EP245 - Shipageddon DeepDive
On October 3rd, we published episode 238 and coined the term “Shipageddon.” We were talking about the likely e-commerce peak we expected from the holiday, on top of the e-commerce peak we were already seeing do to Covid-19, and we felt like retailers were likely to run into shipping capacity issues. The term (and concept) have gained a lot of traction, being featured print in the NY Times Brace for Holiday ‘Shipageddon’ Forbes, Bloomberg, and on the Today Show, NBC News, and many others.
In the subsequent 45 days, it’s become clear that we will have a last-mile capacity problem, with all major carriers implementing quotas, turning away new clients, and retailers struggling to entice earlier orders from consumers. Worse, we’re also seeing a lack of freight capacity to restock retailers with limited inventory, and a strong resurgence of Covid-19 threatens to generate even more e-commerce demand.
In this episode, we do a deep dive into the curate state of Shipageddon, the likely impact on holiday shopping, and best practices for brands and retailers to minimize the effect.
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Episode 245 of the Jason & Scot show was recorded live on Thursday, Nobember 12th 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing. Transcript
[0:24] Welcome to the Jason and Scott show this is episode a 245 being recorded on Thursday November 12th 2020,
I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:40] Hey Jason and welcome back Jason Scott show listeners way back on October 3rd and episode 238 we introduce the world.
Galaxy to the potential coming perfect shipping storm that we coined shipageddon.
And since then a lot of our folks that that are really following this closely you may have noticed that shipageddon has gone mainstream.
It has been featured in print in full and Publications like the New York Times Bloomberg businessweek.
And and video on The Today Show as well as NBC Nightly News and much more.
That’s actually the term shipageddon the theme has really taken off so you know you can can’t really open a retail themed publication or tweet or anything like that without hearing about shipageddon.
So we’re 45 days after we made that call and we thought this would be a good time to do a deep dive on what we’re seeing because we’re right on the cusp of,
go time for Holiday 2020 also there’s a lot going on with the pandemic pandemic the damn pandemic that you know that that I think actually is going to be impactful.
Jason what are you thinking.
[1:58] Yeah you made me nostalgic right there I remember back in October 3rd that was a simpler easier time as far as I’m concerned.
[2:06] In pandemics days it feels actually like it was six months ago so there’s these pandemic time frame is very strange.
[2:12] Well yeah because I feel like it does both simultaneously like I feel like time is going really fast in one way and time is going really slow in another way someone’s going to best to me like this is the world’s worst version of Groundhog Day.
[2:26] Yeah absolutely yeah not a lot of getting out and doing different stuff so so yeah
so one of the things that has changed in the last 45 days and I’m curious to hear your take because you have access to all kinds of
scientist that I don’t have access to but you know the pandemic is kind of in a search mode right now we’re at near-record cases in hospitalizations there’s lots of areas talking about shutdowns I saw Chicago you’re not allowed to have Thanksgiving
so I’m sorry to hear that so if you want to fly North Carolina having Thanksgiving with us you’re welcome to but anyway you know if we do go into more lockdowns that’s going to cause more
online shipping which which could actually worse than the problem that you and I have been talking about.
[3:10] Yeah no the mayor I’m not even sure you’ve heard this yet but the mayor of Chicago just imposed a full lockdown on Chicago effective Monday.
[3:19] Okay I did not hear that I knew that they were guiding that you weren’t supposed to have Thanksgiving guests and stuff like that but it was a full lockdown.
[3:27] Yeah I think they’ve they’re coming out with an alternative phrase to lock down like advisory or something but it basically is the same thing yeah so it’s,
it’s very much a Debbie Downer and it’s funny because you know I’ve been doing a lot of briefings on covid now for a long time like literally over 300 briefings,
and early on we brought in this really smart epidemiologist to sort of advise us on.
The ways this could play out.
[3:58] His his name is Michael Oster home he he famously wrote a book kind of perfectly predicting covid in like 2017.
Which unfortunately has all come true and he’s been like.
As far as I’m concerned totally spot-on through this whole pandemic so far and as a result of him we’ve given some really good advice to clients that’s.
Worked out as well as it could so the reason I bring him up now is two interesting things have happened this week.
Joe Biden has appointed him to his covid task force so I lost my epidemiologist to the president-elect,
depending on how you count and,
then he made news like literally today because he Michael did a press conference and he said yeah I probably think we should have a national lock down for six weeks which.
[4:54] Like the rest of the Biden team quickly disavowed because you know nobody wants to be attached to that kind of extreme.
Extreme measure but it really struck me because dr. oh snowman home has been I would say very middle of the road like he’s definitely not a we should just focus on on.
Health and close everything down and not worry about the account why he’s very focused on.
The cost reward of every activity and he has like you know some really smart thinking about.
When you should close schools and when you should open them and he’s not a big like blanket.
Shut down kind of person and so for him to call for that despite the fact that it.
It didn’t have any good Optics is like frankly it’s a little concerning because he’s been pretty pretty accurate so far.
[5:48] Yeah yeah so so maybe this is good time folks are just learning about shipageddon to go through the setup if you want to kind of walk through the the premise of why we raised the alert way back in October 3rd and,
if anything I think you and I both agree that it’s even more likely to be a problem that we’re going to walk through some of the math on that.
[6:10] Nice I love it when you do math.
[6:12] Do you want to do the setup and then I’ll do the math.
[6:16] Sure so add its most simplistic because of covid people have been selling a lot more stuff online and so we’ve had this e-commerce Peak,
that started in March and for a lot of e-commerce sites they’ve been doing.
Cyber five level sales volumes every day since March so way you know higher volume than we would ordinarily have and now we’re coming into the actual cyber five which ordinarily has this very high peak,
and so the way to think about this is.
One would expect a pecan Peak for this holiday you know so unprecedented high levels of e-commerce sales.
[7:01] And that was really even before we had a full appreciation for how South the pandemic my turn right so now that the pandemic is really kind of re-emerging in a in a pretty severe way,
that would in theory Drive even more people the e-commerce oh so you know the the simple-minded.
Um model might be oh we’re going to sell a lot less stuff in store and we’re going to sell a lot more stuff online that we have to ship to home,
and the huge fallacy in that thinking is,
that there is an unlimited shipping capacity to ship stuff to people’s homes and as we frequently talked about on this show,
UPS and FedEx don’t have enough capacity to handle the organic growth that happens every year on holiday.
E-commerce tends to grow at like in Old Times like 15 to 20 percent holiday micro 25%.
And shipping capacity is Max shipping capacity is growing at like eight percent so we already have this misalignment.
Now in the covid year you’ve got this pecan Peak there’s just simply no way the US Post Office you at FedEx and UPS,
can ship all the additional packages that people would want so so we’ve called that problem shipageddon that there’s going to be a lot of demand for online sales and there’s not going to be the capacity to fill it.
[8:24] Yeah and if we you know if this is always hard on our podcast but if we can draw a chart in your mind you know normally so in Q 1 of this year e-commerce was chugging along at 15% which was great and then it accelerated to like 40
now in Q3 we don’t have the gold standard data yet which is the Census Bureau who’s also been on the podcast puts that out,
and if I’m remembering that comes out next week right.
[8:52] It’s a week from today it’s there a next Thursday.
[8:54] Yes and Jason gets pretty giddy at this time of the quarter when the data comes out so you’ll have some sleepless nights between now and then and they don’t call him retailgeek for nothing,
and but we do have Amazon which which I kind of you as if those things aren’t lying than something’s wrong so Amazon came in at about 37 percent.
A little bit higher if you take out their offline component so so kind of
thirty-nine percent maybe even kind of low 40s so I think that exceeded I think a lot of people were expecting it to come down to more low 30s
but Amazon at least saw high 30s so there’s there’s a bracket there for Q3 where the your growth is somewhere between I’m guessing 30 to 40 percent.
And then the big question is what are we going to see in the 4th quarter well a lot of the models that we’ve talked about on the show like emarketer and,
a bunch of these they’re showing kind of.
You know loathe low to mid 30s so we could actually you know I think the data from Q3 May indicate that that’s conservative and then also
if the pandemic is resurgent that’s going to definitely prove those to be conservative so
you know so even that like even if it at 30 to 35 percent it was a problem and it’s going to become a much more severe peaky Peak Peak.
If we get kind of 35 to 40 percent bracket have you have you adjusted your thoughts for fourth quarter at all.
[10:24] Yeah so you know again it’s the you’ve hit two of the main factors there to other ones right so.
E-commerce demand is going to go up.
Overall consumer demand is likely to be pretty healthy it’s going to be in different categories than it ordinarily would so we’re going to sell less apparel,
um we’re going to sell less less luggage than we ordinarily would on a holiday but we’re going to sell way more groceries than we ordinarily would because people aren’t going to go to restaurants and we’re selling a lot more Home Goods,
then we usually do because people are spending their vacation money on improving their,
their homes and then we do have this once every three or four years cycle that’s happening this year with Sony and Microsoft post for Leasing.
Major Video Game platforms which is really going to give a goose to the to the sort of Digital entertainment category so consumer demand.
We’ve always said is going to be pretty healthy in spite of the pandemic that still seems like it’s holding.
You’ve got finite capacity to ship to them a lot of retailers have dramatically improved their ability to fulfill e-commerce orders from stores so that’s going to.
Help them but then the last problem is retailers also have.
[11:42] Less inventory than they would like they both their financially conservative and bought less and now where we have really constrained.
Capacity to ship stuff from China like all the ships and boats are full and you can’t book partial,
containers right now and when you do find a way to ship stuff it’s really expensive so a lot of retailers are just worried that they’re not going to have a big enough supply for demand which is going to.
Is another artificial constraint on what sales are so you you bundle all that up and it’s it’s there’s more uncertainty in this holiday period than we’ve ever had but I still think it’s going to net out to be a pretty healthy holiday.
[12:24] Okay so anything else on the set up or you ready.
[12:30] Think we’ve beaten it to death I want to hear the math.
[12:33] Well one other thing I did forget to mention there is Amazon very again this is if you haven’t tracked this so Amazon very cleverly,
I think it’s 18 months ago maybe two years now,
they realize this they could see the lines were going to cross right they could see that even they were set they were eating up enough capacity with mostly ups and USPS a little bit of FedEx that they were going to,
they were not gonna be able to ship packages because of that,
so they developed their own direct-to-consumer delivery mechanism through this DSP program which is delivery service provider so.
So if we kind of do the math on that Amazon can Flex that and in my day job I actually have some kind of insight into this where we are seeing dsps adding trucks at a tremendous pace,
even unbranded kind of wacky stuff like.
Just random minivans and anything that will hold a bunch of packages right now so Amazon controls their own destiny so I think they’re actually going to be the least impacted and then you and I differ a little bit on this so I’m curious where your where you are now that we’re 45 days into this.
[13:42] I kind of feel like the what I would call the larger direct folks so let’s let’s think of.
I don’t know what’s a good example Walmart you know walmart.com forget the store part of Walmart for a second that will be a stopgap a release valve also but even walmart.com they can go by capacity from I don’t know if they use FedEx or UPS.
[14:06] Yeah or chewy I just saw a FedEx truck full of chewy stuff the other day so they can do is they can kind of this is called a quota so they can just go and say I’m going to go pre buy a bunch of capacity from you.
And even though the rates have gone up.
So so I think they’ll be okay and then if you’re omni-channel you’ll be okay because you have stores so in my mind the ones the folks that are going to suffer the most from this are going to be the smaller Merchants they rely heavily on USPS because the USPS.
I don’t I don’t think they’re adding capacity at all if anything I would guess they’re losing capacity.
And you know so that in my mind is the eBay sellers the Etsy Sellers and the Shopify audience they largely do
they are the biggest users of USPS in the data I’ve seen and I think that they would be kind of most at risk because they don’t have the heft to go out and.
A USPS doesn’t have a quota like thing where you can go buy some capacity and then be they many times don’t really use FedEx or UPS so so I kind of think that’s the segment that’s going to be the hardest by shipageddon have you you changed your thoughts on
who’s going to have the most impact.
[15:11] Yeah so I sort of Saw differently than you and I still do although I feel like it’s it’s.
Dissipated slightly so the hundred percent agree with you the big shippers like all signed up for a quota right in the in FedEx went to Walmart and said hey,
here’s how much you shipped last year here’s how much we can offer you this year do you want to buy it right and of course Walmart and everyone said yes,
um but that that compat quota that they signed up for was essentially a peak it wasn’t a peak on a peek.
And so my hypothesis is Walmart is going to have much more demand than the quota they were able to buy and the Ant,
Walmart’s not going to get offered the ability to deliver more packages than that quota like FedEx is what are you going to say no.
[16:01] FedEx doesn’t want to be the Scrooge that misses Christmas for a bunch of these packages so my,
my original premise back in October was,
the big companies that have all the traffic the Amazons the Walmarts the targets they’re going to get first bite at all the consumers and they’re going to sell all they can but once they hit their quota and they have to start turning away customers,
that those customers are then going to turn to less traditional e-commerce providers that maybe haven’t consumed their entire quota so you might go to a,
an eBay or Bed Bath & Beyond or a Party City or some someone that maybe wouldn’t have been your first provider but you’re now looking for someone that has capacity after Walmart’s run out of capacity,
and so I thought it was actually going to favor them a little bit and once you get under a certain size.
FedEx doesn’t have the bandwidth to sell you a quota so the small shippers actually don’t have a quota and so I thought that would be an advantage and so when you think about.
[17:03] Non FBA sales on Amazon and you think about all sales on eBay.
It’s not a battleship of shipping it’s a bunch of little rowboats of shipping that each have their own you know amount of capacity and so I kind of thought that that was.
A nice redundancy that you know they would get a nice kiss from this but two things would happen the shippers are smarter than I thought and they’re constraining the small guys to number one,
back in like July they stop signing up accounts with small guys so if you didn’t have an account you couldn’t start a business and start shipping,
um they are limiting the amount of packages they take from those guys they are pushing their cut-offs for shipping way earlier on those guys and,
another big difference between the little guy and the big guy is a lot of the big guys are okay if historically been okay not.
[17:58] Making a huge profit on e-commerce yet right and so a lot of the big guys shipping is Express Ship 2-day delivery which is very expensive.
The smaller sellers all have to have better profitability in unit unit economics so they either use US Post Office like you mentioned or they use what I call in injection shipping method which is like a hybrid where,
um maybe it flies on a FedEx plane and then gets delivered by USPS driver.
And so those are the most economical shipping things they’re also the slowest and are going to be impacted by the earliest cut-offs so.
[18:39] Well I think for those systemic reasons the little guy isn’t going to get as much of a kiss as I originally thought so I feel like the pain is going to be more evenly distributed.
[18:50] It says it’s a really long way of saying that you’re wrong.
[18:53] I’m it was actually my long way of saying I’m less wrong than you but okay.
[18:56] If I was this all right we’ll see we’ll have to look at the the shipageddon wreckage and see what we can learn from it and do a post-mortem.
[19:09] There’s going to be a bunch of great artificial reefs as a result of shipageddon.
[19:12] Okay so one of the things that I’ve been working on and shout out to our friends at e marker specifically Andrew lips semen,
so the I think you can actually do a model of this and I’ve been working on this and will provide this to listeners through all the social media early next week.
So but I want to talk everyone through through my thinking here to just kind of put some numbers on this kind of conceptual thing we’ve been talking about.
And just to boil it down when I’ve modeled this the problem really comes down to the Cyber five and,
let me walk you through that so if we look at e marketers model they have over that five day period they’re projecting 39 billion and gmv and that’s about 40 percent year over year than last year.
Um so that’s that’s pretty good you could argue that it’s high but you know I think they have that actually you and I have looked in that pencils with a lot of other things that are out there.
The peak day is Cyber Monday still and it’s a big one and it’s you know you can kind of think of it as.
Amongst the Cyber five yet Black Friday having a pretty big blip and that’s going to be actually think they’re probably underestimating that because I think Black Friday will be bigger because all the stores are closing on Black Friday and then we have these lockdowns so I don’t know what that’s going to do but.
[20:34] So I think this could actually be worse but but bare with me we’ll just stick to their numbers and then you have Cyber Monday as they’re really big a kind of over 12 billion going out that day.
Okay so roll those up together you got about 40 billion just to use a loose number if we assume an average order value of,
you know how many how do we get from boxes from dollars to boxes or packages we use a range of 50 to a hundred dollars I think Dentistry standard 75 right at the midpoint but I kind of like to do a book and on these these models.
[21:05] So with those bookends you effectively from cyber five are going to have 392 780 million packages so think of that that’s our supply.
That we have to put through the supply chain to get out to customers now let’s look at this this pipe we’re putting things through or the capacity.
If you look at the reported capacity from UPS FedEx FedEx has to networks they have air and ground and then the USPS and then Amazon.
When I roll that up you have kind of standard capacity 44 million packages a day.
But then they all do go into a search mode for the holiday so that UPS CEO was on for example and she was on Mad Money it was actually a shipageddon type segment which was kind of interesting,
and you know she was talking about a bunch of new sortation machines trucks all this kind of stuff.
There is a surge Sousa Q3 is an affair comp so I’ve read a bunch of these reports and they all kind of mentioned it in their Q3 reports and I dug into their.
You want to do the math on that the best I can tell and I’m being super generous here is that you know on average they have a 44 million a day capacity and I think that surges up to 75 million so that would be a seventy percent surge,
I think that’s an aggressive number I’m not.
[22:24] You know I feel good about Amazon being able to do that I’m a little skeptical it’s hard for me to tell about USPS I think they could bring it down to more like 50% but will will be generous so so so there you go so keep that number in your head 75 million packages.
So we just do the simple math and we’ve got this bracket of the supply of 392 780 we’re dividing by 75.
You essentially can see the Cyber five in the best case scenario will take about six days to clear through the system.
Um in the worst case scenario I it’s not the worst worse but a near worst case scenario.
If it’s 780 million packages then that’s 10 days so there’s this kind of five to ten day.
[23:05] Now the now the the trick here is that’s the simple model I wanted to walk you through just kind of your head around it so but.
The reality is we’re going to start the Cyber five and the pipes already going to have some water in it right so if we use this kind of mental image of there’s this pipe out there and I’m trying to jam you know all these packages into their the pipe already has.
Limited capacity does not have a hundred percent capacity because there’s already packages that will be coming in it through the ordering that happens before Thanksgiving if.
You know it this is where I haven’t spent as much time modeling but if we’re kind of yeah my best guess is we’re going to be somewhere between 30 to 50 percent of that capacity will already be being kind of consumed so it just ends up pushing things out another three or four days.
So when I boil all that together I see a scenario where the Cyber five which ends on Cyber Monday the 30th it could take until December 5th to clear that out and that’s being I think pretty optimistic.
Take as long as December 10th clear all that out and even like December 12th so and then you know what makes this worse is.
[24:16] People aren’t going to stop ordering on Cyber Monday right there’s there’s going to be the next Tuesday and and whatnot in so,
the analogy I like to use in this is maybe something from the southeast is there’s this whole snake Kaneda Pig but it’s going to take it a while to digest it so,
so I’m really worried the Cyber fight when I’m bottle this out I’m worried the Cyber five puts jams into the supply chain this 10-day.
You know amount of volume that’s going to take a long time to get to the system and it’s just going to make it that much harder to clear out so.
[24:50] Yes so that’s I’m going to be putting out a more detailed model happy to share that and get the you know all the folks in the social media World kind of poking holes in this but that’s kind of where I’ve come out on the model.
What do you think about that does that pass the Jason sniff test.
[25:07] It does prove your point like there’s you know some of that capacity is going to be full before it starts and is going to continue to fill after ends and what’s interesting about that is if you play it out in your scenario
you you’ve worked through that that pig if you will like.
Around the week of the 10th through the 15th and guess what all the carrier’s cut-offs are for holiday this year.
[25:34] I’m going to guess the 10th to 15th.
[25:36] Exactly so you’re really flirting with like packages that come in at the back end of that that cyber five,
missing holiday and for sure you’re flirting with everything that gets you know ordered after that missing holiday.
Yeah it’s going to be interesting and if we have a bunch of store closures where we have been kind of assuming there would be a stopgap there,
you know if we go back to the the worst part of the pandemic the only things that were really open where Walmart and Target right because if I recall
Best Buy was totally closed for a while so and it’s because they had grocery right so it’s all but grocery
yes so that could be if we get to that type of scenario even if it’s going to be kind of regionalized to like some major metros like like La San Francisco New York and Chicago
Zach be pretty cataclysmic because I’ve been kind of assuming by online both this and and curbside would,
would be a stopgap for this and if those things aren’t available that could play a pretty big role in this as well.
[26:45] Yeah although I will say even in the first shut down a lot of Opus was able to stay open so I Best Buy shut down but but curbside was still running.
Um during that shut down and it,
it does feel like even if things get really bad in the pandemic it it’s going to be a more surgical version of a shutdown that would play out this time so I like I do think a lot of that release valve is still going to exist.
[27:09] What other so you spend all your days hours and hours and sometimes way into the night with our friends in Australia and other countries talking about this what what are you hearing from the retail digerati out there.
[27:22] Yeah well retailers are super nervous they still are not you know comfortable that they have good visibility to have this as all going to play out like obviously,
and we’ve talked about this on past shows in many ways you know retailers have started promoting and trying to drive holiday,
um in October somewhat triggered by Prime day being in October and a very common theme we’re seeing is every retailer communicating some flavor of shipageddon to their customers,
and begging their customers to order early and while that.
Those messages are getting a lot of play and UI gets getting covered a lot on the major news programs and all these things,
um I would say that so far indications are that consumers are not buying it.
So we’re seeing some earlier ordering but we are not seeing enough earlier ordering that it’s going to dramatically change the shape of holiday so so you know this is.
It’s looking like it’s going to play out in a challenging situation like some some kind of random Trends stuff that we’ve we’ve been seeing is you know,
tons of retailers are communicating their cut-offs and they’re telling people that they’re going to have more.
Um that they’re going to need to order earlier this year and that they need to be you know order earlier they want to be safe I think one of the most extreme versions We saw was Abercrombie & Fitch put out December 4th as their holiday cut off.
[28:50] So that’s super early and way before the carriers have worked through their their cyber five,
surge in your model,
um we mentioned earlier you know that most of the carriers have a slightly earlier cut off this year than they have previous years so,
it does vary depending on shipping product and which carrier you’re talking about but in general you can think of ground shipping cut off as being about the 15th of December,
um if you are using one of those Hybrid models like sure post or you know when it’s a combination of air carrier and a grand carrier,
that cutoff date becomes like December 9th and those two products ground shipping and injection shipping are the cost effective ones,
if you’re using a 3pl to ship that 3pl wants,
a buffer before they get it to the carrier so most 3pls are telling their clients hey your cutoff for taking orders needs to be about the 6th,
and that’s where you get.
[29:53] Cut offs like the fourth the Abercrombie is is pitching and then there’s been a bunch of other industry interesting things that have happened,
um so FedEx has added an extra day to a lot of their ground service levels meaning it takes a day longer to deliver,
and that has a lot of ramifications one of which is it know a bunch of zones that you could ship FedEx and qualify for self-fulfilled prime.
[30:22] No longer qualify for self-fulfilled Prime so there’s a lot of Amazon Shoppers that try to use it.
[30:28] SFP and they may have relied on FedEx ground for these you know one and two Zone shipping,
um and now you know starting in November that that is no longer eligible for Prime so that’s a big deal,
um not only did the quote the shippers all go to the their customers and say hey you have a maximum quota you can ship they also said and we’re going to charge you more right so on average the average parcel is about two bucks more expensive to ship than it was before,
um so you know that puts a real strain on margins,
we talked about a lot about the shipping constraining stuff but the other thing here that’s that’s increasingly scary to me is the lean inventory levels that a bunch of retailers have had,
Doug McMillan’s done several interviews where he said there’s a bunch of categories were Walmarts not going to have the inventory that they’d like to have going in the holiday,
um Jeffrey’s one of the analysts that we follow pretty closely you know kind of.
[31:23] Issued a report and the title of the report was empty shelves and rated store rooms and they’re saying that you know it’s going to affect a lot more categories than just grocery over holiday,
the international shippers are all saying that like hey basically all the capacity from China is gone so that you know there no more boats there no more containers,
if you don’t have enough inventory on your shelves right now you’re not going to get restocked or replenish.
And then you’ve got you know the two biggest retailers out there Walmart and Amazon that are kind of uniquely position with some of their own capacity Amazon you know for their own home delivery,
and Walmart with their you know a large Fleet of stores they can deliver from.
[32:08] To put that in perspective one of the things Walmart announced this week was that they’re opening 42 more what they call pop-up fulfillment centers.
And the way they’re able to do this is Walmart has a lot of store fulfillment centers centers that are designed to ship pallets to stores,
and what they’ve done is they’ve written a bunch of software to put a bunch of new hardware and they’re converting a corner of a lot of those store fulfillment centers to be,
consumer fulfillment centers that ship each is instead of pallets so they’re dramatically bolstering their fulfillment capability in their ability to Leverage,
ground shipping and and u.s. Postal shipping and then you know you mentioned Amazon made a big investment.
Last year Amazon added 15% more capacity fulfillment center capacity than they did in 2018.
This year they’re adding 50% more fulfillment capacity so they’re doubling the size of their Network which was already vastly bigger than anyone else’s Network.
They spent nine billion dollars in capex just in Q2 on fulfillment and that’s all paying off now so,
we’re going into this holiday with Walmart and Amazon having a lot more capacity than everyone else so it’s you know there’s a lot going on right now it’s going to be really complicated holiday.
[33:27] Yeah yeah so so that’s the set up the model and what we’re seeing retailers do from a communication standpoint and then
because we originated this you in are getting a lot of questions of okay I’m a retailer how do I get this and you’ve hit on some of these but I think it
it kind of bears I always like to instead of just ringing the alarm Bell here I think.
It behooves us to give people some advice on how to handle this shipageddon situation so,
you know the Doomsday scenario is you have a bunch of people that order something on 1220 and this is that.
That’s this is the Hallmark gift for their kid or or whatnot and it doesn’t arrive right so that’s what you want too.
That that’s a very unhappy customer situation and should be avoided at all costs it’s much better.
To say I’m sorry you missed the shipping cut off then into you know over promise and under deliver so-so.
[34:35] But to your point Jason there’s not a lot of data on this so one of our commitments is we’re going to be keeping it pretty close eye on this.
Another two other things just to inject here before we go into mitigation strategies.
Would you have this virus coming out or vaccine for the virus not clear what supply chain it’s going through or if it’s going to be an impact a lot of people have raised that as a potential issue I don’t I kind of.
Handicap that pretty low so like sub 10% impact but one thing we are seeing is.
People aren’t going to be seeing as many relatives and going through their normal I’m gonna go see my aunts and uncles and all this kind of thing so there is going to be extra capacity in the system even above and beyond what we’re talking about from people shipping gifts around that.
Yeah you wouldn’t have before so that’s a wild card actually score that one pretty high it’s going to eat up some capacity I don’t think it’s gonna be like Cyber Monday levels or in it.
Without you know the the biggest ones that I’ve been telling folks is you know.
[35:38] There’s this game of chicken with the consumer where we’ve trained them since Cyber Monday was coined that that’s going to be our best deal and we all hold that deal back for Cyber Monday and Black Friday somewhere in there.
Um so if you can and I know we’re up against limited time here but to the extent you can say to them this is going to be our best deal and be honest about that I think that helps,
I’m on the board of one company that’s tried this and they are having pretty good success with it they’ve had to kind of message it three times for it to land,
because again you know you build in these behaviors over years and it’s hard to dislodge them,
so that’s that’s one and then if you are using cyber five as your best deal I would communicate that again just so people don’t think,
okay and then any kind of you know Communications you can have that are very open and crystal clear with folks you don’t want to overdo it but,
you know if you do learn that that window is closing in the more Communications we’ve seen like the Abercrombie is a really nice Banner that that is pretty highlighted this doesn’t have to all be email marketing and that kind of thing.
[36:45] Another one is you know I order a ton online I just got like a new Wi-Fi router and it came in this giant box I was like what.
Did I order and open the box and you know it’s like 98 percent are two percent item,
so this is the time to get really smart about putting more stuff in your boxes.
Running any kind of promotion where you know if you if you don’t have a free shipping that makes this hard obviously but if you do charge for shipping,
some kind of a threshold get that average order value up get more stuff in the box that’s going to be a smart thing to do,
um I know a cello visor this is kind of like 10 years ago.
We started offering for our customers kind of this window or we could look in our software and we would actually see it wasn’t it wasn’t huge but it wasn’t also nonzero something like 5% if we kind of looked across a 24-hour window,
consumers would order multiple things and then but they put them in separate orders so if you could kind of do Consolidated shipping across a window,
and kind of see that and say hmmm Jason just ordered two things from me in the span of eight hours I’m going to put those into one box little stuff like that can can start to move the needle here.
What are what are the things that you are recommending out there Jason.
[38:02] Yeah well there’s a lot of tactics but I’m not throw one strategy out first which is hard for some people to hear,
In a previous year we acted as if we had unlimited capacity so you tried to collect as many orders as you can most retailers are going to max out their fulfillment capacity this holiday the big ones are for sure,
and so what that means is you should treat your sales wildly different like if you only have a finite number of slots,
you want to sell those slots to the customers that are most profitable right and so what that means is instead of offering everyone free shipping,
you only want to offer free shipping to the most profitable order so this is the one holiday where,
um you know you really.
I do want to think about things like raising your shipping cut-offs and like having a higher threshold for free shipping for sure.
The you want to be more careful about getting really marginal erosive with your promotions I could just doesn’t make sense to,
race to the bottom with a super low doorbuster deal just to get the order,
when you know you’re not going to be able to make that up later because you only have a finite number of slots so from a strategic standpoint I’d say,
like really think hard about your pricing and your promotion strategy.
[39:31] Under this new paradigm that you only that you are not going to sell as many items as you would you would like to ordinarily are going to be able to.
[39:40] Via these channels so that’s the strategy you you mentioned,
the the messaging and the most important thing here is not to surprise customers and so we want to be as consistent and transparent and overt as we can about the messaging so you mentioned banners you definitely want to have,
some persistent messaging on your website that you know it’s your version of the due to increased shipping demands delivery times are longer than expected please allow X number of days for delivery right like that,
that needs to be part of your user experience and it needs to show up.
Not just one place on your website because you have to remember not everyone starts at your home page a lot of people parachute into a product detail page from Google or a category page so this really needs to be ban or messaging that shows up.
Across all the different page Types on your site.
[40:35] Everybody’s doing early Black Friday to try to spread out that demand one frequent listener the show Andy a key smart like I got his,
email is probably one of 40 in my box right now that are running early Black Friday messages and I’ll just give you an idea of what the tone is.
[40:51] They’re you know they make this cool keychain product and they’ve sent an email hey we’re starting our early Black Friday sales now we’re expecting a huge surge in demand for Christmas,
and since a lot of physical retailers are closed and the postal system is really jammed up with e-commerce packages right now we want to make sure you have as much time as possible to shop and get your gifts so here’s our Black Friday deals,
on Tuesday November 10th right and so they’re they’re doing everything they can to pull in that,
there’s orders there cut their explicitly labeling It Black Friday deals and that’s to try to combat this psychology that if you just say it’s a sale then people still assume there’s going to be a better Black Friday sale,
later but if you call it your Black Friday sale now it helps land that message that this is your best deal.
[41:44] You know once you start getting into the order funnel,
it becomes super important to have custom messaging right so if they’re known customer and you know where your shipping,
you want to give them really accurate information about not when you’re going to ship it or what shipping method you’re going to use you want to give them really accurate information about when they’re going to get it if they complete this order today,
and so you know you start thinking about this whole discipline that we call delivery experience management,
and you know that it would really be huuu to have a subject an employee dedicated to crafting the delivery experience,
that you guys offer around holiday there are now a bunch of vendors that specialize in helping retailers with this so I think of companies like.
[42:33] Navarre as a delivery experience management platform or even a,
a more modern like cooler one would be like convey which is get convey.com these are companies that do have a couple of things,
they customize the messages that show up on site and in all your transactional emails to tell customers,
when they’re going to get things they help you pick.
All the different shipping methods and carriers to optimize them for each customer and then most importantly they use,
aggregate data from all their customers to predict when the carriers are going to deliver on time and when they’re not and they,
they can use that predictive model to pad the delivery and Chip have earlier cut-offs when that’s appropriate,
and when the products already been sold and they predict that stuff isn’t going to arrive on time,
they can message it for customers and so the what can happen there is you proactively tell a customer that something is going to arrive late but it’s still going to arrive before Christmas,
you can dramatically reduce what we call the Wim oh calls which is the where’s my order calls which are super expensive problem for customer service when stuff doesn’t show up when it ships.
[43:51] For sure you need to message all this on the checkout pages and the order confirmation page and then you need,
a ton of transactional emails that message all this right so you’re going to email a shipping confirmation when you ship it you you should if you’re not you should be thinking about emailing delivery confirmations when it gets delivered,
if there’s a lag between when they order it and when they’re going to get it you might think about some interim emails where you’re communicating the ownership experience to the customer so you’re telling you know you’re giving them some install instructions or some Pro tips or things,
find some other reason to communicate with him remind them when to expect the package this is the time to over communicate all this stuff,
you for sure want to think about offering helping customers sign up for the carrier’s shipping tracking services so they get you know this real granular data on shipping from the customers.
All of this stuff you really need to be thinking about to maximize.
Customer Comfort levels minimize surprises and really reduce return costs and customer service costs so.
[44:56] That’s for each individual order in terms of promoting products on your site you want to think about this kind of,
cascading fall back plan right like,
in November we can be offering free shipping and we know we can ship that stuff really cost-effectively a via ground or US Post Office,
once we start getting in early December we need to shift all our messaging to be promoting our express shipping options right because after that about December 10th,
the only way we’re going to get there on time is to day air shipping so our messages should change our pricing promotion should all change to reflect selling stuff that’s going to ship via express shipping.
Once we get close to that last week,
we want to shift to exclusively focus on promoting stuff that you can pick up in stores right so you know you want a bunch of promotional messages around Opus because you want to stop collecting orders that you’re going to put in USPS,
or in FedEx when you’re getting close to your shipping quota with FedEx and then,
you know for all those late gift-givers that are logging on on you know the Night Before Christmas hoping to get a package to someone,
what you need to have messaging there selling digital stuff selling like digital downloads gift card stuff like that that you can deliver digitally so you can still capitalize on.
On all that demand so those are some of the things I would be thinking about to mitigate shipageddon this year.
[46:21] Recoil I haven’t even heard of we know so I like it.
[46:26] Yeah it’s a you know customer service is super important and expensive service and everything’s constrain this year right so if you if you have been dramatically flexed your call center and you suddenly sell way more stuff via e-commerce.
E-commerce orders get more customer service calls right and when.
Shipping gets weight they get even more calls and so we need to mitigate all that stuff and we’re not even talking about the next front we’re going to have next month which is going to be the Returns on all this stuff.
[46:54] Coming soon returns yeah so you don’t want to have fomo with a WeMo so use your purpose did I use enough acronyms in that sense.
[47:04] Exactly and and if you can just get the world to buy Starbucks gift cards like Starbucks does that’s probably the best situation.
[47:12] Yeah it helps to have an addictive.
[47:15] Absolutely Wilco so hopefully you have found this deep dive on shipageddon helpful.
[47:23] Yeah it’s again this is going to be a really interesting holiday season to watch so we’ll certainly be talking about it again and I wish everyone every success,
um hopefully things end up being a little more moderate than we’re we’re predicting but better to prepare for the.
The the worst and exceed those expectations,
so thanks everyone for listening as always if you have any comments or questions we’d love it if you jump on Facebook or Twitter and give us your feedback,
and of course if one of these pieces of advice helps you survive the holiday the way you can pay us for that is to jump on iTunes and give us that five star review.
[48:04] Thanks everybody.
[48:06] And until next time happy commercing.