COVID-19 is Reshaping Clients for eCommerce 3PLs

3PLs
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August 12, 2020

If it wasn’t already clear, the future of commerce in the U.S. and to a larger extent, the world, will continue to shift from physical storefronts to digital ones... A few weeks ago, Matt McGowan of Snapchat (@matt_mcgowan on Twitter) tweeted this graph from RiskHedge, highlighting the rapid acceleration COVID has played on the shift from physical to digital. eCommerce has grown more in the past 12 weeks than it did in the past decade.

eCommerce Share of US Retail Sales graph

Sure, there will be doubters that will make the argument that the rapid growth is not sustainable and that things will slow down as soon as we can get a better grip on the pandemic situation. But I’d make the argument that the regression won’t be as drastic as most might think. As humans, we tend to be pretty risk adverse. If it ain’t broke, don’t fix it, right? Although I generally agree with the old adage, when you experience something as system-shocking as COVID, old habit loops come crashing down and new ones often emerge.

When I was a kid, I absolutely hated tomatoes. The acidic taste, the slimy texture, even the look of them made me uneasy at the dinner table. But that all changed over a dinner that my ex-girlfriend’s mother prepared. “You like tomatoes, right John?”, she said as she plopped a big serving of caprice salad on the center of my plate. “Absolutely!”, I shuddered back, clenching my teeth in the fakest of fake smiles. After sitting down and exchange pleasantries, I took a BIG bite and to my absolute dismay…I loved it. To this day, my eyebrows go up at the faintest whisper of a fresh caprice salad or BLT sandwich with fresh garden grown tomatoes.

COVID is like my ex-girlfriend’s mother in this analogy. That sounds harsh as I type this…she was a sweet lady…stick with me here... My point is that as humans, we are often deterred by our past bad experiences. Whether it was a crumby mobile purchase experience from 5 years ago or it was a food you tried and hated as a kid. But much like my palate, mobile and online eCommerce user experiences have matured tremendously over the recent years. The eCommerce and mobile user experiences that many found unpalatable just 5 years ago are nearly unrecognizable compared to the norms of today. COVID has forced many people to buy things online for the first time or buy things in which they’d normally buy in a store, online for the first time such as groceries or toilet paper. Though it feels strange and foreign at first, many will come to realize the time savings and convenience of not having to go to a physical store is preferred. The graph above shows that more and more people have made the switch to eCommerce and with how habit-forming technology is today, I’m doubtful many will revert back to their old ways.

Despite the obvious influx in volume and delays in expected carrier deliveries for customers, what does the accelerated boom in eCommerce mean for the world of 3PLs and eCommerce operators?

As more and more businesses are forced to shift from physical to digital selling channels, they’re turning to 3PLs for help with more than just warehousing and fulfillment. Many of these businesses have been operating successful physical storefronts for years but the seller skills they’ve acquired along the way don’t necessarily translate to the digital world. As barriers to entry for selling online continue to fall so too does the average level of eCommerce experience of new 3PL clients.

Average 3PL Client Ex. vs. Difficulty to Sell Online graph

This phenomenon, accelerated by COVID, is fundamentally changing the role and expectations of modern 3PLs who have are focused on capturing the massive market for eCommerce clients. With more and more inexperienced sellers flooding the market and racing to the first 3PL they find on Google, 3PLs need to be wary of this new type of client. Not only are these clients new to supply chain & logistics, they’re also relatively new to the world of eCommerce. Just because a prospective client has shown tremendous success operating a chain of 5 women’s clothing boutiques does not mean she’ll be successful selling online. Nor does it mean she’ll be a joy to work with from a 3PL’s perspective. Just because Shopify and other eCommerce platforms have lowered the barriers of entry to get started doesn’t mean the learning curve of how to become a successful eCommerce operator has been flattened.

This new type of client requires more hands-on support and often has drastically lower shipping volumes than more experienced eCommerce clients. If 3PLs are ill-equipped and under prepared to support these clients, they can become a huge time drain to support and result in negative per-client ROI’s for the 3PL. The 80-20 Power Rule is in full affect among these 3PLs and clients, with 20% of their clients accounting for 80% of their profits. Yet with today’s 3PL client management tool set and processes, it takes just as much time if not more, to support a client from the 80% as it does a client from the 20% group.

Every new challenge or change in the market is a new opportunity for savvy business owners to take advantage of. However, if 3PLs want to profit from these new modern-day eCommerce sellers, they need to completely re-tool across people, process, and technology. 3PLs need to automate the management of the 80% clients AND find a way to make them more successful. 3PLs that find the balance between automation and human-touch and who find a way to profit from helping these new clients flatten the eCommerce learning curve will become the Digital 3PL Leaders of the future.

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John Ladaga
CEO and Co-Founder @Proxii