Current Trends of the Multichannel Industry
Trends don’t always hang around for long—by definition they’re always changing. But right now, summer 2007, we can see some major industry trends that bear watching in the next few months.
1. Direct-to-customer online sales are approaching an average of 50% of total sales for multichannel merchants, but Internet customer retention rates are still significantly less than catalog retention rates, which average 50%.
2. Catalogs are an expensive vehicle for sales, and only going to become more expensive, now that the USPS rate increase has gone into effect (increases could be as much as $400K–$500K/year for a $10 million cataloger). Although it’s difficult to predict exactly the effects of the increase, you can expect decreasing catalog sizes and prospecting, while more product goes to the Internet.
3. Peak season will be even later. Here’s how much it’s changed in a decade: In 1995, peak sales week was mid-October, and holiday operations essentially shut down by the second week in December. Last year, peak sales day was December 1, and merchants were still shipping product on December 23. Technology has made the difference, and shoppers have fallen in step with the possibilities.
4. Labor. Labor. Labor. Fifty percent or more of the cost of an order is split between fulfillment center and contact center costs, and 50% of those costs go to direct labor. As many markets experience full employment, labor costs rise, to the extent that labor availability now frequently drives site selection for DCs and contact centers. And at the same time, absolute productivity is decreasing.
5. Transportation costs increase annually. Inbound transportation costs account for 2% to 4% of gross sales; outbound costs for 5% to 8% of net sales. Shippers have continued to manipulate their pricing structures, so merchants must negotiate dimensional shipping charges, fuel surcharges, home delivery charges, and more. For more information visit our Freight Rate Analysis services page.
5. IT spending is increasing, with core IT systems costing 2% to 3% of net sales. Internet-related spending accounts for up to 5% to 10% of sales for more experimental companies.
How does this list fit with your experience? We would be interested to hear—post a comment. Or if you have specific questions, call Jeff Barry at (804) 740-8743, or e-mail him at jbarry@fcbco.com.
F. Curtis Barry & Co., an operations and fulfillment consulting firm, uses best practices to recommend and implement order management systems for multichannel businesses.