E-commerce driving regionalization of distribution networks

The explosive growth of domestic and international e-commerce will drive retailers to create more regionalized distribution networks in order to stock products closer to the end customer and simplify the process of product returns.

That is one of the main supply chain ramifications of what's shaping up to be a period of eye-popping growth in Internet sales. Michael DeSimone, CEO of e-commerce enabler FiftyOne Global Ecommerce, predicts U.S.-based e-commerce will grow 10 percent annually through 2015 and foresees nearly 21 percent compounded annual growth for international e-commerce over the same period.

DeSimone, who spoke at a seminar in New York sponsored by investment firm Stifel, Nicolaus & Co., projected that the international (excluding the United States) e-commerce market would reach $1.1 trillion in 2015.

The move toward regional distribution networks to handle e-commerce is gaining traction in both the United States and internationally. That's because retailers here and abroad face the same challenges, namely expediting deliveries to the end customer, keeping costs as low as possible in order to accommodate customers' demands for free shipping, and managing and facilitating product returns.

Numerous surveys have illustrated the importance of free shipping in influencing an online customer's buying behavior. One study from the consultancy IMS Worldwide found that three of four potential online orders are never executed because the customer wasn't promised free shipping. Research has also shown that online consumers consider the inability to return items an impediment to online shopping. "Evolving online consumer patterns will make return logistics increasingly important," Stifel noted in its summary of the event.