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[14 comments]

Are stores the answer to peak-time online fulfillment challenges?

April 25, 2014

A post-holiday review of online fulfillment by Kurt Salmon identified shipping from stores as a largely unutilized but highly beneficial way to fill orders during peak selling periods.

The study's examination of orders placed on the last day that retailers guaranteed delivery by Christmas found that 15 percent did not reach their destinations in time. Most (83 percent) of the delays occurred with expedited one- or two-day shipments, with retailers rather than carriers responsible for a majority (56 percent) of the overall delays.

The analysis, in partnership with StellaService, included a review of orders containing multiple items from over 70 retailers placed on Cyber Monday. It found that a staggering 38 percent of orders originated from two or more shipping points (including stores and distribution centers). Nearly 10 percent came from three or more locations. Along with potential delays, Kurt Salmon said shipping costs essentially double to account for the additional parcel shipped from a second location. Only 14 percent of orders were shipped directly from stores, a method that tended to lead to significantly shorter delivery times.

Improving shipping from store — which are often better stocked and better able to get a shipment out the door quickly — could help reduce both excessive packages and shipping points. Effective inventory tracking software and developing strong relationships with carriers are key to enabling in-store employees to efficiently pull online orders, the study found.

"Delivery partner relationships, which don't usually exist at the store level or which aren't tailored to meet the different turnaround time needs of ship-from-store, can heavily impact success," wrote Michelle Bogan, a partner in Kurt Salmon's Retail and Consumer Products Group, in the study. "Moreover, inventory balance can be a challenge, with retailers struggling to find ways to effectively track their in-store inventory against what they have in their distribution centers."

Other ways to improve peak-time online delivery cited in the study included:

Omnichannel communication: Making sure the fulfillment centers' demand and capacity levels are ready for marketing's promise of last-minute shipping;

Realistic last-ship dates: Better execution systems and planning tools — both at fulfillment centers and at the store;

Carrier Relationships review: Processes with carriers should be continually reevaluated to improve on the delivery model;

Updated forecasting: Stores' forecasting tools should acknowledge that Cyber Monday has outpaced Black Friday weekend purchases for two straight years.

Discussion Questions:

Can stores be expected to act like distribution centers for online orders during peak selling periods? What technology investments and processes will have to be put in place to make to make it work?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

If only about 14 percent of orders are currently filled from stores, what's the likelihood that at least a third of online orders will come from store inventory over the next three to five years?

Comments:

The "easy answer" is to say that stores should become much more involved in fulfillment. But the reality is turning out to be more complicated. If you're talking about December 22, when a retailer wants to just get the goods out the door, then sure...do as much fulfillment as necessary from stores without a whole lot of "intelligence" on where to pull from. After all, if consumers shop that late, they can't expect retailers to be completely in stock. Certainly as an industry we over-promised on delivery performance. This past year, weather was a defining issue in both the spike in on-line shopping over the last weekend, and in carriers' inability to deliver on time. Those same storms grounded planes and slowed trucks. That's the simple part. Allow for Mother Nature.

But I am really wary of leaning that heavily on store inventory early in the selling season. I'm starting to hear a bit of talk about the problem of "breaking the assortment." That is to say, by shipping from stores so early you run the risk of a) ruining the "look" of the assortment, which is a real issue, b) creating a circular self-fulfilling prophecy - with the sending store needing new product because it has shipped out too much of its on-hand - and on and on.

That's not to say that stores should not be active members of the supply chain. But there are a LOT of "watch-outs" here. The rules for the Distributed Order Management (DOM) system have to be pretty sophisticated. And then there are all the organizational and compensation issues to be addressed. Long story short, there's no simple solution. It needs a lot of thought to get it right.

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Paula Rosenblum, Managing Partner, RSR Research

On paper it's a great idea to use local stores for fulfillment, but despite what Glenn Murphy, CEO of Gap said about 2600 distribution centers, I think it will always be fraught with issues.

Even if it went well, multiple ship points increase the cost of delivery. And to do it well, a solid investment in new logistics infrastructure, training, and improved local inventory management techniques will be needed too. At some future point, the additional expense has to be justified to the CFO. But then again I'M doubtful it will ever go well for most retailers - unfortunately.

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Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

There is no doubt that order fulfillment from brick-and-mortar store locations is growing. It's a feasible way to leverage store inventory and payroll, especially given better forecasting, partnering with carriers, and so forth. But there is one big caveat: Do physical locations have the payroll and skill set to execute a rush of last-minute holiday orders, at the same time that they are pressed to staff the checkout lanes and restock the shelves? It's hard to add a completely different function (with an unpredictable demand workflow) while also trying to leverage existing payroll costs.

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Dick Seesel, Principal, Retailing In Focus LLC

Order fulfillment from B&M locations is a good idea in theory. But only for the last days of the shopping period when on-time delivery is a potential problem.

There are many things needing to be worked through before this is a foolproof system. I do not think shipping from every location is the right way to go. Certain geographic choices should be made to reduce the chance of a mistake and to maintain control.

This is not something as easy as it sounds when the words roll off your tongue.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Having built a ship from store program for a major retailer, I know that in theory this is a no brainer and sounds great. But when it comes to the details, this can become a major headache if you don't think of all the scenarios. You need controls in place, for example, you don't want to have all your hot items sold via ship from store on Thanksgiving day, only to find on Black Friday that all the items in the store are actually already sold. This also goes for promos throughout the year or in a region where an item is hot.

There need to be a lot of checks and balances put in place to make the program work for the customers and the individual stores as well. Without those controls, you've just created another hot mess in the supply chain. Most retailers don't seem to know the problems they will run into. But if done right, ship from store becomes a great tool. Customers are delighted to pay normal shipping and get next day delivery. That's where ship from store really comes into its element; it is great at beating expectations of customers, when done correctly.

Edward Chenard, Consultant , Echenard

Retail has to go item-level RFID, or 2D and invest in tagging at the item-level. 30,000 to 50,000 items is manageable at the item-level in the 21st century.

UPC/SKU is soooo 20th century and item level tagging and tracking via a true, unique trackable ID system has to happen first.

Ed Dunn, Founder, (Stealth Operation)

Yes stores are often un- or under-utilized fulfillment. Generally that is a smart idea. Stores should sell and in certain situations aid in shipping. Best to plan better, stock distribution and fulfillment sites better, and gain the advantages of mass. There's no one perfect model, but find me a store that is excellent at fulfilling and shipping product and I would bet that some other component of that store is flawed.

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Larry Negrich, Vice President, Marketing, nGage Labs

This isn't just about holiday shipping. One of the biggest challenges for bricks retailers aspiring to have more than ownership of an online operation, is getting real about the holistic shopper position. Shoppers want their stuff, when and where they want it. The traditional SELF-service bricks retail model, highly successful over the past 100 years, has been to offload the "stock-picking" operation in their neighborhood warehouses, aka stores.

Now you ask, how can the store do the stock-picking themselves, and delivery to the address the shopper specifies, in timely fashion. Amazon and other efficient online merchants are so far ahead of the typical bricks retailer in efficiency of "shopper sized" stock-picking and delivery that the first thing the bricks retailer needs to recognize is that an amateurish logistics service piggy backed onto current store operations is just NOT going to work.

This doesn't mean that the bricks retailer does NOT have some GREAT assets that are being brought to the table here. The first and single most important of these is MASSIVE inventory unproductively parked all over their trading areas, in stores that are totally NOT designed for this purpose. Nonetheless, the sunk cost of capital and inventory in these stores is a formidable asset in the battle against online competitors.

The vast majority of the bricks retailer's inventory is "long-tail" merchandise that hardly sells. With 1/3 of store sales coming from 1% of the store's inventory, that means that the lion's share of what is sitting on the shelf is, quite literally, window dressing, for most of the time. I have facetiously suggested that a large share of supermarket displays could be covered with nicely printed window shades, that look like the merchandise, with very little behind the shades. That just illustrates the idea and reality of the long-tail in the typical bricks retail store.

However, that "silent" inventory not only serves to ATTRACT large numbers of shoppers to the store, (even though they, mostly, don't buy it,) but it is a silent, potentially POTENT asset in the battle against online competitors, who theoretically have an advantage in long-tail competition. After all, Amazon is the "Everything Store." The bricks stores are already "close enough to everything" with inventory more or less at the shoppers fingertips.

Replacing those shoppers' "fingertips," ultimately with robotic stock pickers, as the online retailers are doing, will transform the idle inventory assets of bricks retailers into a formidable competitive tool against the pure online competitor.

I am confident that as the battle for dominance of the retail space increases, online retailers who are already dipping their toes into the water of operating, very selectively, bricks stores, will pursue that course more aggressively. Surviving bricks retailers will need to have mastered a new version of SERVICE merchandising, doing the stock-picking for the shopper (perhaps at night, while the self-service shoppers are not in the store?)

Exciting times at retail. Exciting what Joseph Schumpeter's creative destruction is wreaking in this industry, once again. Don't "get over it!" Embrace it . . . ;-)

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

Without having highly accurate store-based inventory managed at the item level, it is extremely difficult to execute a ship-from-store strategy. In spite of what most people think, the in-stock inventory in the store is not accurate relative to what the "systems" say should be there. If you are a retailer and are going to run a true omnichannel play involving ship-from-store, then you must invest in item level visibility. And that means tagging up your fast moving items with RFID labels and putting in the necessary infrastructure to track and trace it. There really is no other way to effectively pull this off and all the retailers know they will ultimately be doing that if they wish to effectively compete with Amazon and eBay with ship-from-store.

Bill James, VP Business Dev., Seeonic

Shipping direct from store inventory is not the most cost-effective method, compared with super-efficient, purpose-built DCs. Within a comprehensive bricks + clicks context, however, it is a mechanism that should be embraced.

Two foundational practices that make this possible are (1) a virtual inventory system that reliably "knows" the location of items; and (2) well-designed business rules that permit economic decisions to be made on the fly as new orders are initiated.

The KSA report focused quite reasonably on meeting holiday peak demand, but there are other reasons why a ship-from-store competency can be a boon. Better sell through of "orphan" items is one. Macy's shared a case in point a year ago: It had "fiesta ware" place settings scattered across its many stores in less-than-full-set quantities. Ship-from-store enabled it to assemble full orders at full margin (often in two or more deliveries), instead of writing off the goods.

Another important insight for a retailer with many locations is an understanding of where to ship from. Many times the nearest store is not the best choice, especially if an ordered item is selling much more slowly in a market farther away, where it is more likely to be marked down. Predictive analytics to the rescue!

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James Tenser, Principal, VSN Strategies

The easy answer here is "yes," but there are a few operational challenges that retailers need to consider aside from technology. Successfully executing ship from store cannot be done without having integrated systems on the back-end, but tech is just the first step. Though the mindset is changing, most retailers consider ecommerce and in-store as two unique business lines.

After technology is implemented, retailers still need to "convert" store associates to warehouse operators to get packages out of the door so training and incentive programs must be rolled out to assure store associate buy-in. All this of this must also be done without disrupting the experience for the shoppers in store.

Retailers also need to be careful about the consistency of packaging so shoppers never notice that a product was shipped from store. Having a seamless packing and shipping process across the warehouse and stores will provide a unified brand experience.

Kevon Hills, VP, Research, StellaService

Yes and not only just during the busy selling period. If they would actually look at what it cost to do fulfillment compared to what it cost them to do in-house, they would be shocked, but we in are in a world of outsourcing.

'Savethemall'

For most non-food retailers, they caused the problem themselves. When a holiday gets close, they force merchandise into the store, based on the old adage that you can't sell from an empty wagon. This depletes the warehouse of inventory so it cannot re-supply the online facility.

Moving fulfillment to the stores is one solution, but not the most cost efficient one. Yes, it is easy to configure an area in the backroom for packing and shipping, but the store multiplier expense for packing materials will be very high. Also you can lose control by employees shipping items to friends and family.

A better approach is to allocate to the stores 80% and hold 20% for replenishment of stores and online facilities. As the holiday nears, it forces your inventory to the online operation first and then the stores. If last year you did 100 units and this year you are doing 20% more, then make sure the online facility has 120 or 125 units and the balance is sent to the stores.

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W. Frank Dell II, CMC, President, Dellmart & Company

Having managed a retail store during peak holiday seasons, I can tell you that it's not a good idea to expect stores to become fulfillment centers during those times. Most stores are understaffed with barely trained sales people and scramble just to manage to serve the customers who walk into the store. We also had a difficult time keeping popular items in stock. There needs to be a more realistic solution.

'RetailRetell'

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