Running Head: SAME DAY SHIPPING FORMAL JUSTIFICATION

Same Day Shipping Formal Justification James O. Staggs Strayer University

Professional Communications ENG 315 Professor Jennifer Scarry December 20, 2013

SAME DAY SHIPPING FORMAL JUSTIFICATION

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December 22, 2013 Mr. Shobi Kahn Chief Operating Officer General Growth Properties, Inc. 110 North Wacker Drive Chicago, IL 60606 Dear Mr. Kahn The attached report is being submitted to you as a proposal based on our findings of the impact of same-day shipping implementation by General Growth Properties, Inc. Our report analyses one of the major causes of revenue loss at General Growth Properties, Inc. as well as presenting a solution for correcting the current trend to ensure continued revenue growth and competitiveness in the future. The recommendations in our report reflect the results of research made both to customers directly by surveying buying preferences and interviews with department heads within General Growth Properties, Inc. to ensure a full scope of analysis. We are appreciative to the General Growth Properties, Inc. staff and especially to the Director of Sales for the coordination of the customer survey process. I look forward to meeting with you to discuss our recommendations at your earliest convenience. Best regards,

James Staggs Sales Research Analyst XYZ Consultants, Inc.

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Table of Contents Executive Summary ....................................................................................................................... iv Introduction ..................................................................................................................................... 1 Problem Statement .......................................................................................................................... 1 Method Used ................................................................................................................................... 1 Findings........................................................................................................................................... 1 Cause of the market slowdown ................................................................................................... 2 Pros and Cons of Same-Day Shipping ........................................................................................ 3 Competition ................................................................................................................................. 4 Analysis........................................................................................................................................... 5 Conclusion ...................................................................................................................................... 5 References ....................................................................................................................................... 6 Appendix A ..................................................................................................................................... 7 Table A1 ...................................................................................................................................... 7 Table A2 ...................................................................................................................................... 7

SAME DAY SHIPPING FORMAL JUSTIFICATION Executive Summary

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Starting in 2008, General Growth Properties, Inc. began to experience a loss of major anchor stores across their 600 malls. GGP relies heavily on the stability of these anchor stores to ensure consistent revenue and to meet budgeted obligations to steak holders. As a result of our assessment it was found that GGP will continue to lose anchor stores amounting to a loss of revenue at a rate of 0.1% annually amounting to $25,119,000 year over year. Causes for this revenue loss has been identified by: Recession leading to the collapse of the real estate market. Market saturation based on the limited footprint of customer demographics. Increased competition from the online sector. This has been caused in part by the rise of affluent millennials who prefer online shopping with fast shipping over shopping at brick and mortar stores.

As a result of our findings, it is recommended to implement same-day shipping programs for stores in each of GGP's 600 malls with the following benefits: Same-day delivery will expand the customer base allowing stores to compete online. Customers who want an item right away will be able to order online and either pick up in store of have delivered same day. GGP stores will have an advantage over online retail giants because with 600 malls nationwide, same day delivery can be successfully implemented without adding large distribution centers or inventory. The program will give GGP an immediate annual revenue of over $2,260,710 the first year of operation.

XYZ Consulting, Inc. can begin to implement immediately if approved for zero cost to General Growth Properties, Inc. The program will be implemented solely from the revenues generated from the same-day shipping program. If approved, General Growth Properties, Inc. will have additional expected revenue of $2,260,710 annually with potential for additional growth.

Running Head: SAME DAY SHIPPING FORMAL JUSTIFICATION

Same Day Shipping Formal Justification Introduction This report will be directed towards the Chief Operations Officer of the real estate company General Growth Properties, Inc., who operate the second largest chain of regional shopping malls in the United States (GGP 2012). The goal will be to implement same day shipping in order to strengthen market share and enhance revenue of anchor retailers in each of the 600 malls in the country. Same day shipping will provide customers with the added convenience of receiving needed product faster for a small additional charge. The additional charge will be offset to the customer by the savings he will realize in the reduction of onsite inventory and the convenience of receiving the product faster without having to visit the store. General Growth Properties, Inc. will benefit by the retention of existing anchor retailers and greater ability to attract new retailers. As demand rises, General Growth Properties, Inc. will continue to increase rates per square foot for the added value. Problem Statement In order to predict steady revenue to cover operating expenses, General Growth Properties, Inc. relies heavily on the revenue generated by major anchor stores, also known as Big Box stores such as Home Depot, Walmart, Target, Best Buy, OfficeMax, etc. Starting in 2008, the large anchor stores began to reach what is believed to be market saturation (Banjo, 2013). The result was that the stores began to slow new store openings and in some cases, many of the larger stores began to close. Method Used In this study, data was obtained from multiple sources. First, research was conducted to investigate the cause of the slowdown. The study involved a consumer survey regarding purchasing trends and how their buying patterns may change with the introduction of online purchasing with same day delivery. A cost analysis was conducted to prove the feasibility of implementing same day delivery. The data obtained from various groups was analyzed and a detailed report of the findings was given with a specific recommendation. Findings There were several findings that were relevant to the implementation of same day delivery. These findings highlight the cause of the market slowdown, how same day delivery will help to reverse the trend, highlight the pros and cons of implementing same day delivery,

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and reveal a surprisingly large number of big businesses that are interested in or are testing same day delivery. Cause of the market slowdown In 2008, what is now known as The Great Recession found its root cause in a rise in the number of defaults in the subprime mortgage markets. These defaults led to the instability of several major financial institutions who either had to be bailed out by the federal government or be taken over by larger banks. Because of these events, banks then reduced the amount of money they would lend, making it more difficult and expensive for businesses and consumers to borrow. The real estate market was hit the hardest as housing sales plummeted. The stock market plummeted, wiping out over eight trillion dollars in wealth. This lead to a decrease in spending causing unemployment to skyrocket (Love, 2011). "In 2008, upon reaching what is believed to be market saturation, Home Depot slowed new store openings," Ms. Tome of Home Depot said. "Now it is believed that Home Depots sales growth will be driven by a continued recovery in the housing market, as well as interconnected retail." In 2012, online sales represented 2.4% of the company's $74.8 billion in 2012 net sales. Home Depot's web sales are expected to increase by 50% this year to $2.7 billion (see Appendix A for Home Depots Projected Sales Growth). (Banjo, 2013). Another impact causing the slowdown of purchases to the big box stores is increased competition from the online sector. Large online distributers like Amazon.com are able to sell the same products as the big box stores with less overhead costs. Many consumers who want to see the products before purchase, visit the big box stores and view the products and then make their purchase online. In effect, these big box stores were becoming product showrooms for the online sellers and not making revenue from the sale. The advantage that the big box stores had over online retailers was the ability to provide the product immediately. This advantage is quickly fading and may no longer be viable, as the online retailers are testing same day delivery in several markets. Retail heavyweights Wal-Mart Stores Inc. and Amazon.com Inc. have both been testing same-day delivery in certain markets, but neither have rolled out the option to customers nationwide. Wal-Mart, which offers same-day delivery service in five markets, said customers have until noon to place orders on about 10,000 top-selling items and can choose a four-hour window to receive delivery (Banjo, 2013). "Seventy-five percent of what people buy is bought within 15 miles from home," says Deborah Sharkey, eBay's vice president of eBays local (Mangalindan, 2013). With that in mind, who better to provide product than the big box store closest to the customer. These large stores can serve a dual purpose, as a local store and a distribution center from which online sales can be fulfilled.

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The National Retail Federation forecasts that holiday sales will rise 3.9 percent, to $602.1 billion, up from last years growth of 3.5 percent. Online sales, however, could increase as much as 15 percent, to $82 billion, according to the trade group (Sarah, 2013). Same-day delivery will help local big box stores to retain or even capture additional profit. One major success story comes from Mealeys Furniture. The payoff for Mealey's, which is family owned, has been a sales increase of about 10 percent, which helped contribute to an overall sales increase of nearly 30 percent in 2004, Mealey says. Last year, City Furniture, which operates in the Miami area, reported a "double-digit" sales increase when it began offering sameday deliveries. Despite the added costs, he says the higher sales resulting from sameday delivery has exceeded the company's expectations. "It's true that some people don't want immediate delivery, but we find that probably 20 percent to 25 percent of all purchases want the same-day service. But, most of the customers interpret that they can get it any day they want." (Fleischer, 2005). Another finding is that the volume of deliveries is what makes the price attractive to the customer. The cost to the consumer can be the same or less than standard shipping, but gets cheaper with volume, Carmeli says. "If a driver picks up one item at Nordstrom and it takes an hour to deliver it and get back, that delivery might cost me $15," she said. "Delivering two items in an hour would cost $7. As you start adding more stops to drivers' routes, the increase in volume brings down costs very quickly." (New Technology, 2013).

Pros and Cons of Same-Day Shipping Same day shipping improves customer satisfaction by making the purchasing process faster and easier; the customers time is freed up for other activities. There will be some productivity gains. This is because when all orders have to ship every day, and everyone in the warehouse understands this and understands that they dont go home until this is done, you will see some serious hustling going on to make this happen. As managers, we are always looking for ways to inspire productivity, and having some built-in inspiration like this is simply a managers dream (Piasecki, 2013). There will be less to manage. Operations that dont require same-day shipping need to manage their backlog. This generally means that someone is deciding which orders ship today and which do not. They then will evaluate those that didnt ship and determine when they will ship. Depending on shipping requirements, someone may be reviewing and making decisions related to a single order several times. In addition, anything that doesnt need to ship today (based on policies) will probably not ship today even if there is enough capacity to ship it. This means that the backlog is not simply the result of capacity issues, but becomes the direct result of policies. If policy states that there is up to three days to ship an order, most times all the orders end up taking three days to ship. This probably was not the initial intent when the policy was set up (Piasecki, 2013).

SAME DAY SHIPPING FORMAL JUSTIFICATION Another interesting observation is that demand for faster delivery fosters innovation. Several companies such as Google, Amazon and UPS are testing or looking into drone delivery. It was also found that the amount of purchases increases. "Will the average spend go up if customers don't have to carry around the bags? We think so," said Scott Morey, who has overseen a trial of the service in four malls since February (Bensinger, 2013).

There are some challenges that need to be covered to make same day shipping successful. One is the issue of capacity. The most obvious issue with same-day shipping is that it requires you to have enough capacity to meet whatever workload you may encounter on a day-to-day basis. In some businesses, this daily variability may be significant. Not only are you dealing with day-today variability, but also variability within the day. For example, you may find that most of your orders come in near the end of the day. So now you need enough capacity available to meet the busiest late-day period of the busiest day. In order processing, capacity includes people, systems, equipment, and even floor space. And all of these cost money (Piasecki, 2013). The previously stated capacity issues can certainly have a negative impact on efficiency. Sameday shipping can limit the companys options related to how orders are processed. When an order is examined for large fulfillment operations, new ways need to be found to group orders or picks to gain efficiencies. This may involve trying to group picks of the same item or picks in the same area to reduce travel times (Piasecki, 2013). Competition It is surprising how many companies are either testing or have already implemented same day delivery. Listed are some of the leaders in the field: Google Same Day Shopping Express - https://www.google.com/shopping/express/# Walmart to Go - http://delivery.walmart.com/usdestore/home/homecontainer.jsp?_requestid=569 Amazon Fresh - http://fresh.amazon.com/ Ebay Now - http://www.ebay.com/now/ Barnes & Noble - http://www.barnesandnoble.com/help/cds2.asp?pid=23252

Also the three major shipping companies, FedEx, UPS and USPS are testing same day delivery as well. Yahoo News reported The Boston Consulting Group conducted a survey of 1500 consumers regarding shopping online. 9% of those consumers stated that same day delivery would inspire them. Of all surveyed they would be willing to pay an average of $7.50 to receive a $50 purchase received via same day delivery. In eBays test markets in Brooklyn and Manhattan New York, they are finding it profitable at $5 per order with a minimum of $25.and that same day delivery is resulting in shopping advantages that consumers want (Scherzer, 2013).

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Affluent millennials are willing to pay up to $10 to receive a delivery the same day, according to the survey, while other consumers are likely to pay up to $6, less than the fee charged by most retailers today. At those rates, same-day delivery would generate between $425 million and $850 million annually in delivery revenues ifas the consumer survey data suggestup to 2 percent of online orders are fulfilled on the day of purchase (Lukic, 2013). Analysis From the obtained information it is possible to make a positive recommendation for General Growth Properties, Inc. for pursuing Same Day Delivery in order to retain and attract retail anchor stores. Based on a SWOT analysis of GGPs overall revenue, unless something is done to compete with extreme competition from the online retail market, GGP will continue to lose anchor stores, amounting to a loss of revenue at a rate of 0.1% annually, amounting to $251,190,000 year over year. A minimum of 9% of this loss annually can be reduced through the successful implementation of same-day delivery (see Appendix A for GPP annual loss of revenue projection).

Conclusion The number of people preferring internet shopping is on rise, resulting in reduced demand for the retail space. Internet retailing sites and catalogs provide retailers with distribution options beyond existing brick and mortar channels. This means more players compete for that little demand and in turn increase General Growth Properties, Inc. pressures. This extreme competition may adversely affect GGP's margins by impacting its ability to rent space (GGP, 2012). General Growth Properties, Inc. can strengthen its appeal to the large anchor store market by helping those stores double as both a retail showroom and a distribution center outlet. Those stores then can aggressively compete in the online market by offering same-day shipping. Since the real estate is already in place and the stores are already stocked, the transition costs will be lower than those of online retail giants such as Amazon and EBay, who will have to increase both the number and size of their distribution centers. By taking advantage of this opportunity, GGP could expect to see a rise in their revenue by at least $2,260,710 annually.

SAME DAY SHIPPING FORMAL JUSTIFICATION References Banjo, Shelly. (2013). Home Depot to offer same day delivery. Wall Street Journal, 1. Retrieved from http://online.wsj.com/news/articles/SB1000142405270230. Bensinger, Greg. (2013). Startup offers Same-day Delivery at Shopping Malls. Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052 702304202204579252654014598892. Fleischer, J. (2005). A Need for Speed. Infurniture, 6(2), 21-23. General Growth Properties, Inc. SWOT Analysis. (2012). General Growth Properties, Inc. SWOT Analysis, 1-6. Love, N. S., & Mattern, M. (2011). The Great Recession: Causes, Consequences, and Responses. New Political Science, 33(4), 401-411. doi:10.1080/07393148.2011.619815. Lukic, Vlad, Robert Souza, and Meldon Wolfgang. (2013). Same Day Delivery. The Boston Consulting Group. Retrieved from https://www.bcgperspectives.com/content/articles

/retail transportaion_travel_tourism_same_day_delivery_not_yet_ready_for_prime_time/ Mangalindan, J. (2013). The Race for Same-Day Delivery. Fortune, 168(10), 42. New technology brings same-day delivery from malls. (2013). SCTWeek, 18(47), 1. Piasecki, Dave. (2013). The Ins and Outs of Same-day Shipping. Inventory Ops. Retrieved from http://www.inventoryops.com/articles/same_day_shipping.htm. Scherzer, Lisa. (2013). Same-Day Delivery: Do Consumers Want It All and Want It Now? Yahoo Finance. Retrieved from http://finance.yahoo.com/blogs/the-exchange/same-daydelivery-consumers-want-want-now-134709782.html. Sarah, H. (2011). Online retailers testing same-day delivery, but what do shoppers want? The Washington Post.

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Appendix A Table A1 Home Depot Projected Online Sales

Home Depot Projected Online Sales

25 20 15 10.8 10 5.4 5 1.35 0 Projected Sales 2012 1.35 2.7 21.6

In Millions of Dollars

2013 2.7

2014 5.4

2015 10.8

2016 21.6

Projected annual increase in Home Depots online sales help to illustrate the potential additional revenues that can be realized by anchor stores that add same day shipping and online ordering. Table A2 General Growth Properties, Inc. Projected Revenue Loss Annual Loss of Revenue Due to Store Closures
$2,550,000,000 $2,500,000,000 $2,450,000,000 $2,400,000,000 $2,350,000,000 Projected Loss Annual Sales

2013 $25,119,000

2014 $24,867,810

2015 $24,619,132

2016 $24,372,941

2017 $24,129,211

$2,511,900,000 $2,486,781,000 $2,461,913,190 $2,437,294,058 $2,412,921,118 Annual Sales Projected Loss