Zara bets on faster deliveries from stores to boost online growth

Discussion
Photo: Inditex [woman packing box]
Aug 01, 2018
George Anderson

Zara knows something about speed. The fast-fashion retailer has grown its business into an international powerhouse by quickly responding to the ever-changing preferences of consumers. Now, it is turning to fulfilling online orders from its stores in an effort to get products, preferably at full retail, to its customers more quickly.

The Wall Street Journal reports that Zara plans to ship online orders from around 2,000 stores located in 48 countries.

Pablo Isla, chairman and chief executive officer at Inditex, Zara’s parent company, told investors at the company’s annual shareholders meeting last month, that he sees the integration of stores and online as the “strategic cornerstone” of the retailer’s plan to achieve sustainable growth going forward.

“All of Inditex’s brands benefit from a robust integrated store and online platform,” Mr. Isla told shareholders. “In 2017, online sales already accounted for 12 percent of the total in the 47 markets in which e-commerce platforms are available, representing annual growth of 41 percent.”

Zara bets on faster deliveries from stores to boost online growth
Inditex chairman and CEO Pablo Isla at the company’s Annual General Meeting – Photo: Inditex

Zara’s decision to use stores to fulfill orders follows earlier moves by a wide range of retailers including Target, Zumiez and others.

Target fulfilled nearly 70 percent of its online orders during last year’s Christmas holiday season from its stores. Executives at the chain have said that using stores helps it deliver orders faster and at a lower cost than shipping from regional distribution centers.

Back in 2016, Zumiez closed its e-commerce fulfillment center in Edwardsville, KS as part of the chain’s shift to a “fully localized fulfillment model” by which stores handle all online orders including deliveries and in-store pickup. Zumiez integrated its online and in-store POS, order management and transportation management systems to give associates the tech tools needed to do their jobs.

DISCUSSION QUESTIONS: Will using stores as distribution centers for online orders become the norm in retailing? What do you see as the pros and cons of this strategy for Zara and others?

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Braintrust
"Using stores as distribution centers for online orders is a very real and attractive option in an integrated in-store and online strategy."
"Using stores as DCs for shipping products to consumers is the new normal."
"More than 200 years ago, Benjamin Franklin coined the term “Time is money.”"

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21 Comments on "Zara bets on faster deliveries from stores to boost online growth"


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Paula Rosenblum
BrainTrust
“The norm” is a bigger statement than I’m willing to make. I am willing to say “depending on the retailer it will become a desirable option.” Zara is a fast fashion retailer. I don’t believe they want to hold anything back in the DCs to fulfill demand. Target is a big box retailer. I would expect for retailers with such a large footprint (and back room), it will make a lot of sense to do a high percentage of deliveries from stores. But for others, it really doesn’t make that much sense. Back rooms of specialty stores are small, and there is little room for packing, staging and shipping. Also, the more product shipped from and returned to stores, the more likely the inventory is to get out of whack. And given the lack of inventory accuracy and visibility retailers across all segments profess, the whole process becomes sub-optimized with employees looking for product that isn’t there, and then passing the order along to another store. I think we are a long, long way from… Read more »
Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
1 year 3 months ago

Using stores as distribution centers for online orders is a very real and attractive option in an integrated in-store and online strategy. That requires having a single view of the demand and an integrated view of customer interactions from any touch point. Real-time processing and visibility across the retailer’s integrated network from back-office to store become a necessary step to such a strategy. Falling short on the latter will jeopardize the execution.

The rub comes at peak sales periods when in-store traffic and higher online orders compete for existing inventories which once more points to the need of having the systems in place to support the strategy.

Art Suriano
BrainTrust

Zara has come up with a grand strategy, and it is a good move. Retailers need to continually find ways of using both e-commerce and their stores as one business. After all, it’s one customer who shops both, but in their mind it’s one company. Finding ways of satisfying the customer is always the first step, and here Zara is smartly doing that by expediting orders using their stores rather than distribution centers. Offering opportunities for the customer to pick up in-store is also wise because it can and should lead to additional sales. Retailers need to follow Zara’s lead and continue to find ways of merging their e-commerce and retail stores into one business.

Chris Petersen, PhD.
BrainTrust

Shipping from stores has a lot of potential benefits. An obvious advantage is increased speed of delivery by optimizing proximity. Another potential advantage is reducing overall inventory levels. However, staffing to run both stores and distribution is complex.

The greater challenge is the fact that many stores were not designed as distribution centers and limited space can restrict assortments. Shipping from stores either requires greater assortment curation, or much more precise store level inventory planning, or both.

Retail of the future requires multiple options to meet the ever-increasing demands of consumers. When you are spread across 47 markets, shipping from stores could be a competitive advantage IF you have the talent and resources to invest in all of the infrastructure required to make it work within the stores.

Denis Kelly
Guest
1 year 3 months ago

If it drives shipping and fulfillment costs down it will become the norm. Although I believe it creates more complexity in having appropriate stock levels for physical retail locations it can have great benefits covering the last mile to the customer as well as increased speed. Most companies would do it immediately if they could but converting systems to accomplish this and getting store personnel to correctly execute it are roadblocks.

Brandon Rael
BrainTrust

The quick answer to store fulfillment becoming the norm for online orders is that it depends on the type of retailer, and the need for an ever faster speed to market. Fast fashion retailers such at Zara should absolutely capitalize on leveraging their stores as a fulfillment center, and help to mitigate any last-mile challenges.

The challenge any fast fashion or mass merchandising fashion retailer will face is the ability to scale, enabling a BOPIS operation to take place seamlessly within the confines of a smaller store footprint. There will be complexities that will need to be worked out. Such as where the dedicated BOPIS station will be, which store associates will be dedicated to these operations, how the in-store notifications will work when the customer comes to the store, reverse logistics processes and so on.

While on the surface enabling BOPIS in a fast fashion environment such as Zara makes all the sense in the world, there are plenty of considerations to work out before you take the plunge.

Shep Hyken
BrainTrust

Faster is better, at least when it comes to shipping. Amazon is setting a standard of two hours (for some merchandise). Can other retailers keep up? Using stores as distribution centers are a good way to localize delivery and increase speed to customer.

Paula Rosenblum
BrainTrust

Amazon doesn’t actually seem to have a standard anymore. There are so many 3rd party Prime sellers that I find orders are late as often as they are on-time, and have other issues (broken bottles, etc.). Other retailers can actually do better.

Phil Rubin
BrainTrust
1 year 3 months ago

More than 200 years ago, Benjamin Franklin coined the term “Time is money.”

Time — including the speed of fulfillment — is, according to rDialogue research, a top loyalty driver. More than half of consumers say that it is extremely important for brands to save their time and that is directly tied to speed of delivery, every bit as much as it is tied to other aspects of time savings like convenience, a frictionless experience and actual time savings.

Recent data also show that the top driver of Amazon’s Prime membership is its two-day shipping benefit.

While we used to think of “the last mile” in telecom as the Holy Grail, for retail it’s the last three feet, which is another way to underscore the value of getting goods in the hands of customers as expeditiously as possible.

Charles Dimov
Guest

Yes — it will become a “norm.” However that does not mean it will be the ONLY way that orders are fulfilled. Rather, we will see store fulfillment become one of the methods that is used for less expensive last-mile delivery, better use of in-store inventory, increasing store turnover and to speed up deliveries for certain regions. Retailers will have to rely more and more on powerful order management technologies to help determine when to route from store fulfillment locations, and when to route orders to the warehouse.

Naturally the warehouse is an efficient machine. At certain times — around Black Friday, Cyber Monday and the holiday buying season — this balancing act becomes particularly important. When your store is packed with buying customers you probably want to divert ALL resources to helping customers buy. Retail changes fast, and you need systems to support retailers which are flexible, with business rules that can be changed on the fly (by a systems operator, not a coder). Welcome to the new dimensions of retail.

Shelley E. Kohan
BrainTrust

From an inventory perspective, using the same inventory for online and stores makes sense. The challenge, however, is in the execution from store staff. Support teams in-store are already overwhelmed with pricing, merchandise display, receiving and placing new goods on the floor same-day and daily R&R (replenishment and recovery), so to further distract teams with filling online orders with stringent deadlines to meet customer delivery expectations needs to be thoroughly planned out.

Moving into the holiday, the process becomes exacerbated with the high online demands encompassing steep peaks during narrow time frames (see my article from last year). With that said, if any retailer was going to nail the execution of store fulfillment, Zara would be a top contender. With the highly complex and sophisticated infrastructure coupled with management’s precise ability to execute other elements of the business at consistently high levels, Zara will be the pioneer in making store fulfillment a winning proposition.

David Weinand
BrainTrust

These are all good comments so I don’t have a ton to add but we just completed some research and 73 percent of the respondents are already using the store for some fulfillment. This is a great strategy for many retailers because, if managed properly, they can better control inventory by fulfilling from stores with excess inventory and/or lower shipping costs. Zara is a smart company so I believe they have thought this through.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
1 year 3 months ago
Using stores as distribution centers will continue to become more common, it is a logical strategy for most retailers, but it won’t make sense for all retailers. While ship-from-store has added complexity and cost, retailers are almost forced into providing this service because consumers have come to expect it. Rather than avoid it, retailers need to take a critical look at their processes and find ways to shave as much time and cost out of the process as possible. One area that may provide the greatest cost savings is shipping. Most retailers pick one shipping method and use it for all shipments from store. While FedEx might be the best option in some cases, other cases might have better options like USPS, UPS or even Uber-like services. Retailers should explore third-party shipping and allocation (or even re-allocation) tools that analyze the best option based on the shipping costs and delivery times. If retailers could figure out how to reduce omnichannel returns, the cost savings would be tremendous as 30 percent rates are the norm, seriously… Read more »
Doug Garnett
BrainTrust

Fulfilling from stores is smart — the logistics of distributed inventory are costly and tricky. Will it become the norm? For many things it probably will.

Unfortunately, fulfilling from stores is not a silver bullet. It won’t solve the poor economics of online sales. It won’t take a struggling retailer and magically make it succeed. And speed of delivery is not the only issue for consumers — consumers quite often would rather get exactly what they want even if it’s a bit slower.

Notice how Amazon Prime delivery has slowed and is no longer “rapid” in many cases. I think Amazon has learned: The promise of near-instant delivery is only important to a very narrow market.

Sterling Hawkins
BrainTrust

Store fulfillment is super smart, assuming the logistics and processes are buttoned up. Shorter delivery times only matter if the shipping is accurate. I’m with Doug here that it’s not a silver bullet, but it is certainly a relevant direction for most retail verticals.

Rebecca Fitts
Guest

It’s omni-channel at it’s best! Retail rents are high — it’s a great way to maximize stores. However as many of you have pointed out there are complications from inventory systems, staffing and use of space to tackle.

Ryan Mathews
BrainTrust

In today’s retail environment, I’d worry about calling anything a new “norm” because things change so quickly. If it works we will see more of it until it stops working.

Lyle Bunn (Ph.D. Hon)
Guest

Fulfillment from store helps assure inventory is nearby to in store shoppers and provides associates with a wider view of retail operations. As the pendulum swings from central to de-centralized fulfillment, ZARA seems to be he right track for its business and its customers.

Cate Trotter
BrainTrust

Shipping from store feels like it should be more widespread than it is. I feel like I’ve been talking for a long time about how it seems like a good idea, from a customer perspective, that if something isn’t in stock in a specific store, that the assistant checks the stock of nearby stores and then arranges for it to be delivered from them. I get that there are things to consider about logistics of distribution and stock levels, but this just seems like a sensible move for Zara as a online-offline hybrid experience. And I do think that done right it will help to stop stores holding onto lots of stock they don’t need, and then possibly discounting it to try and shift it. If they can send it out to people who want it then that’s a win-win in making space and sales and the customer happy.

I think we’ll see more of this type of offering from retailers in the future where they have the set-up to facilitate it.

Harley Feldman
BrainTrust

Using stores as DCs for shipping products to consumers is the new normal. As large retailers are offering the service, consumers will want that level of service from all of their retailers. The pros for this level of service are the that it is typically quicker to ship from store to the consumer due to closeness and the store personnel able to find the items quickly. One con is the store closest to the consumer may not have the item the shopper is looking for, and the backend retailer systems need to find the item in another store for shipment. Another con is knowing all of the stores’ inventory 100% accurately to be able to know that the item is really there. Finally, the major con can be that cost of the shipping may make the item lose money for the retailer. So while this is a great service to the consumer, there are several challenges to make the service not lose profits for the retailer.

Ray Riley
BrainTrust

As a BIG Zara fan and shopper, Inditex overall is quite a machine. The first thing I think of is the impact on margin, but positioning this service with products at full-margin is very smart, and hopefully they share data from this experiment.

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Braintrust
"Using stores as distribution centers for online orders is a very real and attractive option in an integrated in-store and online strategy."
"Using stores as DCs for shipping products to consumers is the new normal."
"More than 200 years ago, Benjamin Franklin coined the term “Time is money.”"

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