We spoke to Paul Rogowski, who following a stint at McKinsey as a consultant, rose through the ranks at the fastest growing e-commerce fashion retailer in the Russian Commonwealth, Lamoda, where he now works as the COO. He told us about Lamoda’s customer-centric delivery model and why Russian shoppers have much higher expectations than their European counterparts.
E-COMMERCE IN RUSSIA
Fashion e-commerce in Russia operates very differently to Europe since service expectations are much higher, massively complexifying supply chain requirements. For one thing, most people pay by cash or card on delivery (COD), so over 95% of orders are paid on the transaction. As a result, consumer commitment to the order is very low, making speed and accuracy of delivery key success factors. Second, next to COD, try-on delivery and partial delivery are an established market standard. This means that the consumer has the opportunity to try on all items upon delivery, then selected and pay for the desired goods only. As a result, the delivery transaction is rather complex and requires a sophisticated salesforce approach over the traditional “hand over the box” courier model.
Existing third party fulfillment providers are unable to effectively service fashion e-commerce at scale and that is why Lamoda decided early to vertically integrate its supply chain including fulfillment, transportation, last mile delivery (LM Express) and customer service. Full control and a customer centric approach in our operations allow us to maximize sales of each transaction, generate higher level of customer repurchase rates, while at the same time minimize inventory losses from damages or substitutions inherent in the try-on model.
LM EXPRESS: SALES REP VS. TRADITIONAL COURIER
When we look at a traditional courier company, they use drivers. We said early on, we don’t want to hire traditional couriers. Instead, we decided that it’s much easier to teach a salesperson how to drive than it is to teach a courier how to sell. Then we tried to really build a salesforce. We don’t have a courier team. If you came to our headquarters and asked someone, how do you like your courier job? The first thing that they would say is, well, I don’t have a courier job, I’m a salesperson. And this completely changes the mentality that they interact with the customer with.
All of this is reinforced by the way we incentivize our staff. We run quite a performance based culture – 80% of the salary is performance based. A traditional courier is paid per stop. This means the more stops they make, the more money they earn. On our end, our salesreps are the face of Lamoda and we incentivize our guys on successful sales, which means on time delivery in the first place and a convenient and professional sales transaction at the point of delivery. As a result, we retain the people who are performing in line with our customer-centric philosophy and built a strong system and culture that can operate at scale across the largest territory in the world.
IN-HOUSE DELIVERY AND BEING THE BIGGEST INTEGRATOR OF SELECTED PARTNERS
Most of our orders are carried out by our own delivery team with over 1500 sales reps. Over the last two years, we’ve also invested in try-on pick up points. These are 150 square metre shops in convenient locations, where a customer can pickup his order whenever he wants, try on the ordered goods and purchase only the desired items. Today, we have 110 Lamoda Points and we are aiming to have 200 by the end of the year.
However we do still use third parties to some limited extend. One reason we do so is for geographic coverage. Cities with limited daily orders volumes are covered with third parties until they reach a certain critical mass and then we launch our own delivery. The other reason we use external delivery companies is to offer a wider range of delivery methods, especially for simple transactions. For example we partner closely with a provider of locker boxes, from which the customer can simply pickup his / her order without any interaction. There are other partners that offer simple “no try-on” pickup from stores and we have integrated over 10,000 of these points across Russia to provide maximum coverage for consumers. But we’re not just passively integrating them, we integrate them up to our standard as much as possible, because if you’re a customer and you’re unhappy with the way your package was delivered, you wouldn’t say the delivery was bad, you would always say Lamoda was bad, even though that’s not an accurate reading of what happened.
DON’T JUST THINK ABOUT LOGISTICS, THINK RETAIL
In order to be successful at scale, think about the customer first and apply a retailer mindset over a logistics mindset. Focusing on cost alone will lead to the wrong trade-offs. I can easily cut my logistics costs by 20% by decreasing service levels and by making it less complex. However, saving 1 euro on the cost side and losing 10 euros on the revenue side would be clearly the wrong trade off. The whole system and organization needs to be structured and incentivised accordingly to avoid silo optimization and push customer satisfaction.
This said, if you’re operating out of Russia, working on a limited budget isn’t going to work, at least not the way we do it. You need to make very heavy investments. We spent millions of euros on warehouses over the last few years to enable the necessary infrastructure and delivery services. You can’t have an optimal last mile delivery service which is fast and customer centric when the warehouses are suboptimal. If you really want to go strong then you should control all critical pieces of the supply chain. For us, that’s why the warehouses are at the core. In addition, more than 50% of our transportation are our own trucks and on the receiving end approximately 70% of our own deliveries are made with LM Express. Our services centers are all operated inhouse with over 500 operators.
As told to Savant Events.
Paul Rogowski will be delivering our opening keynote for Savant Supply Chain Congress on “Using ‘supply chain integration’ as a competitive differentiator.” Buy early-bird priced passes here.
