Meeting the Amazon Challenge with: Efficiencies Visibility Technology

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Jay Kent, Managing Director, SLB Performance Jay Kent has more than 30 years of experience in Logistics with deep expertise in ecommerce, transportation, operations, strategy, supply chain, inventory planning and much more. He is currently the Managing Director at SLBperformance, a company dedicated to implementing cost savings initiatives that reduce your costs, improve shareholder value and drive customer satisfaction. Prior to his current role, Jay was the Chief Supply Chain Officer for General Nutrition Centers (GNC), responsible for end-to-end supply chain from raw material procurement to final mile delivery to the customer. GNC operates over 9100 stores worldwide in over 50 countries. Jay was responsible for strategy/design, execution and supply chain transformation for several companies in his career, including senior executive leadership positions for Kohl’s Department Stores, Linens N Things, Macy’s, Toys R Us and Tiger Direct. Jay serves on the Supply Chain Advisory Board for the Katz Business School at the University of Pittsburgh, the Supply Chain Leaders Council for Retail Industry Leaders Association (RILA) and is a speaker at conferences throughout the US on a multitude of topics that affect business leaders today. Jay has

[email protected] http://www.slbperformance.com (412) 440-8730

a B.A. in Economics from Ripon College. 2

Agenda - How to Compete with Amazon: •Understanding the World Market Retail Landscape •Growth by Country •Financials Alibaba vs. Amazon •The Future of Ecommerce •Fulfillment • In House or Outsource • How do I compare to others? • Automation Options •Delivery • Balancing Speed vs Cost • Trends Today • What’s Next? •Brick and Mortar Stores • Store Closures in 2017 • $150 Billion of Revenue Missed in Stores • Human Talent is Key

•Questions

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Retail and Ecommerce Sales by Country

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Ecommerce Sales Share and Growth by Country

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Alibaba took Singles’ Day to $25B

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The Financials of Alibaba vs. Amazon Alibaba vs Amazon metrics as 8/21/2017 Company Growth

Total Revenue (ttm)

Revenue per share (ttm)

Operating Margins

Quarterly Earnings

Alibaba Amazon

$26.42B $150.12

$10.52 $314.52

32.68% 2.31

94.50% -77.00

Source: Finance.yahoo.com

Alibaba vs Amazon metrics as 1/28/2015 Company Growth

Total Revenue (ttm)

Revenue per share (ttm)

Operating Margins

Quarterly Earnings

Alibaba Amazon

$10.09B $85.25

$4.59 $185.02

42.15% 0.12

-38.7% --

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The Future of Ecommerce Sales thru 2021

KEY STAT:eMarketer estimates that worldwide retail ecommerce sales will increase from $2.290 trillion in 2017 to $4.479 trillion by the end of 2021, equating to 16.1% of total retail sales.

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Estimated over 8600 stores will close in 2017!

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E-commerce is Driving Changes in Distribution and Fulfillment but, the Evaluation Process has not Changed: 1. Determine KPI’s for your business 2. Monitor the external market Competition Labor Technology Service 3. Outsource versus in-house 4. If the decision is to outsource – 3PL or online marketplace? 5. The importance of distribution center(s) locations

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Ask yourself: • What KPIs are we measuring? • What improvements have we made on cost, productivity and service? • Are the company’s goals aligned crossfunctionally? • What can be done to improve efficiency? • How to motivate the management and hourly staff?

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Evaluating Your KPIs: What are you measuring? • If you can’t measure it, you can’t manage it” – Peter Drucker • Measure success • Determine what KPIs should be measured by aligning with business strategy. • Costs as percent of sale • Service level agreements (SLA) • Customer scoring • Order pick accuracy • Delivery transit time • Benchmark year-over-year – Review of competition

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Closer to customer: Amazon continues to invest in facilities. From 2015 to 2016: 58 to 103 fulfillment facilities 28 to 61 sortation & delivery stations 14 to 41 Prime Now hubs 14

As a percentage of cost of sales, fulfillment costs represented 17.9% Q1 2015 and by Q2 2017 it had increased to 22%

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80% of US population lives within 15 miles of a Kohl’s store

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2016 distribution costs which includes fulfillment costs has increased over the years due to “our growing online business partially offset by lower store distribution costs.”

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$2 billion invested in technology

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Labor Since 2011, an average of 40,000 new jobs in the warehousing and storage industry. Access to skilled labor pools has taken priority over labor costs according to JLL Are robots the answer?

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Automation helping to reduce the largest costs in fulfillment 20

Things to Consider when Evaluating Fulfillment Options: In-house Omni-channel Options 3PLs Online Marketplaces

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• Impact on the ‘Brand’ • Value-added services for customer • Physical capacity in brick & mortar operations • Assortment of SKUs • Omni-channel capabilities/needs • On-going operating costs • System(s) capabilities • Capital Cost – IRR • Timeline to become operational • Competition • Peak to average ratios 22

• Financial stability, inventory accuracy, client retention, technology, costs • Shipping options • Locations of warehousing/fulfillment facilities • How knowledgeable/skilled is the fulfillment provider within your market niche? – Specialized product or require customized fulfillment process • How flexible is the fulfillment provider? What level of personalization is available?

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3PL - A firm which provides multiple logistics services for use by customers. Facilitates the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers – CSCMP Strengths: 1. Supply Chain Network 2. Customized solutions Weaknesses: 1. Costs may be prohibitive to small business 2. Visibility/Technology requirements

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A marketplace is a type of e-commerce site where product or service information is provided by multiple third parties, whereas transactions are processed by the marketplace operator. Strengths: 1. Small business benefits 2. Marketing and selling online Weaknesses: 1. Limited to selling on one marketplace 2. Limited customization

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Delivery Today Balancing Speed vs. Cost - What should I do? More importantly how fast can we afford?

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Trends Today Last Mile Delivery Innovation

Drop Ship

Instore Pickup

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Trend Today: Ship From Store 1. A few reasons: one of the primary reasons is for inventory optimization. 2. Balancing how much to ship from store? 3. Speed vs. Reduced Shipping Cost

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Future Trends, What’s new in 2017 and next? Carrier/Retailer Partnerships: Walgreens/FedEx

DHL • 3 Day Expedited Max • Metro Hand delivery in Major Metropolitan areas • Fulfillment Options to leverage companies diversity domestic/internationally

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Future Trends, What’s new in 2017 and next? 1. XPO Logistics/Others

2. Grocery Fulfillment

4. In Store Discounts for Pick Up

3. 7 Day Delivery

5. Autonomous Delivery Options

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To Save America’s Retail Stores: Challenge the Logic • One

of the key expense lines on a retail profit and loss statementHuman Talent

• Could the effective deployment of human talent be an offensive weapon in the war to save the stores and compete with Amazon? • Retailers interested in saving their stores and market share will behave and invest differently than those that continue cost cutting

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$150 Billion Retail Dollars Left On The Table In a survey of 2000 consumers, Time Trade found: • Retailers would increase revenues 5% with better more personalized customer experiences

• The elusive millennials (almost half of whom still do 75% of their shopping in stores vs online) would pay up to 20% more for excellent experience • Prompt service (47.3%), personalized experiences (26.2%) and smart recommendations (17.2%) are among what consumers value most when shopping in stores • 88% said they are “somewhat likely” or “extremely likely” to purchase when helped by a knowledgeable associate 34

It’s Time to Focus on Return of Human Capital • Most retail executives say their stores do provide personalized shopping experiences, but in a recent survey, customer respondents (49%) say they “never” or only “sometimes” receive those experiences - A major disparity! • Many retailers are trying to sustain a technology arms race against Amazon thru beacons, magic mirrors, innovation labs and other ROIC disappointments • It’s time to do something bold, contrarian, more compelling and simple? Invest in Your People

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Investment in the Sales Associates is “Absolutely Critical” •“Retailers that

are growing faster than the industry average rate embrace training and improving associate tools at a rate 85% higher than average retailers and nearly 300% higher than retailers that are stagnant or declining” (Greg Buzek, Founder and President of IHL Group) • Apple, Chick-Fil-A, Walmart, Tiffany & Company, Publix, The Container Store, Trader Joe’s, among others are succeeding. They invest much more in training their associates, which results in lower turnover, higher productivity, better customer experiences and higher profits. • The Container Store…gets 3X the productivity at 2X the payroll cost

• Investing in Human Capital is part of the “Circle of Commerce”

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Key Takeaways to Compete with Amazon • How and when will Alibaba come to the US to compete with Amazon? • Invest in training for your store associates to drive additional revenue • Truly personalized sales assistance is what everyone wants • Ecommerce growth will continue to change the Supply Chain and how customers want to receive their merchandise leverage Omni-Channel • DC Efficiency is key to being competitive and relevant: – Need to determine the level of automation that aligns with the company’s short/long term financial goals – If you can’t measure it, you can’t manage it! Set stretch KPI’s to hold yourself/company accountable 37

Key Takeaways to Compete with Amazon • Determine what Fulfillment Options are Best for Company – In house operations – Omni-channel options – 3PL’s – Marketplaces • Fulfillment location is key enabler to your success and customer satisfaction • Utilize external resources/expertise to assist in the development and execution of your Supply Chain strategy • Make sure you ensure you are receiving the best possible costs for shipping your packages, get help your customer and company deserve it! 38

QUESTIONS? Jay Kent SLB Performance [email protected] [email protected] www.slbperformance.com (412)440-8730

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