Is it a store or a distribution center?

In the hyper-competitive and ever changing retail landscape, we are at a point of inflection where digital and physical are no longer separate but truly becoming one. Online giants like Amazon are constantly investigating new, alternative methods to get products into the hands of customers in time-frames that are measured in hours as opposed to days. Just look to the drones debuted on 60 Minutes if you need further proof that the industry is shifting from a ‘same day shipping’ option to an eventual ‘same day delivery’ standard. While we’re still a ways off from delivery by drone, we are seeing online retail growth continue to outpace traditional brick-and-mortar retail growth. Online shopping grew 10% in November and December1 in the United States. Overall retail spending during the holiday season grew 2.7%. And yet, retail store foot traffic decreased by 14.6%2. How can brick-and-mortar retailers go head to head with online retailers to capture customers whose demands only continue to increase? By rethinking their business model to capitalize on their key advantage (and following the mantra of real estate agents around the world) - location location location.

Brick-and-mortar retailers prove that online merchants aren’t the only innovators
The key advantage that any brick-and-mortar retailer has over a pure online retailer is its footprint of stores and therefore direct proximity to larger percentages of the customer base. Large distribution centers were intentionally placed in smaller cities and remote locations where land and labor are less expensive. Same-day delivery has debuted only in limited markets. Brick-and-mortar retailers, by way of contrast, scout locations based on population density, traffic patterns, demographic information and competitive landscape. As such, retailers are continuing to look at ways to provide more direct customer fulfillment from their stores or establishing “dark stores” that operate as distribution centers. This holiday shopping season some retailers made this a reality - moving merchandise from warehouse to store, in between stores and from the store directly to the customer (at little or no cost to the customer) to capitalize on a growing online shopping community and changing customer preferences.  For example, let’s say you buy a pair of jeans online. The retailer doesn’t have the pair of jeans you order in stock in the warehouse. But, the computer identifies the jeans you are looking for in your neighborhood retail store so it generates an alert to the sales clerk to pull the item off the rack, package and ship it to you. The retailer is able to capitalize on their shared inventory across the warehouse and all of their retail outlets.

Adapting your operations
The daily pressures placed upon any retailer to run an efficient operation, maintain the right inventory levels and provide a high level of service to its customers are significant and challenging to manage. By layering in services to receive, fulfill and ship orders for individual customers, the challenge for retailers increases exponentially. All of this is dependent on both an effective design as well as the ability to forecast and direct work to in-store associates. Retailers also need to rethink their processes and ensure associates are properly trained since some may be tasked to do everything from interacting with customers to leveraging technologies to access online orders to loading pallets and preparing shipments.

Key design decisions should include which stores you want to setup for direct to customer fulfillment, where you place product in the store, when and how orders will be released and how to assign staff to these tasks based on availability and other responsibilities.

We work with retailers every day to improve their in-store operations allowing them to operate efficiently while providing the highest possible levels of customer service. Increasingly, our clients are asking us to help them rationalize and prepare for the eventual reality of fulfilling online orders directly from their stores. Their challenge is to compete not only with online retailers, but also with their brick-and-mortar peers that have already begun transforming their retail locations into hybrid stores and distribution centers.

To learn more about how West Monroe is helping retailers adapt their operations to meet changing customer demands, please contact Sean Adkins at sadkins@westmonroepartners.com.

 

1 http://www.reuters.com/article/2014/01/08/us-usa-retail-holiday-idUSBREA070R920140108
2 http://www.shoppertrak.com/news-resources/press-releases/2014-01/retailers-see-fourth-consecutive-annual-sales-increase-during-2013-holiday-season-according-to-shoppertrak

 

 

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