Andrey Popov -

How are companies solving the last-mile delivery problem?

E-commerce has radically changed how goods are transported, and put a spotlight on the last-mile delivery problem. Learn how retailers are changing their tactics to address the issue.

The competitive battleground between online retailers and traditional brick-and-mortar retailers often comes down to the so-called last mile of the logistics chain. In terms of supply chain management and logistics, the term last mile is used to describe the movement of goods from the fulfillment center, or transportation hub, to their final destination. It's that final lap the product takes to arrive at the customers' doorstep.

The last-mile delivery problem considered

The leader of online retailers, Amazon, has gained tremendous market share in consumer products across a broad spectrum of categories by competing on price, selection and convenience. But brick-and-mortar stores do offer customers the ability to take the product home with them from the store. In-store availability doesn't solve one major problem of convenience: The customer has to physically go to the store to get the product. True, while they are there, they can touch, feel, smell and examine the product in the real world, which is hard to do on a computer screen or smartphone. However, the emergence of virtual reality and augmented reality will narrow the distance between virtual shopping and roaming the aisles of your local retail shop.

The big challenge for online retailers is delivering the purchased products as quickly, conveniently and affordably as possible in order to lessen the brick-and-mortar stores' instant gratification advantage. Meanwhile, brick-and-mortar retailers -- many of which have online strategies -- are experimenting with delivery and pickup alternatives for their online customers in order to give online retailers more direct competition.

There are two major alternatives that are in play: getting the online customer's package to its destination more quickly and affordably or making it more attractive for the customer to pick up the package at a nearby location. It is the first alternative that has garnered the most headlines: drone delivery; small, self-driving vehicles, albeit mostly for food delivery in cities; store employees delivering packages on their way home from work, such as Walmart has done; and other innovations.

A look at last-mile delivery problem solutions

Notably, Amazon, with its acquisition of Whole Foods, has gained hundreds of physical locations where customers can pick up goods ordered online.

Online retailers have also been experimenting with pickup locations as an alternative to home delivery. Notably, Amazon, with its acquisition of Whole Foods, has gained hundreds of physical locations where customers can pick up goods ordered online -- saving on shipping charges, reducing the risk of having the merchandise stolen from their doorstep and perhaps getting the items sooner than with home delivery. As a bonus, they might also buy a few groceries while they are there. According to the International Council of Shopping Centers, 81% of shoppers who pick up their online orders at a store end up purchasing more while they are there.

Brick-and-mortar retailers are already exploiting this alternative delivery strategy. Research firm Trefis estimated that 40% of Home Depot's online orders are picked up in the stores. Walmart, Target, Macy's and others are continuing to refine their order online and pick up in store strategies.

Smart lockers and malls as experience centers

Smart lockers are another last-mile delivery solution that online retailers are experimenting with. Smart lockers are designed to be secure storage spaces at which customers can pick up deliveries. The lockers are accessed via a cellphone or the entry of a key code on a built-in display. Online retailers are looking at smart lockers as additional group delivery points suitable for installation in neighborhoods, large and small, throughout their service areas.

Another innovative development for convenient delivery and pickup is the ubiquitous shopping mall. Traditional malls are reinventing themselves in response to the decline in brick-and-mortar business in recent years. As stores close and malls struggle for relevance in this new retail landscape, some malls are becoming more of a town center with restaurants, movie theaters, exercise and sports facilities, game and amusement areas -- like indoor miniature golf and escape rooms -- and walk-in health clinics. A few of the large retail spaces vacated by department stores are being repurposed as distribution centers by none other than Amazon. A nearby place where people are going anyway is an ideal location for smart lockers or a small distribution point with lockers similar to a commercial mailbox facility.

Although the fight for retail dominance is largely between Amazon and Walmart, e-tailers and retailers across the sector are heavily engaged in solving the last-mile delivery problem.

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