In the 20th-century there was the Space Race - the competition between the Soviet Union and the United States for supremacy in space. Now in the 21st-century, we have the Delivery Race with retailers competing against one another for who can get their goods to the consumer quickest.
When e-commerce was in its infancy, the consumer was willing to wait for their purchases to be shipped from large Fulfilment Centres which were often a long distance from where the delivery was to be made. In the last few years however, the last mile has become increasingly important as the consumer shifts to a ‘demand now’ attitude expecting to receive their goods soon after purchase. While some consumers are happy to wait a couple of days, next day delivery is becoming the norm. Retailers are pushing boundaries as they look to service customers as quickly and efficiently as possible with some offering delivery within an hour. A few years ago this would have been seen as impossible as orders from the fulfilment centres could never get there in time.
By leveraging on the store network however, this allows the retailer to cut delivery times while also providing the customer with greater flexibility in the way they shop and receive their goods. It can also be a more cost-effective approach as shipping costs are lower due to them not needing to be shipped as far.
This approach is particularly popular with the grocery sector as perishable items are time critical. One of the key reasons for Amazon’s recent purchase of Whole Foods was their physical footprint. Not only did this allow the e-tailer to grow their bricks-and-mortar presence, but it also gave them over 450 mini-fulfilment centres for their growing online grocery business.
There are a number of further advantages for adopting this model. It eases pressure on the distribution centres and can have a positive impact on margins. By using store inventory to fulfil orders of products that are out of stock at the distribution centres, this allows the retailer to capture sales they may otherwise have lost. With stock from the store used to fulfil online orders, this also helps shift inventory which is not selling in particular stores. Inventory is not left sitting in-store for too long helping maximise sell-thru at full price and limiting discounting. It also provides an efficient way to resell returned items even if they were originally bought online. Instead of being returned to the fulfilment centre, they can be sold in-store limiting the delay in having them back on sale and maximising the potential for them to be sold at full-price.
This approach hinges on the retailer having an accurate, real-time inventory system across all channels. There can be no inventory silos. Products that are available online need to be available from either the warehouse or in-store. This allows the customer to see online which stores have their potential purchase in-stock before deciding how they wish to receive it.
It should be remembered that the store fulfilment model is not always appropriate. It is near impossible for stores to stock everything that is available online. While the nearest store may not have the item in stock, a store closer than the fulfilment centre may. Click-and-collect still provides the consumer with convenience and flexibility. Having customers visit stores to pick up their online purchases could drive further in-store sales.
The store fulfilment model is not without its challenges and certain considerations need to be made. If a store becomes too heavily focussed on fulfilling local online orders, this could lead to low volumes of goods left on shelves reducing the choice for the actual offline shopper. Consumers expect to buy what they want when visiting the store. If the product is not available or out of stock then you risk losing the transaction to the competition.
In addition, it puts more pressure on the store as well as the staff. Instead of just being used for its original purpose, the store is now talking on a role of a fulfilment centre meaning stock picking, packing and dispatching are occurring on the sales floor. Most stores were not originally designed for this resulting in isles becoming congested with pickers together with extra back-room space required for packing / dispatching as well as holding click-and-collect orders. As this approach becomes increasingly popular, this will need to to be considered with future store design.
The location of a store has always been one of the key drivers of its success. It could be argued however that its location has taken on extra significance. In a bid to boost coverage we may see retailers increasing their store count as they look to cut delivery times and be closer to the consumer.