Minutes Mean Millions: Online Sites and Stores Battle for Sales

The battle for Christmas dominance is being waged on many fronts: in malls with newly installed electronic parking lot parking space locators, online with concierge delivery services, with sales and deals and promotions.

But just as in war, the fiercest fighting may be in the trenches, in this case of retail processing and delivery execution.

As the following article explains, time is most emphatically money. People love the convenience of ordering online, but they want what they want when they want it. Retailers are being pushed to keep Christmas delivery options open until December 22nd, the latest it has ever been. To meet that target, companies are exploring every possible means of reducing the time it takes to process and deliver an order.

Warehouse design, shipping routes, collection protocols, even the type of ink used for labels has been changed to grind a few more seconds off the clock. The point is to try to cut an hour off the cycle this year to extend the selling season as far as possible in order to generate more sales and profits.

The question that arises is whether there is a natural, physical limit to the equation given the cost parameters that make sense to the merchants and if so, where it is. The implication is that wherever that limit might be may also demarcate the natural limit of online sales. If store-based retailers have an extra 48 hours with which to make sales, it may provide them with a crucial differentiator.

Of course, most consumers in western countries are now embracing a combination of online and store-based options. Retailers are responding by doing their best to converge the models so that someone ordering online Christmas Eve morning can pick the item up at a store that afternoon. The stakes are high because to some degree the future in riding on the outcome. If limits become apparent, investors, advertisers and consumers will adjust their expectations meaning that the entire industry will have to adjust. And a Merry Christmas to you, too. JL

Dana Mattioli reports in the Wall Street Journal:

Time is money. And in the fierce holiday-season battle between online and offline sales, a single hour can be worth millions of dollars.

GSI Commerce Inc., a unit of eBay Inc.that handles online shipping for 70 brands including Godiva, Aéropostale Inc. and Estée Lauder, has been building new warehouses, counting workers' steps and even tweaking the way it prints labels with a single goal: Push back the cutoff time for Christmas delivery by 60 minutes No matter how efficient online retailers become, the need for shipping means there is a certain point at which they can no longer compete with brick- and-mortar rivals for last-minute shoppers. Wringing efficiencies out of the shipping process, therefore, is essential.

This year, GSI's customers will let shoppers order as late as 11 p.m. Eastern time on Dec. 22 and still get their orders by Christmas Eve. That's eight more hours than shoppers get on Amazon.com Inc., AMZN -0.93%which cuts off Christmas sales at 3 p.m., and an hour later than GSI's deadline last year.

The automated system delivers items from around the warehouse, sorting into bins for each order.That extra hour will account for about 10% of all sales handled by GSI on Dec. 22, said Tobias Hartmann, chief executive of global operations.

Last year, online apparel retailer Karmaloop got 131 orders a minute during the final hours before the Christmas delivery cutoff. The seller of Timberland boots, Paul Frank pajamas and Skullcandy SKUL +0.12%headphones switched to GSI in June, drawn by the promise of a later order deadline.

And a change in ink helped speed up the labeling process."It's beyond critical," said Chris Mastrangelo, Karmaloop's chief operating officer. "Having a few hours over a competitor could be a seven-figure event."

Amazon, whose $33.6 billion in sales in the first nine months of the year dwarfed GSI's $684 million, declined to comment on shipping deadlines.

This year, the Web is expected to account for $96 billion in sales during November and December, 16% of the $586 billion holiday haul forecast by the National Retail Federation, an industry group.

The bar for speed is getting higher, with big chains like Wal-Mart Stores Inc. WMT -1.41%and Nordstrom Inc. JWN +0.69%experimenting with same-day delivery in some markets.

EBay's GSI Commerce is trying to wring more efficiency out of the shipping process. Above, a shipping facility.
.As soon as last Christmas ended, GSI's executives began huddling with engineers, data scientists, customers and shipper United Parcel Services Inc. UPS +0.75%to figure out how to speed up the time it takes for an order to be processed by the time the next holiday season rolled around.

"Logistically, that extra hour is extremely complicated," said Mr. Hartmann, the GSI operations chief.

GSI has opened two new distribution centers and spent more than $25 million to improve its operations and speed in the past year, according to a person familiar with the matter. But the key changes are in more prosaic details—like saving steps for employees who can walk nine miles a day at peak times.

GSI's 543,000 square-foot Walton, Ky., distribution center holds 14 million items during peak season and is one of seven used by the company. The warehouse buzzes with conveyer belts snaking across and between floors, huge carts rolling down long aisles of shelves filled with products, and wrapping paper being cut from large rolls.

During the holiday season, GSI's warehouse staffing more than triples to 5,500. Employees fill orders from shelves that stretch across four floors, each piled high with small boxes holding items like sweaters, boots, perfume and pet toys.

Pickers grab goods from the shelves and send them to scanners, who place them on individual pads on conveyor belts, which take them to boxes for shipping. Employees are monitored closely for behavior that might slow down order fulfillment.

GSI generally organizes its warehouses by retailer, with companies like Aéropostale and Nautica taking up large sections of shelf space. But during peak times like holidays, a different logic rules. After experimenting with the idea last year, GSI now loads hot sellers into boxes the size of big closets and stacks them two high near the ends of the aisles.

The idea is to put the most popular goods closest to the people who pick them out for processing, saving them trips into the depths of the warehouse. The system cuts employees' walking time by 60%, said Ron Livengood, senior director of operations at the Walton site.

This year, the company is using all 7,000 of the big boxes for Aéropostale alone, each one holding a specific size and color of a garment, Mr. Livengood said. To figure out what to put in the boxes, GSI's data scientists track order patterns and work with retailers to know what is being promoted heavily, like pink Aéropostale hoodies or slipper boots. Those calculations are rerun every hour.

To further cut down walking time, GSI looked for ways to move the smaller cardboard boxes on their shelves closer together. Fire insurers required the warehouses to maintain a few inches of space between the boxes so that water from overhead sprinklers can drain down between them and get to lower floors. Across miles of shelves, those gaps add up.

GSI's engineers decided to try drilling holes into the boxes, figuring that could accomplish the same firefighting goal as the spaces. In a test, the boxes drained a gallon of water in 17 seconds, allowing GSI to use the closer-spaced boxes in March.

GSI's engineers found a way to use less ink when printing labels, meaning cartridges had to be replaced less frequently. The change sped up the label-printing process by 11% from a year ago. The Walton warehouse also added a third lane to get boxed and addressed orders out the door more quickly.