First, we are seeing labor pressures increase. This was already the number one challenge for distribution centers. Responses to the challenge have included implementing more automation to bolster the number of order fulfillment resources available and paying higher wages to the limited existing labor force. The latter isn’t a sustainable solution, and it’s going to get even harder to generate ROI given wage pressures are already increasing in our COVID-19 world. Amazon has announced a whopping $2/hour increase for warehouse workers and a plan to hire an additional 20,000 people, making an already tightly squeezed labor pool even smaller for the rest of the e-commerce businesses.
Second, we are seeing online orders surge. This was another reality we were already facing before the pandemic hit. While higher demand for online sales is a great opportunity for online retailers, it creates tremendous pressure on fulfillment processes and infrastructure to keep pace. About half of warehouses are still using manual processes to fulfill orders – that means pencils and paper. That was sufficient to keep pace with e-commerce volume a decade ago when penetration of overall retail sales was little more than 5%, but it’s already more than triple that now and is forecast to grow exponentially. Online retailers were already facing a critical need to automate in order to scale with consumer demand. Now the new social-distancing measures in place have spiked online orders at a rate reminiscent of peak holiday shopping season. Businesses are scrambling to accommodate front-end demand with back-end logistics adjustments without the usual year-long planning cycle to assess and implement changes.
Third, we are seeing consumer behaviors change. Many people are staying home and home is becoming the center of their lives. They are working from home and increasing demand for everything that supports that from computer monitors to high-speed broadband services, and they are buying goods online that they previously would have purchased in stores. Major cities have mandated restaurants to close for everything but take-out orders, and people are now turning to online ordering of their daily meals. They say it takes 21 days to create a habit, and it seems likely that we could be in this pattern for that long, if not longer. Some of these new ways of operating will certainly become adopted longer term.
So how do businesses adapt to these new norms? Back-end logistics will have to be modernized to adapt to both erratic changes in labor markets and consumer behavior. Inefficiencies that have lived in the fulfillment process were tolerable when a surplus of labor was available and e-commerce represented a smaller portion of retail sales. We’re past that point now, and retailers are going to be forced to rethink their processes to become faster and more accurate in their order fulfillment. Most retailers have already been doing this but with the new urgency we’re experiencing, they’re going to have to accelerate their timeline for action.