: North American Technographics Online Benchmark Survey (Part 1), 2013, Forrester Research Online Retail Forecast, 2013 to 2018 (Canada)

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