The dramatic shifts in shopping habits and safety practices created by the coronavirus pandemic has created a golden opportunity for retailers to roll out in-store fulfillment programs, such as ship-from-store, curbside pickup and dark stores. These options can serve consumers’ needs despite the restrictions imposed by COVID-19, with pickup-only locations and dark stores particularly well-suited to operating under the current conditions. In fact, dark stores dedicated to last-mile fulfillment that are located in areas with high order volumes can improve a retailer’s service offerings, for example by shortening delivery windows or offering the choice of additional delivery slots.
“If you turn a store into a fulfillment center, it’s going to be a safer and a more controlled environment for employees to work in, and you can actually potentially ship out to that area more efficiently,” said Chris Walton, CEO of Omni Talk and Third Haus in an interview with Retail TouchPoints. “All the inventory is running through one localized location the same way each and every day, versus an open store that you’re trying to ship out of.
“You have a lot of unknowns happening with COVID: who’s coming in? How often? Are they pantry loading? Are they not?,” Walton added. “That creates a lot of inventory variability even before you try to predict online orders, which are also highly variable right now. Being able to close off one location and only ship from there actually makes a lot of sense at this point.”
While dark stores aren’t a new concept, the current state of the industry makes them more attractive than in the past. In normal times, turning a mildly profitable (or even a money-losing) location into a staging area exclusively for deliveries represents a big gamble for a retailer. However, if a store is expected to remain closed for the foreseeable future, or it is likely to have low foot traffic because of consumer concerns about in-person shopping, making it a delivery center can at least put the real estate to some use.
Additionally, while using an operational store as a fulfillment center can be tricky, it can also be rewarding: 80% of Target’s Q1 2019 e-Commerce sales were fulfilled from stores, and fulfilling orders this way costs 45% less than traditional warehouse delivery. In-store pickup services were even better for the bottom line, cutting costs by 90%. While the retail giant has scale on its side, other companies can still benefit from smart use of the practice.
“Starting to think about how you can utilize your stores as assets is something we’ve talked about for a long time, but it’s not something that most of our big box and department stores have done to the extent that Walmart and Target have,” said Evan Mack, Senior Research Specialist, Retail at Gartner. “This is an interesting opportunity for them to forcibly shift the paradigm around how they’re viewing stores, and I think liberate how they bridge the physical with the digital in a way that they maybe haven’t in the past.”
Pickup-Only Can Be A Bridge To A Soft Reopening
Kroger was one of the first retailers to create a pickup-only store during the pandemic, at a converted location in Cincinnati. The move makes sense, particularly for a supermarket: surveys by Symphony RetailAI and Brick Meets Click found that online grocery sales grew 37% in April compared to March — on top of March sales growing 233% compared to February. Additionally, 31% of U.S. households used an online grocery delivery or pickup service in March 2020, compared to just 13% in August 2019.
Retailers in other verticals also are starting to embrace the practice: the initial 300 Coach, Kate Spade and Stuart Weitzman stores reopened by Tapestry will be pickup-only at first. This service can provide a stepping stone between closure and normal operations — simultaneously keeping shoppers connected and keeping your associates engaged.
“Cash flow is a bit hard to come by right now, but in the short term this can give the staff who would be doing a lot of the fulfillment work an income and let them fulfill a lot of these online orders,” said Mack. “I think it’s kind of a cyclical thing, where you need the fulfillment option to generate the cash flow to pay the people handling the fulfillment option. That’s a really short-term perspective, but it’s definitely on the top of top-of-mind issues for department stores.”
Ship-From-Store Is A Boon, But Not A Cure-All
Retailers are using ship-from-store to prepare for full-scale reopenings by cycling through old merchandise: Nordstrom in particular is currently shipping 50% of its U.S. e-Commerce orders, and all of its Canadian orders, from stores. However, keeping these practices once stores reopen to the public will require significant additional investments.
“For it to be done in perpetuity like that, it also has to be done with the right information in place and the right processes and systems to handle it,” said Walton. “Right now, it’s probably the best option many retailers have. Places like Nordstrom need to move through that inventory because it’s seasonal in nature.”
Part of a successful store-based fulfillment program is finding the right real estate. A shop located in the middle of nowhere probably wouldn’t have the order volume required to make fulfillment a viable source of income, but a store in the middle of a city could be used to reduce delivery windows as a way to compete with industry giants like Amazon, Walmart and Target. The catch is that the retailer must make the technological investments needed to maintain a single set of inventory that is being used for two purposes.
“If you’re going to put in the infrastructure required to make it work, it’s got to have enough order delivery volume to make sense,” said Walton. “It’s going to be best used in a place where you can get the critical mass of order density. The more clustered activity can be in and around these centers of activity, then it’s going to be easier to use. The other option is to go with a much more centralized larger-scale warehouse operation which can serve people more broadly, but the delivery times might be longer as you get more sprawl.
Caution: Ship-From-Store Must Work Right The First Time
Retailers need to prove their own capabilities before they can match Target’s success. Shoppers have spent the past several months dealing with long delivery windows and limited selections, and brick-and-mortar retailers just dipping their toes into ship-from-store and curbside pickup will be competing directly with the seamless order experience found on Amazon as retailing returns to some semblance of normality.
Retailers that plan on utilizing dark stores and new pickup options need to get it right the first time, or there likely won’t be a second chance to impress the customer. Shoppers may not be ready to resume shopping in close quarters, but their expectations haven’t lowered.
“If they offer a lousy pickup experience right now, I think that hurts them long-term in terms of trust with a customer,” said Mack. “How customers view their experience with this right now will be an indicator for how they view the brand long-term. There will be big problems presented by potentially shifting customer expectations: how you view changing rooms for instance, or how you view touching merchandise. These are as yet unsolved big landscape problems that stores will have to address. But right now, the right play is just making sure that you get them exactly what they’re asking for and what you’ve promised, and rethinking how your digital strategy can utilize inventory and the store.”