Gilt diversifies its shipping strategy

April 7, 2015 02:52 PM

Flash-sale e-retailer Gilt Groupe Inc. has shifted the majority of its daily ground shipping—an average of 20,000 packages a day—from UPS Inc. to consolidator Newgistics Inc., which carries packages through its ground network and hands them off to the U.S. Postal Service for final delivery. The change, says Chris Halkyard, the e-retailer’s chief supply chain officer and general manager of distribution services, will save the e-retailer money it will reinvest in promotions intended to increase the lifetime value of customers.

The move is a result of Gilt reviewing its shipping contracts with an eye toward diversifying the mix of shippers its uses. That process began in earnest following the 2013 holiday season, which ended with many parcels shipped late in the season arriving after Christmas. UPS subsequently conceded it wasn’t adequately prepared for the late rush.

“Holiday 2013 was a huge issue and a tough season,” Halkyard says. “It made people in my position and my counterparts think of not only would we like cheaper options, but also about how we want to take some of the pressure about capacity off and not have all our eggs in one basket.” Gilt is No. 59 in the Internet Retailer 2014 Top 500 Guide.

Recent rate increases, accessorial charges to account for gasoline prices and special services, and the shift to dimensional weight fees by UPS and FedEx are raising the cost of many e-retail ground shipments, leading merchants to look for alternatives. (Learn more in the story Diversifying Delivery, in the April issue of Internet Retailer magazine.)

Halkyard says that while it takes an average of about four days, or 1.5 more days than it took UPS, to get consumers their packages this way, consumers aren’t complaining, and the savings allow Gilt to offer more free shipping promotions and better discounts. “We see this switch improving our LTV,” he says, referring to the customer lifetime value (LTV) metric that projects how much in all a customer will spend with a business.

Gilt began working with Newgistics about three years ago to handle product returns, and Halkyard says he was happy with the services the vendor provided. But it wasn’t until recently that he gained confidence in the ability of the USPS to meet Gilt’s standards to handle last-mile delivery responsibilities and allow the e-retailer to shift outbound ground shipping away from UPS.

But Halkyard says package tracking improvements made by the USPS over the last several years helped convince him. “[The USPS] has rapidly scaled their technology. There’s more real-time tracking. A couple years ago, it was a joke—they were bringing a knife to a gun fight—but that has changed dramatically now.” He also likes that Gilt packages can be delivered to consumers on Saturdays.

Tracking parcels shipped via the Postal Service as recently as two or three years ago was more haphazard, shipping experts say, with packages sometimes being scanned when received by the USPS, sometimes at local post offices and sometimes upon delivery. Often there was a lag between when a scan happened and when the information was uploaded so the customer could see it and know where a parcel was. That’s no longer the case. The USPS also is taking bids to replace its aging fleet of 180,000 mail trucks. A key design requirement in its bid request is to design the vehicles with at least 28% more cargo space to accommodate more parcel volume.

“The USPS is getting aggressive in the e-commerce space,” says Todd Everett, chief operations officer at Newgistics, and it more reliably handles last-mile delivery than in the past. “They recognize the parcel business and servicing the e-commerce market is a critical part of their business.”

When considering the move, Halkyard says he called an old Air Force buddy who is a mail carrier in El Paso, Texas, and asked him if the tracking improvements were as good as he was hearing. “He said ‘I’ve got this scanner in my hand right now and I have to scan everything,’” Halkyard says. “He said at the start of every shift [management] highlights anybody who’s not scanning and that every carrier is held fully accountable.”

Gilt began testing delivery via Newgistics during the holiday season, with shipments going to addresses in the Midwest. Happy with the results, the e-retailer rolled it out for deliveries going to the coasts in February. It continues to use UPS for expedited deliveries, like overnight and two-day shipping.

Plenty of other e-retailers are re-examining their shipping strategies and carrier mix as well. Find out what e-retailers including Amazon, Newegg, BabyAge, Ampere Creations and others are doing and what’s driving the changes among carriers in the story Diversifying Delivery, the cover story of the April issue of Internet Retailer magazine. 




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