Are stores the answer to last-mile delivery?
A recent McKinsey study detailed a wide range of inefficiencies from using stores for online fulfillment as well as the risks the method presents to the in-store experience.
Having pickers in aisles, either for online or pickup fulfillment, may create a “warehouse feeling” for regular shoppers, according to the study. Sharing checkout lines may increase wait times for shoppers.
In-store pickers may likewise be slowed working around and waiting at checkout alongside shoppers. Picking efficiency suffers compared to pulling product from an optimized dark store or micro-warehouse.
Costs per order tend to be higher for traditional stores versus dark stores. The greater cost was attributed to the higher wages generally earned by in-store associates vs. warehouse staff and the space constraints caused by in-store consumer traffic that prevent optimized store layouts. The average time order picking at a traditional store can exceed 15 minutes, whereas grocery retailers using a dark store sometimes promise a maximum of ten minutes between consumer purchases and order handover.
Finally, from an inventory standpoint, using dark stores tends to reduce the risk of selling the same product twice from shared online and offline inventory.
Nonetheless, having physical stores supports consumer engagement, brand building and pickup, McKinsey notes. It also provides a significant halo effect on local e-commerce sales. Converting a regular store to a dark store in an area with a direct competitor can lead to consumer churn.
Dark stores optimized for fast order picking and dispatching may be the best option to support high-density urban areas, according to the study authors, but a chain may be able to deliver faster from a store nearby to a customer.
While online delivery is still believed to be largely supported by regional warehouses, ship from store has accelerated due to the pandemic, with Target, Best Buy and Dick’s Sporting Goods among those now fulfilling well more than half of online orders from store inventory.
Brian Cornell, Target’s CEO, said last year of the chain’s omnichannel push, “Our goal was to use our proximity, nearly 1,900 stores within 10 miles of the vast majority of the U.S. consumers to offer the fastest and easiest digital fulfillment in retail.”
- Reimagining the role of physical stores in an omnichannel distribution network – McKinsey
- Q4 2020 Target Corp Earnings Call – Target
DISCUSSION QUESTIONS: How confident are you that stores will prove to be the answer to speedy last-mile fulfillment? Do the benefits offset the risks to the in-store experience, inherent picking inefficiencies and other shortcomings?