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Letter From Ed: The Changing Face of Retail
Many major retailers are looking at returnables, especially plastic pallets and containers, because of the perceived system benefits.
By Dr. Ed Brindley
Date Posted: 11/1/2000
As the Christmas shopping season draws near, my thoughts turn to the future of retail.
Undoubtedly, the futures of retail and packaging ó including pallets ó are intertwined. The rapid expansion of major retail chains and the emergence of e-commerce alternatives have led to the erosion of many small, local retailers. Increasingly, the power is being consolidated in the hands of a few major players such as Wal-Mart, The Home Depot, and Amazon.com. Consolidation of power gives the retailer the leverage to dictate packaging options.
Many major retailers are looking at returnables, especially plastic pallets and containers, because of the perceived system benefits. Plastic packaging promises several benefits: it runs smoother in automated warehouses, reduces clutter and product damage, decreases labor needs, eliminates packaging waste, and improves unit load tracking. Some of these benefits are not exclusive to plastic but appear to be more easily attainable with it.
The rush to plastic has not been as fast as many plastic boosters predicted. Although Wal-Mart is implementing returnable plastic containers in its stores and other grocery retailers are testing the concept, the wood pallet remains the backbone of distribution. When you boil it all down, the wood pallet is still the lowest cost packaging for many shipping scenarios.
So where does retail go from here? The "experts" predict that the amount of merchandise bought online will skyrocket. Will the convenience of shopping at home outweigh the wait and shipping charges? Letís face it: not every single item lends itself to e-commerce. When looking to buy a hammer, a construction worker will more likely stop by the closest hardware store than go online. Products that are bought on an as-needed-basis will continue to be predominantly purchased from a local supplier. Specialty items or unique sizes work well with e-commerce because not every retail store can carry everything a customer may want. Overstocked merchandise or close-out items also lend themselves to online shopping.
Increased online shopping is forecasted to reduce the size of unit loads. More and more items bought in small quantities online would cause the number of small parcel shipments to soar.
Retailers with both physical and online stores are converging the two, offering customers more options. For example, grocery store customers will have the option of ordering online and having the product delivered or prepared for pickup. The growth of advance ordering online will add individual order picking functions to the typical store. Radio frequency identification tags placed on all merchandise will lead the way to more customer self-checkout while improving freshness tracking and reducing theft.
No matter which of these predictions come true, demand for white wood pallets should remain steady for a long time. Several major retailers will likely push for plastic pallets or pallet pooling. But the majority of products should continue to be shipped on wood pallets due to the cost of returnables and the headaches of managing them.
Although plastic pallets provide many benefits, the initial purchase price and the replacement cost can be very expensive. Retrieving pallets and containers requires discipline and extra paperwork, which is unnecessary for expendable packaging. Bickering over lost packaging can result in ill will between supplier and retailer. In the end, returnable programs add an extra level of complexity even when they are being "managed" by a third party.
Wood pallets also have a value on the open market, but it may be more difficult to convert a few stray plastic pallets into dollars.
In the minds of most materials handling and packaging professionals, the word "returnable" is synonymous with plastic packaging. However, returnable can as easily refer to wood, corrugate or metal packaging. Most wood and corrugate packaging designed for reuse requires stronger materials and design than expendable ones. But most customers have been unwilling to pay for it.
In time, the market will dictate who wins. My money is on overall growth for all packaging with wood pallets remaining the dominant choice for many years.