We discuss two major trends (1) increase in direct-to-consumer, (2) cost pressure on parcel logistics, and their impact on eCommerce market

1. March 2018
Direc-to-Consumer and Parcel Cost: Shaping
the eCommerce Logistics Landscape
Bernstein – Motor of eCommerce Conference

2. Unique Identifier
2A.T. Kearney xx/ID
eCommerce growth is the only game in town
0%
5%
10%
15%
20%
25%
30%
35%
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Offline Growth
Online Growth
Diapers
Beauty and Personal Care
Skin Care
Luxury Leather Goods
Sportswear
Laundry CareFootwear
Men’s Grooming
Hair Care
Luxury Jewellery
Fine Wines/Champagne and Spirits
Baby & Child Personal Care
Vitamins
OTCOral Care
Dishwashing
Luxury Eyewear
Bath & Shower
Fragrances
Luxury Goods
Color Cosmetics
Apparel
Surface Care
Designer Apparel and Footwear
Online vs. Offline Growth by Category (2013-2016 CAGR)
Apparel & Footwear
Baby Care
Consumer Health
Luxury GoodsHome Care
Beauty and Personal Care
Source: Euromonitor; Morgan Stanley, IBISWorld, Nielsen, Internet Retailer, A.T. Kearney analysis

3. Unique Identifier
3A.T. Kearney xx/ID
DTC Today
(% Sales)
DTC Growth
20-25% >20%
10-15% 15-20%
10-15% 20-30%
20-30% >15%
Trend 1: Direct to Consumer (DTC) a priority for
Brands
Sample of DTC Growth

4. Unique Identifier
4A.T. Kearney xx/ID
Significant value in pursuing DTC
Higher
Margins
(potentially)
Consumer
Insights and
Loyalty
Enhanced
Innovation
Athletic Shoe Illustrative

5. Unique Identifier
5A.T. Kearney xx/ID
Brands have mainly focused on demand side, but now
rapidly pivoting to the supply side …
Digital/Front-EndSupplyChain
Shop anywhere
Order and fulfill from
anywhere
Smart Phone /
Social Media
Customer
Service
Website
Digital
Stores
CRM
Digital Wall
Retailer /
eRetail
Ecom fulfillment
centers
DSD / Drop Ship
Right Inventory
@ Right
Location
B&M stores
Ship from store / store
pick-up
Home Delivery
PastFocusEmergingFocus
Source: A.T. Kearney

6. Unique Identifier
6A.T. Kearney xx/ID
… eCommerce supply chain fundamentally different
Pick / Pack
/ Ship Cost
Lead Time
Requirement
Order Size
$0.5-1.0 / unit $3.5-5.0 / unit
<1 week
<2 days
~30% same day
20-40 units /
order
2-3 units / order
DTC
$0.1-0.4 / unit
Weeks to
Months
80+ units /
order
Traditional
Wholesale
eCom/
DTC
Source: A.T. Kearney; Industry average ranges for Beauty and Consumables
(e-Retailer)
Beauty /
Consumable
Illustrative

7. Unique Identifier
7A.T. Kearney xx/ID
Brands are actively figuring out their DTC network
Channel /
Customer
OrderProfilegroups
Full Cases shipped on
pallets
Wholesale DTC
Stores
DTC
eCom
Units in 1 package
Multiple cases,
totes and units
Pallet / Full Case + FTL / LTL network (stable)
Mixed Case + LTL / Parcel network (emerging)
• Low growth
• Simple operations
• Stable
• High growth
• Complex operations
• Requires flexibility
3-6 DCs close to
production sites
Mostly wholesale and
B&M retail
3-5 DCs, close to
population centers
Parcel to home, own
stores, partner stores
60-80% Full Case Pick
20-40% Pallet Pick
50/50 FTL vs. LTL
40-50% Mixed Case / Tote
40-50% Full Case Pick
80% LTL
20% Parcel
Eachs + Parcel (emerging)
• High growth
• Complex operations
• Requires flexibility
5-10 DCs close to metro
areas
Parcel and/or last mile
to home, own stores,
partner stores
100% Detail Pick
~0% Full Case Pick
100% Parcel
Traditional
Emerging DTC

8. Unique Identifier
8A.T. Kearney xx/ID
Trend 2: Parcel cost headwinds will also have an
impact on eCommerce landscape
$0.4
$2.9
$2.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Maintanance
and Other
Total
$0.2
Labor
Cost
Fuel
$0.2
Vehicle Cost
With labor constituting 75% of cost of last mile, a 9% inflationary labor
environment means 7-8% YoY increases in cost of last mile
Estimated last mile cost per package, $
(urban, high-density, e-commerce only route)

9. Unique Identifier
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Different segments will be impacted differently
Online Basket Size
($ / Order)
DC Cost
Last Mile
Cost
• Units / Order
• Size / Weight
• Size / Weight
• Distance
• INV co-
location
Footwear
Beauty
Consum
ables
Grocery
Attractive economics Unattractive economics
Supply Chain
Cost
Insensitive
Cost Sensitive
Cost
Challenged
1
2
3
Source: A.T. Kearney

10. Unique Identifier
10A.T. Kearney xx/ID
Implications on supply chain landscape
• Expand e-Com DC footprint (2-3)
• Push fast moving inventory closer to big city areas
(5-10 mini DCs or dark stores)
• Build select experience hubs (stores)
• Utilize store fulfillment to minimize parcel
• Optimize (existing) multi-echelon network flows;
limited e-Com capacity expansion
• Increased spending on next-gen inventory visibility,
forecasting, replenishment capabilities
• Limited eCom asset build
• Push store based inventory + last mile to minimize
parcel
3 to 5 Year Implications
Cost
insensitive
Cost
sensitive
Cost
challenged
Source: A.T. Kearney

11. Unique Identifier
11A.T. Kearney xx/ID
Additional IC on e-Com supply chain

12. Unique Identifier
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Thank you! Please reach out to continue the dialog
Michael Hu
Partner, A.T. Kearney
michael.hu@atkearney.com
www.linkedin.com/in/mhuspace
@mhu_snowcrash

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