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Has Ship-From-Store Worked Out All the Kinks?
Joining many other chains leaning into the omnichannel benefits of in-store inventory, Ulta expanded ship-from-store capabilities to another 276 stores in the second quarter to reach 400.
Ulta said that between BOPIS, same-day delivery, and ship-from-store, 39% of digital orders were fulfilled by stores in the second quarter.
Scott Settersten, Ulta’s CFO, said on the company’s second-quarter analyst call that the beauty chain has been able to improve fixed store cost leverage “far and above what we were looking at pre-pandemic” by adding capabilities such as ship-from-store and BOPIS while speeding online orders to customers.
Another believer in ship-from-store is Walmart, which now fulfills half of its online orders through stores with pickup points and store-fulfilled online delivery, John David Rainey, Walmart’s CFO, recently told Fortune. Beyond convenience for the customer, Rainey said that in-store fulfillment is “also good for us because the most expensive part of delivery in e-commerce is the last mile. We’re able to reduce the amount of mileage that we have to travel.”
In 2018, Zara began fulfilling some online orders from stores to overcome out-of-stock items at warehouses. Additionally, at Target, more than 95% of all sales, including digital, are fulfilled by store inventory. With in-store and drive-up pickup expanding, Target’s average fulfillment cost per unit has come down 40% over the past four years despite same-day services growing to account for over half of digital sales.
Brian Cornell, Target’s CEO, said on the retailer’s fourth-quarter analyst call, “Turning stores into fulfillment hubs was and still is the most efficient and least costly way to grow omnichannel sales.”
Some retailers have established dedicated fulfillment areas within their stores to optimize the process.
Target and Costco are testing larger-format stores with more e-commerce fulfillment space. Prior to the 2022 holiday season, Macy’s converted 35 stores into mini fulfillment centers, creating about 1 million square feet of space to handle online orders in order to lower costs, speed up delivery times, and reduce the incidence of split shipments.
Still, online fulfillment from store inventory risks impairing the in-store shopping experience. Complaints about pickers clogging aisles have been heard at grocery stores.
A recent Wall Street Journal article also notes that locating items is often easier in a warehouse than “finding goods in stores where customers may pick up items and then drop them randomly around the aisles.”
On Nordstrom’s third-quarter conference call last November, CEO Erik Nordstrom said Nordstrom Rack stopped using in-store inventory to fulfill online orders largely because the concept’s “treasure hunt environment” made it hard for associates to find items.
Discussion Questions
Do you think store-based fulfillment of digital orders is now offering significantly more benefits than drawbacks for retailers? What are the remaining pain points, inefficiencies, or risks with the ship-from-store process?
Poll
Loading …BrainTrust
Bob Amster
Principal, Retail Technology Group
Perry Kramer
Managing Partner, Retail Consulting Partners
Some retailers have worked out the kinks, others have not. The biggest issue remains inventory management both in terms of having real-time visibility on availability and ensuring that forecasting is accurate enough to predict both in-person and online demand for individual stores. When forecasting is poor it leads to either gluts or shortages, both of which are very problematic. Having enough staff to cope with the extra tasks is a further issue. And some retailers still haven’t created proper spaces to package and prepare orders – I’ve seen certain retailers place screens around areas on the shopfloor and it looks extremely tatty. Ditto Amazon which seems to have turned lobbies and restaurant areas into mini-fulfillment centers at some Whole Foods stores.
For most retailers, store-based fulfillment of digital orders is still the most cost effective way of balancing customer convenience, store experience and retailer profitability. Nothing is perfect, and there still are kinks in the processes, but the retailers that have optimized for store-based fulfillment seem to have delivered the best outcomes overall. However, getting store-fulfillment consistently right remains a challenge and it can be ‘hit or miss’, depending on the store location. Retailers that offer store fulfillment need to ensure that they are not over-leveraging existing staff for fulfillment tasks to the detriment of the in-store experience for the shoppers who visit.
Store-based fulfillment may be offering the best results for the customer, however, for the concept to be most efficient for the retailers, store design will have to change long-term so that there is space allocated for the effective flow of orders to be picked and shipped. Additionally, balancing inventory replenishment to the stores when store inventory can be depleted by online as well as in-store sales, is trickier. The challenge is to accurately forecast sales for each of the channels that will be fulfilled from the stores. Remember that other online orders may still be shipped from a fulfillment center or from from a second store. Managing inventory under this model is significantly more difficult than replenishing store sales and replenishing distribution center shipments separately.
Yes, Bob. If in-store fulfillment runs the store OOS, must the retailer supplement that inventory in store from the warehouse? So inefficient.
Grocery stores seem to have the biggest challenges with this. Store footprints are going to have to change to get around the problem of customers’ inability to reach the merchandise because of large fulfillment trolleys.
Who am I to question the successes of store-based fulfillment by the retailers noted in the discussion? But I am not convinced. From an operation and inventory point of view, it makes no sense to me.
If you are a retailer, you need considerably less inventory to fulfill the vast variables of needs of the online shopper versus the store when you need to fill each of 100 or 500 stores with a similar selection spread. Did you ever notice that popular sizes are often OOS in store while the S and XL remain stacked on the shelf?
Picking would be much easier and could be automated in the warehouse. That is undoubtedly more efficient than a bunch of associates running around the store looking for items that may or may not be there.
Are we kidding ourselves with freight savings on the last mile? The last mile is the last mile, no matter how you measure it. Fulfillment from the store, however, adds the freight from the warehouse to the store that direct from the warehouse doesn’t have. Do we forget that many store shipments do not come to the store by 16-wheelers but by the same services that bring goods directly from warehouse to customer?
To one of your points, when I started in industry, we found that ticketing the product in a DC vs. ticketing in the stores was twelve times as efficient! We have also determined since that making apparel ‘floor ready’ in a DC is also significantly more efficient than prepping garments for the fixtures in the store. That was clear.
They’re getting it done but a lot of money is being left on the table due to inefficiencies and inventory inaccuracy. More changes are required.
That’s why Instacart gets to do an IPO.
Fulfilling digital orders from stores is an extremely complex, costly endeavor that requires a complete overhaul of the supportive technology capabilities for retail time inventory accuracy, transforming the role of the store associate, dedicating space in the back and the front of the house for the fulfillment processes, while not negatively impacting the in-store customer experience. A rarefied group of retailers, including Walmart, Kroger, and possibly Nordstroms, have established profitable store fulfillment operating models. The most significant challenge remains driving consumer trust and confidence by providing real-time inventory availability details.
The friction store fulfillment creates on the sales floor creates challenges for customers and store associates. The grocery sector is a prime example of where Whole Foods has leveraged its cafe spaces for store fulfillment and delivery. This comes at the expense of their cafe services, which is a profit driver, plus it changes the image of the store. Store fulfillment remains a work in progress, and much work must be done to optimize the fragmented model.
Exactly, Brandon. Retailers need to strategize on the best use of owned space without disrupting the in-store shopping experience. Dedicating unoccupied physical space for BOPIS can be the way to meet that particular demand. This is also important for organization and proper inventory management. For retailers, nothing is worse than having the items consumers ordered but not being organized enough to fulfill those orders.
I think the pick/pack/deliver cost effectiveness part of store fulfillment is much improved. The inventory management part of it is a very slow work in progress. Anecdotal note…., ordered 2 chairs from a large DIY, at a store that was in stock, but not our closest store first thing yesterday morning, ok we’d drive a bit further to get them. We did want to see them in person before taking them home. Text of “in process” faithfully arrives, but then last night around 7pm – sorry out of stock would you like to cancel or substitute with suggestions being blank. Try the other DIY chain……535 in stock can deliver to our house in 2 days or pick up in store in 7… how can you not get them to a store as fast as to our door….go figure. These are both (familiar to everyone) chains that have the resource and budget to get this right. So the last mile part of it – much improved….the having the right stock available in the right location (or any nearby location) not so much.
Some have worked out the kinks, However the equally important question is have they positioned them selves to evolve with constantly moving set of customer expectations and services? Many retailers were able to leap frog to the current state of expectations that were established during the pandemic with some brute force tactics. However, this is an area that is continuing to evolve and retailers need to invest in a modern set of tools and partners to be successful in the future.
Struggling retailers struggle with store fulfillment and many other things as well. The concept and technology works for Target and many others, and the execution, does, too. But only if the retailer does a top-to-bottom technology (forecasting, inventory management, replenishment, order management, analytics, etc.) and process transformation. Retailers that just add a top layer of ship-from-store fulfillment and skip other supporting technologies will not get good results. One key benefit not discussed here is in-store sell through and comp store sales/profits. Ship-from-store is a good way to increase these important metrics.
Inventory management is the key issue for ship from store, and this is usually a back office challenge. Most retailers don’t have the real-time capability to manage inventory at a deep enough granularity- e.g. are the units in the stock room, in receiving at the loading dock, on a floor rack or shelf, or heading out the door in a shopping bag. The challenges of integrated inventory usually drive higher safety stock and increased inventory holding costs. That said, it makes sense to use existing and in some cases available space for distribution instead of centralized hubs and additional, non-local allocation of goods. Target’s Cornell is spot on – if you can manage the data behind the inventory in real-time, the efficiency will outplay other options for omnichannel sales.
Some work, but some needs work. For example in some Whole Foods grocery stores I have seen more staff doing online fulfillment than shoppers in the aisles and it degrades the shopping experience. Turning stores into fulfillment center needs to be balanced with keeping it operating as an attractive store for consumers to shop
I believe that “omnichannel” is the way to go in today’s retail, and initiatives like “Ship From Store” are a vital component of these strategies. Even digital-first brands have started establishing stores in local areas to expedite the fulfillment of online orders. Finally, this approach not only reduces overall shipping costs for retailers but also increases the inventory turnover rate of their physical stores significantly.
Retailers need to implement an Order Management System (OMS) in their tech stack for a successful SFS implementation. An OMS can help them improve the accuracy of inventory data across multiple store locations in real-time. Furthermore, retailers can set a “safety stock” and “threshold” limit to ensure that the entire in-store inventory is not exhausted when fulfilling online orders.
Retail giants like Walmart are great examples of how to effectively capitalize on a large physical store network to provide customers with same-day and next-day deliveries. These efforts ultimately yield maximum customer satisfaction and, as a result, enhance brand loyalty for the company.