Retailers continue to invest in store-based fulfillment
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Major retailers are increasing their investments in fulfilling online orders directly from their stores. With the rise of e-commerce, especially during the pandemic, these brick-and-mortar locations are becoming central to speeding up deliveries and reducing costs.
Ulta Beauty's CEO, Dave Kimbell, shared plans to extend their ship-from-store feature to an additional 276 locations. Similarly, Ikea is investing $2.2 billion to revamp existing stores for enhanced delivery services. Walmart, Target, and others are also expanding their store-fulfillment strategies. Notably, Target has earmarked $100 million to boost its "stores as hubs" approach.
The shift was influenced by the pandemic, which made retail locations vital for online order fulfillment. This entails store employees picking and packing online orders for delivery or customer pick-up. This change in strategy is not just a temporary solution; many retailers found it to be a cost-effective and efficient method.
Barry Thomas from Kantar emphasized the growing need for speed and precision in e-commerce. Fast speedy deliveries, sometimes in less than two hours, have become essential for attracting online shoppers.
Several retailers are investing heavily in this approach. Target revealed plans to allocate $100 million to develop its sorting network, aiming to use its stores as key fulfillment centers. In 2021, Target disclosed that their stores fulfilled 95% of all orders. Boot Barn has also embraced in-store fulfillment across 300 locations, enhancing in-store experiences and offering digital shoppers a wider product range.
For large retailers, in-store fulfillment can be a cost-saving method. Traditional distribution centers often involve higher costs, with goods passing through several shipping zones. Sudip Mazumder of Publicis Sapient mentioned that stores-as-hubs can help retailers manage inventory efficiently and rotate stock to keep it fresh. It also optimizes the workforce, as store staff can assume roles typically reserved for warehouse personnel.
Several retailers have maintained or even expanded their store-fulfillment strategies post-pandemic. Walmart's store-fulfilled delivery sales tripled over two years, contributing $1 billion monthly. Over 3,900 of its 4,717 U.S. stores now offer same-day delivery. BJ’s Wholesale Club also saw a significant increase in digitally enabled sales.
However, as this manual method of order fulfillment, where store employees pick and pack online orders for either delivery or customer pickup gained traction, some retailers also explored automated micro-fulfillment systems (MFCs) to further enhance efficiency and streamline processes. These systems integrate advanced robotics and automation to optimize the fulfillment process.
Yet, pioneering these automated solutions has presented its own set of challenges. The high costs of setup, along with the intricate nature of incorporating high-tech automation and robotics, proved to be formidable obstacles for several retailers. Some have found that the projected return on investment failed to align with actual outcomes, making the steep initial expenses and the subsequent maintenance costs difficult to warrant.
Despite these hurdles with automation, the broader shift towards using stores as fulfillment hubs seems well-established, mainly due to customer expectations for faster shipping and pick-up options. The trend signifies a significant evolution in the retail sector, as businesses strive to balance in-store experiences with the demands of e-commerce.
However, there are potential pitfalls. Rob Oglesby from Parker Avery Group noted that this could disrupt in-store shopping experiences. Some stores, like Best Buy, had to adjust store layouts to accommodate e-commerce operations. Best Buy even started testing out a store format in 2020 that limited the number of SKUs that were available for sale on the floor in order to make room for e-commerce fulfillment. If retailers also don’t have proper inventory visibility, products in the store could be left out of stock. If not executed correctly, stores risk running out of stock.
Nonetheless, with customers expecting faster shipping and pick-up options, using stores for order fulfillment has become almost essential for retailers. Oglesby believes this trend is unlikely to reverse, stating, "the bus has left the station."
Retail experts believe this approach will continue, given its benefits in speeding up deliveries and saving costs.
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