Retail viewpoint: special delivery - holiday sales results

January 23, 2017

After a tumultuous fall 2016 full of surprises, retailers can’t be blamed for feeling that the holidays couldn’t come soon enough. Now that the results are in, did holiday sales deliver?

According to the US Census Bureau, holiday seasonally adjusted retail sales increased 3.4% year-over-year, which fell within the lower end of our prediction of 3.3% to 4%. While this is an increase from last holiday’s lackluster sales gain of 3.1%, the holiday sales trend line continues to disappoint relative to the holiday sales growth we were accustomed to seeing before the financial crisis (figure 1).

One interesting outcome of this holiday’s reporting is a fairly significant differential between the seasonally adjusted numbers (which we use) at 3.4% versus the non-seasonally adjusted sales growth of 4.1%. This 16% differential was the highest we’ve seen since 2012.

Retail continues to be a game of winning and losing sectors. Non-store/ecommerce is again the breakout retail sector, but generally the winning categories were a combination of less discretionary and durable goods, while non-durable/non-discretionary goods were the losers.

Not only is ecommerce growing at breakneck pace, but a report from Adobe Digital Insights1 indicates that sales growth continues to be concentrated on peak ecommerce sales dates—including a 16% YoY ecommerce growth rate for Cyber Weekend as well as surging sales the last Monday before Christmas.

These online peaks are wreaking havoc on retailers’ inventory management, fulfillment centers, and parcel carriers. Retailers are working relentlessly to manage in-stocks as well as capacity to ensure that service levels meet ever-rising consumer expectations.

They are increasingly facing the question of whether to “build the church for Easter Sunday,” or whether they can find less expensive ways to manage these peaks:


  • Manage demand/smooth out the peaks. This is the ever-elusive tactic of shifting demand to where capacity exists. Shifting demand offers the potential to improve margins, as the highest volume days also tend to be the lowest margin. However, we find it is nearly always hard to change ingrained customer behaviors in a meaningful way—especially when trying to buck a macro trend.
  • Get customers to pick up orders in-store. This eliminates the shipping portion of the equation, which in a free-shipping world serves the dual benefit of driving higher operating margins as well as getting product into consumers’ hands faster. While there has traditionally been high consumer adoption in “buy online, pick up in store” (BOPIS) in the electronics and DIY sectors, JCPenney has recently proven that with the right experience and marketing you can quickly drive significant adoption (in JCP’s case—40% of online sales).2
  • Leverage your stores in off/slow hours as fulfillment centers. Retailers with large fleets can leverage their store fleets and labor to create incremental capacity equivalent to one or two large fulfillment centers.

Supplying fast and free shipping

As the holiday ecommerce spikes keep coming, retailers should take a hard look at their fulfillment strategies to make sure they are prepared to meet the demand—not only during the holidays but also year-round. Consumers increasingly expect free delivery, with 75% of respondents to our recent study saying that free shipping “greatly” impacts their ordering decisions, and 18% of respondents stating that they will not wait more than two days for delivery—both significant increases from prior years.3

As ecommerce continues to be retail’s growth engine, it becomes more important to optimize your mix of transportation modes and service levels. Five years ago, it may have been sufficient to simply use traditional package express providers (like FedEx, UPS, USPS, etc.) to handle home deliveries. However, limiting yourself to those options today may not make sense, both from a service-level perspective (because of the increasing need for rapid delivery), and a cost perspective (because of new opportunities to reduce costs by consolidating shipments).

Posting cost savings

Retailers need to reduce transportation costs and enhance service levels across each segment of their distribution operations (figure 4). For example, for low-volume deliveries that aren’t time-sensitive, you can take the traditional approach and look to large, national package express carriers. But as volumes increase and the retailer achieves critical mass in deliveries from a distribution center (DC) to a specific region, you may want to reduce high per-unit package express costs. This is where you can look to partner with third-party logistics providers or build your own network of truckload deliveries to these destinations.

The road to fulfillment

As the consumer environment continues to evolve, retailers should better position their distribution operations to not only meet existing needs but also anticipate likely market changes in the next 5-10 years. To that end, we recommend taking some clear steps now to ensure the competitiveness of your network going forward.


  • Establish effective inventory visibility and forecasting capabilities. As your inventory becomes more decentralized to meet the emerging demand for immediate delivery, it is important to understand where your inventory is, and where and when it will be needed.
  • Integrate systems and processes across your supply chain. Different components of your supply chain will likely play different roles in your distribution operation. They need to be more closely coordinated with each other in real time. It is important that the systems that support these nodes are well-positioned to work in tandem with each other and exchange data seamlessly.
  • Develop a well-thought-out insource/outsource strategy. Carefully assess the emerging and changing requirements of your distribution network relative to your capabilities (e.g., facilities, systems, people, etc.) and use this assessment to make effective decisions on whether to build capabilities in-house or to outsource/partner (for e-fulfillment, local delivery, returns processing, etc.).
  • Develop an appropriate range of transportation options. Although your traditional set of transportation providers can likely serve your needs, they cannot necessarily serve your needs while keeping your costs at a minimum. You should fully understand the economics of each component of your shipping need to develop your transportation mix (e.g., UPS/FedEx, truckload→UPS/FedEx, truckload→local delivery, etc.).
  • Clearly define the best set of channels to maintain and distribute offerings. Assess your network of facilities relative to the emerging distribution needs, and make the tough decisions about whether your existing footprint is best positioned for this new environment, or whether you need to rethink your use of DCs (e.g., centralized versus decentralized, more versus fewer, etc.), vendor relationships (e.g., use of drop ship, etc.), and stores.
  • Be sophisticated in managing returns. Identify the best combination of in-house (e.g., stores, DCs) and/or outsourced providers to optimize this reverse supply chain, just as you strive to optimize the outbound supply chain.


Retailers that design and implement their fulfillment strategies this spring should be well-positioned to reap the rewards heading into this year’s holiday season.

Good luck in 2017.

Data pack

For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above, please contact


1    "ADI: Holiday 2016 Unwraps New Online Shopping Behaviors," Adobe Digital Insights, January 17, 2017.
2    JC Penney Q3 2016 8-K.
3    AlixPartners 2016 Consumer Shipping Survey

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