Navigating Retail’s Last Mile

United States Fashion Industry Association

November 2016 | Tim Laseter, Managing Director | USFIA’s Annual Conference

Strategy&

Introducing the “Cold-Calling” Professor (& Consultant)…

Strategy& 2

Consumer behaviors continue to shift towards online engagement blurring the lines between brick and click

Web only

Store-to-Web

Web-to-store

Store only

Other

63% 85% 74% 72% 68% 67% 67% 66% 60% 57% 48% 33%

Preference for in-store interaction across categories

Lowest preference Highest preference

1) PwC Total Retail Study

Preferred customer journey for US shoppers1

11% 13% 12% 10%

37%

68%

44% 38%29%

42% 45%33%

20%27%

15%

24%

15%

28% 32%

36%

22% 19% 20%

24%

35% 18%

15%

27%

7%17% 17% 22% 20% 24% 22%

30%36%

42%

58%

9%10%7%9%10%9%8%10%

43%

1%

3%

Jewelry

3% 3%

Cosmetics Total

3%

Electronics

3%

Home

Improvement

100%

Media

3%

Clothing

Footwear

2%

Sports

2%

Grocery

3%

Toys

4%

Appliances

2%

Furniture

Strategy&

Amazon

Service

Delivery

Model

360 million items

(includes drop ship)

delivered in 3-4 days

with variable shipping

fee

40 million items with

“free” 2 day delivery

for $99 annual

membership

500,000 items same

day or next morning

“free” delivery for $35

order & $299

membership

Exclusively for Prime

members: Free two

hour delivery ($7.99

one hour ) on 20 to 40

thousand items

Amazon’s efforts to redefine the speed versus variety tradeoff with multiple offerings define the battlefield

3

Source: MWPVL International Supply Chain Experience, PwC + Strategy& Analysis

Low

Average

High

Population density (per square mile)

Expansion 2014 to Today (46)

Increasing speed

2007 to 2013 (37) Amazon fulfillment centers pre-2000

Central growth

2000 to 2007 (9)

Amazon US Network Plus:

• 26 Sortation Centers

• 34 Delivery Stations

• 42 Prime Now Hubs

`

` ̀

Strategy&

Accordingly, we have conducted research on a range of products/categories and purchase occasions

Durable Goods

42” Flat Screen TV

Avg. Price: $399

Quantity: 1

Total Order: $399

Fashion Goods

Shirts / blouses

Avg. Price: ~$30

Quantity: 4

Total Order: $120

Staples –

Replenishment

Amazon Pantry Box

Avg. Price: $4.35

Quantity: 23

Total Order: $100

Instant

Gratification

Gift basket

Avg. Price $50

Quantity: 1

Total Order: $50

Sample Products by Category

4

Strategy&

We surveyed 2000+ frequent online shoppers across a range of income, age, and in varying geographic locals

575

42%

58%

1,061

50%

50%

339

45%

55%

Survey Respondent Data Characteristics

Male Female

Urban Suburban Rural

$200k+ < $25k

US Residence Location Household Income (US $, Thousands)

Data from 2,009 survey respondents (*30 respondents did not list geographical location)

100 - 149 75 - 99 > 200

313

395

106

265

150 - 199 50 - 74

108

25 - 49

506

<$25k

316

55 - 64

65+

45 - 54

35 - 44

18 - 24

25 - 34

5

Strategy&

While the survey targeted online shoppers we also sought to understand how they felt about shopping in stores

932 MALES

14%

26%

22%

18%

9%

7% 4%

1,077 FEMALES

25%

25%

20%

10%

10%

5% 5%

Moderately Disagree

Slightly Disagree

Strongly Agree

Moderately Agree

Neither Agree / Disagree

Slightly Agree

Strongly Disagree

I enjoy shopping in stores

Respondents’ Viewpoints

Gender Source: Strategy& analysis

6

POP QUIZ #1:

What percentage of

females enjoy

shopping in

stores?

Q1 RESULTS

Strategy& 7

Emerging competitors have staked out different positions regarding speed versus curation

Source: http://thehustle.co/bonobos-andy-dunn

$-

$5

$10

$15

$20

$25

QuestionQuality

Great Buy Might StillConsider

TooExpensive

Instant Delivery versus My Concierge

Ad

dit

ion

al F

ee

on

$1

00

Ord

er

POP QUIZ #2:

Do you prefer “Instant

Delivery” or a “Fashion

Concierge”?

How much more would

you pay on a $100

order?

Q2a RESULTS Q2b RESULTS

Strategy&

(1) Utility is a quantification of a respondent’s internal preferences for a given product’s attributes. The conjoint survey derives this value by repeatedly asking respondents to choose between different version of the same product to tease which of the product’s attributes most contribute to a trade-off decision

Strategy& analysis, survey sample size was 2,009

Membership Fee vs. Delivery Fee Speed (Delivery Time) vs. Service Model

Utility Tradeoffs of Fashion: 4 Shirts/Blouses Totaling $120

8

-100

0

-200

-300

100

300

200

Utility1

$0 Delivery Fee

$4.99 Delivery Fee

$9.99 Delivery Fee

Membership Fee

$0 $100 $50

Charging a membership fee

of $50 (vs. $0) costs 2.3x the

utility loss as moving to $4.99

delivery vs. free delivery

Speed (Delivery Time)

60

40

20

0

-20

-40

-60

Utility1

Curbside Pick-Up

Traditional (FedEx/UPS)

Crowd-Sourced

In-Store Pick-Up

1-2

Hrs

Scheduled

w/in 5

days

Same

Day (AM

Order)

Next

Day (PM

Order)

2

Day

Our research also shows that Amazon has “trained” online shoppers with expectations of “free” 2-day, Prime delivery

Strategy&

Ultimately, cost-to-serve matters in the battel among traditional retail, omni-channel and pure-play eCommerce

Fashion: 4 Shirts/Blouses Totaling $120

Cost-to-Serve (% of Total Order)

Source: Strategy& analysis

6% 6% 6% 6%

16% 16% 16% 16%

3%

2% 5%

5%

2%

2%

2%

2%

2%

2%

2%

0%0%

0%0%0%0%0%0%0%0%

2%2%2%

0%

5%

10%

15%

20%

25%

30%

35%

% of Total Order

Pureplay e-

Commerce

10%

0% 1%

Ship from Store

34%

0% 0%

0%

Personal

Shopper

32%

0% 0%

0%

Store Pick-Up

28%

0% 0%

0%

1%

Traditional

Retail Store

25%

0% 0%

0%

0%

Store Fixed/OH

Pick & Pack

Store Inventory

Store Labor

DC Facility

DC Inventory

Last Mile Delivery

Credit Card

Returns

Delivery to Store

DC Labor

9

POP QUIZ #3:

Which option has

the lowest cost to

serve?

Which is highest?

Q3a RESULTS Q3b RESULTS

Strategy&

But don’t discount the world’s biggest retailer

11

April 13, 2016

Wal-Mart

partnering

with Uber,

Lyft to pilot

grocery

delivery

program

June 3, 2016

Walmart

expands its

curbside

grocery

pickup

service in

the US

October 20, 2016

Walmart Is

Pushing

Reset On

Its Online

Business

in China

Wal-Mart to

Acquire

Jet.com for

$3.3 Billion

in Cash,

Stock

August 8, 2016

Strategy& 11

Thank you!

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