Where are the weak points in in-store fulfillment?

Discussion
Photo: Amazon/Whole Foods
Sep 21, 2021

A new McKinsey study finds retailers can significantly benefit from using their stores for online fulfillment or pickup, including enabling greater overall inventory productivity, quickening speed to customer and avoiding markdowns. However, it also comes with challenges.

The five in-store fulfillment challenges to overcome identified in the study were:

  • Inventory accuracy: McKinsey finds stores generally have lower inventory accuracy rates (70 to 90 percent) than distribution centers (typically more than 99.5 percent).
  • SKU complexity: With online assortments typically including channel exclusives, endless aisles and third-party drop-shipments, minimizing margin-eroding split shipments across the network becomes challenging.
  • Demand forecasting. McKinsey finds that, given the challenges inherent with positioning inventory across distribution centers, various store types and market fulfillment centers, accurate demand forecasting and distributed inventory placement remains one of the greatest struggles outside of network changes.
  • Picking costs. For a majority of retailers, the cost of in-store picking is typically 1.5 to 2 times higher on a cost-per-pick basis than picking at distribution and fulfillment centers.
  • Execution quality. Stores weren’t designed to do online fulfillment at scale. Particularly during peak times, managing exceptions, ensuring accurate picks and tightly controlling cycle times to customers present challenges.

Retailers regularly tout the benefits of in-store fulfillment, which includes not only the shopper convenience and cost savings related to in-store pickup but speedier outbound deliveries, as well.

A DC Velocity article from last year, “Downsides Of In-Store Fulfillment,” pointed to the cost inefficiencies of filling online orders from stores versus warehouses in low-rent areas, as well as the risks to the in-store customer experience from delivery pickers crowding aisles.

Target, where stores fulfill about 80 percent of online orders, just announced it was getting ready to open two new sortation centers in October, followed by two more after the holidays, to support its ship-from-store capability.

“These new facilities offer faster delivery times at a lower cost in markets with a high density of shipments,” said John Mulligan. Target’s COO, on its second-quarter conference call. “In addition, they free up backroom space at store locations they serve, expanding capacity for more digital growth over time.”

DISCUSSION QUESTIONS: Where do you see the biggest pain points or obstacles to overcome as stores increasingly rely on in-store fulfillment for online orders? What technological and non-technological solutions do you see?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The biggest challenge and opportunity transcends the store — dynamically distributing inventories across the network for maximum flexibility and response to customer demand."

Join the Discussion!

21 Comments on "Where are the weak points in in-store fulfillment?"


Sort by:   newest | oldest | most voted
Mark Ryski
BrainTrust

All the pain points listed in the article are important. Many retailers developed their in-store fulfillment processes on the fly, when efficiency wasn’t the key issue during the pandemic. In-store fulfillment is here to stay in a bigger way than ever, even post-pandemic, and retailers will need to refine and optimize their in-store fulfillment processes. One key area is staffing. Many retailers have simply shifted the work to existing store personnel and in some cases this has been detrimental to service levels and store experience. Retailers need to consider in-store fulfillment as a regular job and hire staff accordingly, rather than simply leveraging existing staff.

Paula Rosenblum
BrainTrust

One thing worth mentioning is that for mall-based stores, there is no obvious place for buy online, pick up at curb. It’s not clear if the mall operators are going to want to operate the fulfillment points yet, and it’s definitely not clear that mall-based stores have the technological ability to confirm fulfillment.

David Naumann
BrainTrust

Inventory accuracy is the biggest obstacle for most retailers for the in-store fulfillment of online orders. If you don’t absolutely know that the product is available in the store, you can’t promise it for fulfillment of online orders. Many retailers resort to a safety stock strategy and only fulfill online orders if their inventory records show two or three more counts than the customer ordered. Many retailers are turning to RFID solutions to achieve near 100 percent inventory accuracy. With lower costs of RFID chips and higher labor costs, the ROI on RFID is becoming very compelling.

Jenn McMillen
BrainTrust

The biggest complaint I hear from people who use third-party services to do their shopping is that out-of-stocks cause substitutions, which aren’t always a good swap and, thus, a bad end user experience. And for those that still shop in store, their biggest complaint is that they can’t get through the aisles because of the proliferation of third-party pickers. Proving yet again that you can’t please everyone.

Martin Whitmore
Guest

It’s really all about the quality of your inventory data. Since most retail stores suffer with less than ideal inventory accuracy the risks to customer convenience around timely fulfillment increase proportionately. There’s also the fact that most retail stores are not structured to handle shipments and the cost of space and labor associated with getting them ready for that. The big technology win here is that we have reached an inflection point with RFID.

Lower RFID ticket prices and the higher cost of labor make it the right solution at exactly the right time. RFID can help retailers get their inventory accuracy into the high 90th percentile and help associates pick orders much faster.

Rick Watson
BrainTrust

Most people have not invested as much in processes, staffing, and technology as Target. Another big thing Target added was the ability to ship “eaches” from their main distribution centers through to their stores so that replenishment or fulfillment from the store level did not always have to break down case packs.

Neil Saunders
BrainTrust

SKU accuracy is a big issue. Just last week we tried to use click and collect at Container Store. The order was ultimately cancelled because the store did not have the item, even though they were showing three in stock. On visiting the shop, one of the associates said that this was a common problem and no one internally has any faith in availability shown online! It isn’t just Container Store – so many other retailers have exactly the same problem. It is a major frustration for shoppers. As for picking costs, these are more expensive than a warehouse – but if the order is collected then the retailer saves on shipping and so, generally speaking, that is a net gain over last-mile delivery.

Jeff Sward
BrainTrust

In-store fulfillment may have its challenges, but I will continue to believe that Target is on the leading edge of evolving to the best and most cost efficient model for profitably serving the customer. It used to be simple. Factory to DC to store to customer. Now there are multiple levels of DCs and sorting centers and store back rooms. And multiple methods of delivery and pickup beyond the customer simply walking in. So in addition to the complexities of the supply chain getting the product produced, there are now multiple complexities to manage in terms of how the product gets into the customer’s hands. Sounds like the gold medal gets awarded to Target — again.

Oliver Guy
BrainTrust

One key area that could well be overlooked is the people element. The variety of tasks undertaken by store associates has never been larger and as these approaches expand will keep getting bigger.
RSR produced some research last year that I recall reading suggesting that more than 50 percent of customer facing staff do not feel well equipped to deliver against the brand promise of the retailer they represent. Providing them with the right level of training along with technology assistance — in terms of procedural help — has to become a priority. I have seen this starting already at a few major grocery operations where the overall business model is represented in a software modelling approach all the way down to procedural instructions for store associates to expedite processes and ensure absolute consistency in terms of approach. This way the quality, consistency and the efficiency of the in-store operations are maintained across the brand.

Mohamed Amer
BrainTrust

Stores are neither designed nor staffed as fulfillment centers. So the biggest bugaboo, cost per pick or order, will never be on par with distribution centers. Retailers can improve inventory accuracy and execution quality through process changes, training, and technology support. The biggest challenge and opportunity transcends the store — dynamically distributing inventories across the network for maximum flexibility and response to customer demand. This challenge is less about nailing a forecast and more about increasing agility, speed, and organizational capacity to respond to the ever-changing market demand.

Ryan Mathews
BrainTrust

It all hinges on the accuracy of inventory data. Everything else builds off that. If you don’t know what you do or don’t have it’s impossible to manage it effectively. That said, demand forecasting comes in a close second since being able to track what you have isn’t much help if it is inventory consumers don’t want.

Andrew Blatherwick
BrainTrust
There is not one supply chain that fits all retailers. Different retailers will have different requirements, customer patterns and density. Picking in store is a very practical and cost efficient option for some and dark store picking may be a better strategy for others. Whichever route they take, retailers need to really understand their inventory and its management if they are going to be successful. They need to be able to forecast at the lowest possible level and by channel to ensure that one channel does not damage the availability and service of another. If this is done successfully using modern tools, retailers can plan and execute the inventory movements to ensure that stores can optimize both in-store selection and online picking from the same stores. They are then closer to the customer for delivery, have good availability taking away the substitution issues and by careful planning of the customer traffic flows can also reduce the congestion in the store from having customers and order pickers active at the same time. In-store picking is a… Read more »
Cathy Hotka
BrainTrust

Don’t underestimate the customer experience hit when customers have to jockey around store associates who are filling orders in stores. It’s a real issue at some grocery stores, which essentially serve as DCs. There are plenty of issues yet to be handled efficiently.

Ryan Rosche
BrainTrust

One pain point that isn’t addressed in this list is when in-store fulfillment harms the in-store customer experience. Traffic and congestion are often caused by pickers and their carts. Navigating these conflicts during a peak shopping period causes unintended stress to the customer. The more of these functions that can be relocated to a back of house location, the better.

Doug Garnett
BrainTrust

The McKinsey study proves to me that retailers should only try to use stores as fulfillment centers in the more unusual cases. We already know that online sales suffer serious profitability problems — as Amazon has yet to make money on retail-like sales online. Now we add more costs, more inventory problems, and the unmentioned downside of dual-purposing a store.

A store is difficult enough to run as a single purpose operation — welcoming customers so that they can purchase products. To add a second, very different purpose, is high risk. The McKinsey study, though it wasn’t their intent, proves that the downside can be high.

Retailers need to make very serious decisions about exactly what is needed from their online sales before dashing off to do it from the store. What delivery promise? Is there any profit opportunity or are they just seeking PR? Etc….

Brian Kelly
Guest
1 month 4 hours ago

Inventory shrink, leading to inaccurate on-hand quantities.

Ananda Chakravarty
BrainTrust
A store is first a store, then a fulfillment center. Beyond sortation and distribution centers, regional warehousing, delivery sites, MFCs, and dark stores, retail is challenged with managing merchandise. All the store items listed in the study’s are important, but I also believe these are linked to each other. How can you have inventory accuracy when your execution quality is poor, when SKUs arrive hours apart, you’ve overstocked your store and picking costs are through the roof? I doubt stores will completely move to a pick by light management system or leverage robotic bin selections to the level of an automated warehouse, so expectations should be adjusted for how a store manages fulfillment. The real pain point is the assumption that a store is an FC or MFC, but not setting it up that way. No. Stores are still shopping avenues first and fulfillment centers second. Hybrid stores needs to take into account the lower efficiency of stores operating as an FC and most likely lower efficiency as a store as well. Current tech won’t… Read more »
David Mascitto
BrainTrust
If you’re a retailer and you want to reduce last mile costs while accelerating delivery times to compete with the likes of Amazon, in-store fulfillment is a must. The biggest obstacle to doing it is understanding how it works from a technological and process perspective and then optimizing it for your particular operation. The technology is straightforward: Order Management System for (among other things) inventory visibility and order routing and a Micro-Fulfillment aka Store-as-Warehouse system that can record inventory locations and direct store-associates/pickers to fulfill orders in the most efficient way possible (similar to how a picker is directed in a DC). Note: I’m not talking about automation/robots here. To address the pain points: 1) Inventory Accuracy: when goods are received, they need to be recorded by the Micro-Fulfillment system either by scanning or RFID. If over time inventory levels are still inaccurate, shrink is the likely culprit. Also, what’s stopping retailers from doing additional inventory counts in stores, especially if they stop using DCs for fulfillment? 2) Sku complexity: If you’re pursuing a store… Read more »
Karen Wong
BrainTrust

As with most things, there are pros and cons with store fulfillment but inventory inaccuracy isn’t a con, it’s merely a challenge that the vast majority of traditional merchants can’t solve quickly.

Larger retailers use a patchwork of rigid tech systems that were built for another era. I have companies supporting legacy and cloud solutions and there’s only so much extrapolation you can do with an older techstack that a) doesn’t collect data cleanly b) synchronizes a couple times a day. Truly accurate inventory stock is only the beginning with retail data. Store-based fulfillment coupled with accurate data and darkstore tech opens the door to better proximity marketing and predictive analytics. Throw in lower returns and bigger baskets and it’s got a stronger business case. Yes DCs have lower fulfillment costs but they’re Amazon’s wheelhouse.

Jack Pansegrau
Guest

Just an anecdotal comment and a question. Just purchased an Icebreaker tee ($75) from REI. It arrived with the anti-theft tag still on it. REI 800# handled it immediately — sent me a replacement and a shipping label — but that ERROR is a costly one if repeated often. And REI is a leader in omnichannel. It also shows the potential pitfalls of dealing in expensive merchandise.

My question, I have a student who was just hired by Walmart to work specifically as a picker for online orders at a local supercenter. He said he has his own little warehouse section in the rear of the store. I saw mention of Target, but none of Walmart. Where is Walmart in this process? Ahead or behind Target?

Nicola Kinsella
Guest

Inventory accuracy is hard. Stores don’t typically “receive” inventory into a store or do cycle counts like DCs. And processing inventory updates at scale is complex. A lot of systems (ERP, POS) aren’t designed to send just deltas, only big batches — which increases the cost of inventory updates and affects the performance of systems being updated. There is lots of room for improvement in this space.

wpDiscuz
Braintrust
"The biggest challenge and opportunity transcends the store — dynamically distributing inventories across the network for maximum flexibility and response to customer demand."

Take Our Instant Poll

Will stores generally play a bigger or smaller role in fulfilling online orders over the next three years compared to now?

View Results

Loading ... Loading ...