Who will seize the opportunity to turn stores into fulfillment centers?

Front end delivery fulfillment at Whole Foods, Brooklyn, NY - Photo: RetailWire
Jul 31, 2019

Joanne Heyob, VP, Operations Strategy & Design, WD Partners

Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.

Once bustling retail hubs are now harboring thousands of square feet in unused space up for the taking. Who is vying for this real estate? Companies prioritizing (and expanding) e-commerce.

Amazon.com played a huge role in the collapse of shopping malls and is now acquiring the space to bring millions of dollars in inventory closer to both rural and urban consumers.

So, what can Amazon’s competitors do to keep up?

The easiest and possibly most obvious solution is to turn portions of their stores into mini-distribution centers. Buy online, pickup in-store is only the tip of the iceberg in terms of the opportunities retailers’ physical locations provide when it comes to getting products in the hands of consumers. 

To put it bluntly, the back of the house in stores needs an extensive reorganization. These areas haven’t been truly updated since the nineties, and a change in supply chain is essential in the battle against the successful variety of online shipping methods and consumers’ demands for minimal or free shipping costs. 

Becoming a partial distribution center can take your store from a place where customers solely come to pick up their products into a mass of inventory that can be used in ship-from-store efforts, streamlining the process and putting products in customers’ hands faster than ever to increase brand loyalty.

The inventory and consumer data is already available, the space is already there and the existing employees can be easily transitioned from associates to stockers.

The most halting reasons more haven’t implemented a mini fulfillment center strategy are concerns about whether it will work and how ROI will be measured. 

Walmart and Kohl’s are among those embracing in-store fulfillment capabilities that allow shoppers true freedom when it comes to receiving and returning their items.

Target has also taken this leap and increasingly uses its stores to cater to all aspects of fulfillment, whether a store trip, drive-up order, in-store pickup order or traditional e-commerce purchase. Brian Cornell, CEO, describes the transformation as “placing our stores at the center of a modern network design to deliver an unmatched combination of convenient fulfillment options.” 

DISCUSSION QUESTIONS: Do you see a significantly greater role for stores to be used as fulfillment centers? What’s holding back the conversion of space? Where are the major pain points in using stores for fulfillment?

Please practice The RetailWire Golden Rule when submitting your comments.
"There is one important metric that can be used: retailers that find no way to update their physical space and technology will go out of business."
"The days of monthly inventory management are long past … store fulfillment requires “real time” inventory management all the way to the SKU level."
"The major pain point and customer downside of in-store pickup today is that the product must be part of the in-store inventory."

Join the Discussion!

18 Comments on "Who will seize the opportunity to turn stores into fulfillment centers?"

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Shep Hyken

It’s just logistics. If it makes sense to create a distribution center in an area, and there’s space to do it in the location, then do it. With AI looking at customers’ buying patterns, managing inventory to meet demand without excess is better than ever. So it’s a simple decision to make, especially for the larger brands that have the space and technology.

Bob Amster

Using stores as distribution hubs will work for some retailers and definitely not for others. There was a time when retailers wanted as much selling space as possible, as opposed to storage space, and back rooms suffered. There is an increased complexity in logistics and, specifically, in inventory management with the number of locations. That is one of the reasons that retailers have relied on distribution centers; to be able to ship to where the product was truly needed as opposed to committing to where they thought it should be. The more granular the number of hubs, the more carefully inventory has to be managed to prevent overstocks in the wrong places. Doable? Yes! Easily? No!

Dick Seesel

Stores like Walmart, Kohl’s and Target are ahead of the curve in terms of using their physical stores as fulfillment centers, not just places to shop. This extends not only to BOPIS but also to “ship from store” initiatives, where stores’ inventory can be used to fill online orders and to ship them at a lower potential cost than from a distribution center.

There’s a risk, however, that the dual-purpose inventory management causes stockouts for those customers making a traditional shopping trip. But there’s no doubt that a big physical footprint has become a competitive advantage for the national chains willing to figure this out.

Jeff Sward

When I read on LinkedIn about what Shlomo Chopp, ShopFulfill founder is working on, the logic and inevitability of stores and malls as fulfillment centers looks as predictable as tomorrow’s sunrise. I usually think in terms of product first and foremost, but path to purchase and the final execution of the transaction are changing faster than content. Consumers are behaving differently today than they were just a short while ago. The logistics of meeting new and elevated expectations must be met. There is a lot of under-utilized and inefficient retail space out there that needs rethinking in terms of end use.

Chris Petersen, PhD.

Using stores for fulfillment is not just a question of utilizing excess space. Using stores as distribution points requires state of the art systems and inventory management. The days of monthly inventory management are long past … store fulfillment requires “real time” inventory management all the way to the SKU level. Walmart would be at the top of the list in meeting the requirement for logistics and systems required to optimize stores as fulfillment centers.

Brandon Rael

Leveraging the stores as fulfillment centers is the latest trend and, with the power of BOPIS, consumers have the ability to pick and choose how, where and when they want to receive their products. However the stores should not transform into distribution centers that are just for picking up products. Retailers should have a dedicated space in the stores for BOPIS pickups and returns, without disrupting the salesfloor.

One of the most significant advantages of leveraging the store as a fulfillment space is that once you attract the consumer there is an opportunity to engage, entertain, build stronger relationships, and drive incremental sales on higher-margin products and services.

It’s not just about seamlessness or frictionless experiences. A physical storefront, showroom, pop-up, store-within-a-store, flea market, farmers market, or merely a physical presence matters more than ever. Considering that we are now relentlessly digitally connected, human beings by nature are social beings and enjoy in-person experiences, engaging with other people and creating new memories.

Neil Saunders

This seems like a sensible solution and, in many ways, it represents a viable way forward in reducing fulfillment costs and putting excess space to productive use. However there are a number of issues. First, prime retail space is expensive, moreso that warehouse space in lower-cost locations; so many retailers will question whether it’s right to use it for fulfillment operations where they already lose money. Second, overarching systems are needed to manage inventory and fulfillment across multiple sites; not all retailers have these in place or fully optimized. Third, investment is needed to re-purpose space and across a big estate this can be expensive; capital is not always there for that when e-commerce has low profitability. All in all, I think more retailers will evolve to this model over time, but there are barriers that have to be jumped over first.

Camille P. Schuster, PhD.

The last mile of delivery is challenging and extremely important to being competitive. Using retail space to reconfigure back end services is an important area for exploration. However, it requires a significant investment in reconfiguration of the physical space and in both inventory and fulfillment software. There is one important metric that can be used: retailers that find no way to update their physical space and technology will go out of business.

Cynthia Holcomb

Buying online and picking up in-store takes away customer anxiety over porch pirates and just makes good sense for a number of customer-centric outcomes. Not to mention the environmental costs of the packaging and delivery of a six-pack of beer. The major pain point and customer downside of in-store pickup today is that the product must be part of the in-store inventory. Which defeats the opportunity for retailers to leverage their huge digital inventories. Bottom line, Amazon will lead and others will follow. Retailers are hesitant to embrace change. Omnichannel anyone?

Andrew Blatherwick
I’m amused that it takes Amazon buying stores and turning them into fulfillment centers to get retailers to wake up to the fact they own assets that can help them beat Amazon on delivery speed and cost of distribution by making a truly local fulfillment. It is almost as if everyone is sitting waiting to see what Amazon will do and then copy them! Retailers have used stores as fulfillment centers for many years. In fact, when online first started many retailers used this as their only way of fulfilling orders. The real challenge for many retailers is that their inventory management is not good enough to manage store demand forecasting as well as online forecasting by geography to ensure that they have the right inventory in the stores without throwing very large volumes of stock at the problem. Technology has moved on from this point and removed this issue. Retailers have the space and the people, and are already well ahead of Amazon in this respect, so all they need is to look at… Read more »
Oliver Guy

Absolutely. Additional space needs to be used for other purposes and fulfillment may well be a great purpose. It may well be a way to deal with things until leases need renewing. I loved this piece suggesting a change in the way to measure store performance.

James Tenser
Retailers who offer digital ordering for BOPIS or click and collect are already some distance down the path. As Chris and Neil sagely observe, in-store order fulfillment intensifies the requirement for real-time, store-level perpetual inventory and computer-assisted ordering. Linking store-level PI with the digital catalog is absolutely essential to deliver expected service levels to shoppers. The transformation of stores is already underway, but the the concepts are in their infancy. The best practices will vary by store format and type of location, I think. Smaller specialty stores may find it difficult to allocate space for order fulfillment and may need to make do with a small station in the back office. In malls, they may find shared space available where anchor stores are being re-configured. Department stores are likely to condense and compact their selling areas and transform back-room space to efficient pack-and-ship facilities. Supermarkets and supercenters will need to set up order-staging and pickup areas with temperature control located near a main or designated entrance. The challenge is where to fit them within existing… Read more »
Ryan Mathews

It depends on the endgame strategy. Why not just downsize the physical store, renegotiate the leases with the landlord and not incur added systems costs? Well, that would work if your endgame is to get “lean and mean” and try to outrun the competition. If however you believe brick-and-mortar retail will continue to lose share to online competition — a fairly conservative bet — turning yourself into a warehouse to facilitate the competition may make sense. All that said, if you think you are going to significantly build loyalty by bringing customers to your store, I think you may be mistaken.

It strikes me that while the distribution center approach makes sense in the short term, it is a ploy to stop sales attrition in the short term. Somehow I think a long term strategy has to have a more active value proposition for the consumer. If that isn’t true, than advantage goes to the prime movers. For almost everyone else, it’s already gone over.

Lee Peterson

Walmart’s already doing it with training priorities and the right kind of BOPIS build outs — I’d say they’re WAY ahead of the game. Target: take note.

Ralph Jacobson

The more innovative retailers have been agile in the evolution of their distribution network strategy for several years now. These retailers have migrated the available space in strategic store locations to leverage online transaction product movement and other functions. This is now becoming more mainstream and those retailers that do not adapt to this evolutionary challenge will not thrive in the very near future.

Josh Clouser

Simply, this can work. That said, the best value add will be to continue to refine the experience for BOPIS customers and integrate with localized delivery services which compete with Prime Now for the last-mile. Most of the big-box retailers already have infrastructure and DCs in/near major cities which are able to satisfy this perceived need of turning stores into FCs.

Peter Charness

If retailers measured a bit differently, the most productive associate, and the most productive space in the store may well be the associate standing in front of that small packing table in the back, fulfilling online orders and shipping them out. After all, no matter where it was ordered, it’s not a sale till it’s shipped. Properly thought through and with some innovations in inventory planning, better logistics and in store facilities, ship from store makes perfect sense for customer sat.

Ken Morris
Ken Morris
Managing Partner Cambridge Retail Advisors
2 years 2 months ago

We’ve long suggested this as a strategy for Walmart to succeed in the race with Amazon. Walmart has the advantage of numerous physical locations across the country (90% of the population lives within a 10 mile radius of a Walmart store) and can use its stores to enhance its current customers’ online and in-store experiences by leveraging stores as fulfillment centers to encourage brand loyalty.

As same day delivery is becoming table stakes in the industry, using stores as fulfillment centers is the natural step to better optimize delivery options and cost. The key to getting this done is “retail synchrony,” which offers real-time visibility to customer, product, price, inventory and order information across all channels to more effectively manage and synchronize data across the enterprise.

"There is one important metric that can be used: retailers that find no way to update their physical space and technology will go out of business."
"The days of monthly inventory management are long past … store fulfillment requires “real time” inventory management all the way to the SKU level."
"The major pain point and customer downside of in-store pickup today is that the product must be part of the in-store inventory."

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