E-tailing is taking the retail industry by storm, putting some retailers in a tough spot. Last year, internet sales rose 23% and will only continue to grow in the years to come.
It’s no surprise that Amazon is king of the e-tailing hierarchy with most of the market share in its court. And as Amazon continues to skyrocket, other retailers are pressured to keep up with similar prices, convenience and speed—but getting on Amazon’s level proves to be a challenge.
The most vulnerable target of the e-tailing boom is brick-and-mortar retailers. With fixed costs from labor, fixtures and leases, downward price pressure is problematic. Further, decreased foot traffic makes maintaining (let alone growing) in-store revenue difficult, and it’s nearly impossible for physical stores to compete with the internet’s speed and convenience.
While the future may seem bleak for brick-and-mortar stores, “ship-from-store” strategies can help them stay afloat among fierce digital competition.
Shifting Distribution Center Models: Though massive, expensive distribution facilities were formerly the industry norm, retailers are starting to reevaluate this technique. Many companies are now altering their usage of assets and distribution practices to increase efficiency through omni-channel approaches.
Most retailers used completely separate facilities to hold and distribute their online orders when e-commerce first took off. These building designs and their warehouse management systems (WMS) made it difficult to fulfill small consumer orders in single units since they were designed for large palette and carton organization. Retailers then moved on to complicated hybrid distribution centers (DCs), which held both online and in-store orders. Most recently, the distribution trend has led to dedicated, optimized DCs, where each location is operated and organized by channel.
Adding Networks Without Adding Costs: Despite the shift in distribution trends, retailers still discovered they couldn't keep up with e-tailers. At the same time, WMS and distributed order management (DOM) systems matured in the omni-channel space, affording retailers the opportunity to re-evaluate other assets in their supply chain in an effort to streamline processes and boost customer satisfaction.
While looking for a new way to reach customers across a broad geographic range, retailers found a solution in a nearly-abandoned asset they had previously overlooked: the storefront. By expanding to include individual stores in the supply chain process, retailers were able to harness existing resources to increase order coverage and proximity. Doing this allowed brick-and-mortar stores to serve a dual purpose. They became both sources for in-store customers and mini distribution points, creating a model known as “ship-from-store.”
Retailers are investing in ship-from-store processes and technology to help keep up with their online competitors, an investment which provides numerous benefits:
- Increases supply network distribution points by tens, hundreds or even thousands of locations
- Serves customers faster to compete with quick shipping options, such as Amazon Prime
- Evenly-distributes inventory across an extensive network
- Reduces inventory and storage costs by sharing products across channels
- Makes use of pre-existing labor and capital in stores
To better understand this method, look at the possibility of Walmart utilizing ship-from-store. If all of its stores in the U.S. were to make this distribution switch, two-thirds of the U.S. population would live within five miles of a Wal-Mart distribution point. If this were the case, the proximity and convenience to customers would help offset revenue loss from decreased foot traffic.
Now take a look at Target, which has struggled with its supply chains in the past. The retail giant is turning its supply chain around and getting ahead of the ship-from-store trend. Now, 450 of its locations serve as flex fulfillment centers.
Across the board, more retailers are hopping on the ship-from-store bandwagon. Even middle market retailers like branded-footwear retailer DSW are announcing omni-channel and ship-from-store initiatives. The industry leader expanded product options available to in-store customers by a factor of 6 and doubled demand for “fulfill from elsewhere sales” by adding 400 new store distribution points to its channel.
Retail has transformed immensely since the introduction of online commerce, and the industry is likely to undergo more changes in the coming years. Though asset-reliant brick-and-mortar stores may see the rise of e-tailers as a threat, ship-from-store and DOM approaches can help them navigate the competitive retail landscape and keep their doors open.
Tom Racciatti is director of operations excellence and Sam Dawes is manager of retail for West Monroe Partners, a Chicago-based business and technology consulting firm.