Retail Is Going All in With In-Store Fulfillment

Even before Covid-19, in-store fulfillment was a big deal for retailers. In 2018, Target fulfilled 70% of online orders through its stores, while 30% of all of Neiman Marcus’ online orders are shipped from stores as well.

With all the disruptions to the supply chain and customer behaviors that the Coronavirus has caused, it’s not surprising that even more retailers are accelerating plans to turn stores into fulfillment centers.

In this post I’ll outline the major advantages, challenges, and strategies of in-store fulfillment strategies such as SFS anf BOPIS.

Advantages

Here are a few of the advantages for retailers that use in-store fulfillment:

  • Already extant store fleets across the country: Brick and mortar retailers already own and operate huge fleets of physical stores placed within minutes of their customers. Using these stores as fulfillment centers means that no money or time needs to be invested in building new FCs.
  • Faster delivery: 75% of the US population lives within 10 miles of a Target store, 80% of Americans are within 5 minutes of a Walgreens store, and 95% of Michael Kors’ customers can get natural next day delivery from their stores using ground. Such close proximity allows brick and mortar retailers that ship from stores to achieve same/next delivery for most of their customers.
  • Lower shipping costs: As a corollary, because brick and mortar stores are already in close proximity to their customers, using them to fulfill orders also lowers shipping costs.
  • Wider selection and faster inventory churn: Offering all the inventory in your entire fleet of stores allows retailers to surface a wider selection of products on their ecommerce sites as well as sell store inventory faster.
  • Never run out of product: If one store doesn’t have a product that a customer orders, retailers can use the next nearest store to fulfill that order.
  • Easier staffing: It’s much easier to scale seasonal staffing across many store locations.
  • Better reliability during holidays: Spreading order volume across more locations increases fulfillment reliability during peak seasons.
  • Lower fulfillment costs: Based on the above, in-store fulfillment lowers total fulfillment costs because no new facilities need to be built, shipping costs are lower, and retailers are able to leverage the employees and staff that they already have on hand. Target has reduced its fulfillment costs by 90% using in-store fulfillment
  • More delivery options: In-store fulfillment allows you to offer BOPIS in addition to SFS.
  • Increased purchases: Letting customers know about limited inventory items at a store speeds up the buying process.

Challenges

Given the many advantages that in-store fulfillment offers brick and mortar retailers, it’s no surprise that many of them are investing heavily in accelerating its growth. There are, however, important challenges to repurposing stores as fulfillment centers.

Here are a few of the major ones:

  • Can’t handle peak season volume: Brick and mortar stores are great at handling normal volumes of daily orders. During peak season, however, they simply don’t have the backroom space or manpower to fulfill large volumes of orders.
  • Not scalable: Along similar lines, as a retailer’s ecommerce sales increase, there is a certain point at which stores will no longer be able to handle even normal daily volumes.
  • Interferes with in-store customer service: Using store staff to fulfill online orders takes them away from other essential duties such as restocking shelves and customer service. The tension between the two different sets of responsibilities can lead to process inefficiencies, confusion of responsibilities for store staff, and bad in-store experiences for customers.
  • Reduces in-store inventory: In-store fulfillment can lead to a lot of empty shelves at stores as clerks fulfill orders using their current inventory. This can lead to bad in-store experiences for patrons who are unable to find the product they want because it was shipped out for an online order.
  • Lowest accuracy inventory asset: At 50-65%, stores have the lowest inventory accuracy of any retail inventory asset. This makes it difficult to maintain high fulfillment rates and keep in-store patrons happy.
  • Untrained Staff: Untrained store staff can make mistakes leading to incorrect order fulfillment, late fulfillment, cancelled orders, and incorrect shipments.

Strategies

Here are a few strategies for dealing with these in-store fulfillment challenges:

  • FCs must support stores: Major retailers such as Michael Kors, Target, REI, and Walgreens use FCs to support store fulfillment, especially during peak times. This doesn’t just mean ramping up the volume of FCs when needed, but planning for and investing in the building of new FCs once daily online order volumes exceed the fulfillment capacity of store fleets. Retailers must make investments in such facilities if they want store fulfillment to succeed.
  • Create “flow centers”: “Flow center” is the term that Target uses to describe facilities that function as both fulfillment and distribution centers. Such facilities are able to support both direct to consumer shipping as well as wholesale shipments to stores. These types of centers can relieve a lot of the inventory pressures that regional stores experience when fulfilling online orders by both taking over some of the order volume as well as making sure that stores receive the wholesale inventory they need.
  • RFID: If implemented correctly, RFID can give retailers much better inventory visibility into their stores, allowing them to surface and find more product for their omnichannel offerings. For example, Macy’s used to have around 65% inventory accuracy in their stores and performed inventory checks once a year. Using RFID they now have over 95% inventory accuracy and are able to check inventory once a day.
  • Reduce clerk time spent on other tasks: 70% of store clerk time is spent on restocking shelves. It’s therefore important to develop strategies such as straight-to-shelf delivery processes that free up time for employees to devote to customer service and online order fulfillment.
  • Targeted data and analytics: The rules of averages are too wasteful in the modern era of retail. Applying targeted data and analytics all the way down to the store and sku level can allow retailers to be more nimble and flexible in their responses to regional, seasonal, and behavioral changes in the market and their customers. This will allow them to better target the capabilities of their supply chain and store fleets to meet customer needs.
  • Integrated supply chain: Many retailers still have two separate supply chains, one for their stores and one for direct to consumer. Retailers should integrate these two supply chains to remove inefficiencies as well as make operations more nimble and customer focused.

However retailers decide to tackle these challenges, one thing is apparent: in-store fulfillment will continue to expand over the next couple of years. The strategic advantages in-store fulfillment provides are just too good to pass up. It allows retailers to better handle store closures and other future supply chain disruptions. It also better positions them to compete with the likes of Walmart and Amazon in terms of order processing and delivery speed. Technology and processes for increasing and communicating in-store inventory accuracy will therefore be more important than ever for retailers hoping to successfully turn their brick and mortar fleets into fast and efficient fulfillment centers.

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