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Building the Sustainable "Amazon Prime" for Digitally Native Brands

November 13, 2019
November 13, 2019
Pixabay

Free shipping has become ubiquitous, and Amazon Prime has forever shifted consumer expectations. Fast fulfillment isn't just nice to have or a differentiator; it's requisite for every online shopping experience. As a brand or a retailer, if you fail to deliver on a consumer's expectation, they simply shop elsewhere. Exceed their expectations with speed and experience and you begin building brand loyalty. This dynamic and the rise of digitally native brands has placed a focus on same-day, last-mile logistics solutions.

The e-commerce market is estimated at $3.3 billion, and some predict that the market will grow to $4.5 billion in 2021. Around 22% of the world’s population purchases online and studies indicate that by 2040, e-commerce will account for 95% of all purchases.

Fast, efficient, and reliable order fulfillment has always been the foundation of any e-commerce business, but also one of the biggest pain points. A lot of the logistics infrastructure hasn’t changed that much in the last 20 years. Warehouses, planes, and trucks are still the backbone of e-commerce; as demand increased more capacity was added, but supply chains were still focused on optimizing shipping around the existing warehouse networks. Two-day delivery is the realistic limit of the existing fulfillment networks, but it comes at a cost to the bottom line and to the environment, and it's simply no longer fast enough.

While Amazon may be able to try anything and take a hit on the financial cost of expediting shipping to change the current fulfillment paradigm in an effort to deliver on the consumer demand for instant gratification, that's simply not economically feasible for most businesses. So if you're not Amazon, how do you compete on next-day and same-day delivery without decimating your bottom line?

Where there's a problem, creative entrepreneurs are working in the background trying to come up with solutions. Investments in supply chain and logistics start-ups are on the rise. Solutions like Postmates, Amazon Flex, and UberRUSH are filling the need through the gig economy or crowdsourcing by posting delivery jobs on their apps, which are then executed by independent drivers, but this ad-hoc solution isn't efficient.

Ben Jones, the founder of Ohi, is one such entrepreneur. His belief is the existing warehousing infrastructure is no longer just stretched—it’s broken. Demand for same-day delivery is rising, and currently very few large retailers, like Amazon, Target, and Walmart, are able to fulfill this need. With the goal of democratizing same-day delivery and reducing the carbon footprint of fulfillment in the process, Ohi is building the next evolution of the logistics network, and Loli, a zero-waste organic skincare brand and one of beauty's most innovative indie brands, was their first client.

Instant gratification and environmental consciousness seem to be in conflict with one another when it comes to e-commerce fulfillment. The faster you need to move orders, the more likely it is to require a plane, which is much worse for the environment. Ohi is changing what it means to be a warehouse by repurposing unused space within cities. Their platform enables brands to position inventory really close to their customers, enabling same-day and next-day delivery for a lower cost than 2-day delivery from existing warehouses, and doing it more sustainably.

“The convenience of tech-enabled same-day delivery doesn't need to come at the expense of a more sustainable footprint," said Tina Hedges, founder of Loli Beauty. "We’re excited to offer our customers the instant gratification of same-day delivery of our zero waste products with a zero carbon footprint."

The key to meeting the expectations of consumers is the ability to predict demand, and then forward-position inventory, getting it as close to the consumer as possible before the order is placed. The micro-warehousing platform that Ohi is building uses data analytics to help e-commerce companies understand their customer demand and where they should be locating warehouses to best serve them. It repurposes unused spaces within cities into fulfillment centers, allowing direct-to-consumer brands to forward-position their inventory. Ohi is building its network from the ground up using world-class technology and bypassing the clunky and unsophisticated tech of traditional warehousing networks, providing a full tech stack that helps manage inventory and order routing through the system.

Jones said, "Brands on our platform are seeing revenue increases of 21% month over month compared to cities that are not offering Ohi's solution. We see very high customer engagement with same-day delivery and our post-purchase experience. 71% of customers choose same-day delivery when it's available, significantly reducing cart abandonment. This is particularly true of beauty brands we're working with, whose customers have really engaged with same-day delivery. In 2020 we'll continue expanding the network to other cities and offering further revenue-generating opportunities to brands."

Sustainability is also an integral part of the Ohi DNA. Jones secured initial funding for the business from the TomKat Center at Stanford University, which backs ideas that have a significant environmental impact.

The Ohi Impact:

  • The cardboard used in e-commerce packaging in the US equates to over 1 billion trees a year. Ohi uses 75% less packing materials than other fulfillment solutions. No more need to use cardboard boxes or plastic to pad out boxes.
  • One e-commerce delivery using a conventional truck produces the same amount of CO2 as charging your smartphone for over 3 weeks. Ohi predominantly uses bike couriers to deliver the goods. Same-day delivery from Ohi = 0g of CO2.
  • Over 425MM SF of new warehousing space will be built this year. That's enough to cover over 7,300 football fields. At Ohi, no new warehousing space is built. The business holds inventory in spaces that are currently unused, rather than building new warehousing space.

There is no one-size-fits-all solution to last-mile delivery challenges, but the importance of optimizing last-mile delivery is undeniable. This is not a trend—it is quickly becoming the new normal. Controlling last-mile delivery means controlling the customer experience.

Ohi currently has micro-warehouses that service Manhattan and Brooklyn. They will open in the Los Angeles market at the end of the month and San Francisco in early 2020.

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