By Doug Sternberg, EVP Of Client Strategy at Dotcom Distribution
Although e-Commerce generates huge sales volumes for many retailers, a large number of those online transactions are contingent on traditional brick-and-mortar stores. According to Macy’s CEO Terry Lundgren, the in-store experience is still important, as today’s customers value both physical and online channels.
Lundgren also believes more e-retailers will open physical stores in addition to their online business – a rising trend that has important implications for online-only retail startups. Making the move from online-only to brick-and-mortar, or vice versa, could potentially better connect retailers to today’s multi-channel customers.
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The Rise Of Physical Stores From Online-Based Retailers
More and more pure-play e-Commerce retailers have chosen to open brick-and-mortar stores to meet consumers’ growing demand for multi-channel retail experiences, ranging from temporary pop-up stores to concrete physical locations.
But many are entering the brick-and-mortar scene cautiously, by first opening physical stores that primarily act as showrooms. Fab.com recently opened its first store in Hamburg, Germany. The retail showroom doesn’t have ready-for-sale products, but allows customers to interact with items before ordering online. Gilt also decided to expand slowly when it opened its first temporary brick-and-mortar store. The store housed a selection of Gilt’s current merchandise, but only stayed open for a short trial period.
Despite the popularity of online shopping, many consumers still enjoy the “touch-see-feel” aspect of purchasing products from physical retail locations, highlighting the value physical stores can deliver to e-retailers.
5 Questions To Ask Before Expanding To Multi-Channel Commerce
The expansion of commerce across various channels opens up unique opportunities for retailers to reach new customers and increase sales. As retailers bridge the gaps between channels, they will need to consider several factors before expanding into a multi-channel environment.
Specifically, there are significant differences between distributing merchandise to a retailer versus shipping products directly to consumers. Before delving into new channels, retailers must ask the following questions to ensure they’re able to handle simultaneously fulfilling orders online and in-store:
1. What are the store’s objectives?
Prior to opening any physical store location, retailers should first decide on the store’s purpose. Different types of stores have very different objectives. For example, the goal of an outlet store is to deplete excess inventory, while a pop-up store functions as a strategic opportunity to test the feasibility of a physical location and raise brand awareness. E-retailers can then choose which products will be sold based on the store’s function – will they sell all the products in-store that are offered online, or only a subset of the top sellers? Will products be seasonal? These decisions can and will have a dramatic impact on the operational infrastructure required to support any multichannel effort.
2. What tools will supervisors have to manage the store’s inventory?
It’s a given that online retailers have real-time visibility of inventory to take orders from a website or call center. When an item is out of stock, a decision is made to take backorders or simply pull the item from the site. But managing inventory for a physical store is much different. Stores must be adequately stocked, especially in advance of weekends and holidays. Discipline and visibility to inventory is required to place “replenishment orders” in a timely fashion so they can be picked, packed, shipped and delivered to a store on time. Established retailers with permanent stores rely on a Point of Sale (POS) system that is integrated into their existing warehouse management system to properly manage orders. When attempting to test the waters with temporary shops, it is critical that retailers have developed processes that will allow them to place orders quickly to ensure that the store has adequate inventory.
3. How will customers order items not stocked in-store?
Physical brick-and-mortar stores need to be equipped to capture in-store sales of products available only online. If a customer goes to a retail location and an item is out of stock or not sold in-store, associates need a way to order the product online for the customer. Typically, this should come with free delivery to the customer as well.
4. Where is the store located?
Retailers should carefully take the store location into consideration before deciding to open. Proximity to the nearest distribution center will impact both transit time and shipping costs. More importantly, longer transit times will require all associated practices – from placing re-orders to packing and shipping from the distribution center – to compensate to ensure merchandise availability for weekends and other peak selling times.
5. How much space does the store have?
Another factor to consider is the amount of space within the retail store. Is there enough room to store inventory or do products need to go straight to the shelf? The size of the store’s inventory space will affect how reorders will need to be managed. For example, weekly replenishment orders may need to be made three times a week when space is limited – this will place added pressure on the store associates responsible for reordering, as well as the warehouse to process more orders faster. Shipping smaller orders more frequently also typically increases freight costs.
Because product distribution to retailers is so different from product distribution to consumers, e-retailers need to carefully evaluate the factors that go into the decision to open a physical store. A store’s objectives, inventory management system and location are all important determinants that affect the operations of a retail location as well as the decision to expand into the brick-and-mortar channel.
Doug Sternberg is EVP of Client Strategy for Dotcom Distribution. He directs the strategic planning activity with client partners to ensure management teams are aligned and client objectives are consistently achieved. Sternberg’s background includes 30 years of experience managing fulfillment, e-Commerce, catalog, direct marketing and supply chain initiatives.
