Source: zumiez.com
Should all online orders be fulfilled by stores?
As part of its advancing omnichannel strategy, Zumiez, the teen chain focused on skate, surf and other action sports, is closing its e-commerce fulfillment center in Edwardsville, KS and will shift to “primarily store fulfillment of online customer orders.”
The shift to a “fully localized fulfillment model,” according to the retailer, will “help better position Zumiez to provide its customers with the ideal brand experience of trend right and unique products — how, where, and when they want it.”
Zumiez adds, “Localization is a key part of Zumiez’ omnichannel strategy that it believes will drive long term market share by leveraging the strengths of its store sales team, providing better and faster service to its customers, improving product margins, and providing additional selling opportunities.”
A one-time charge of $1.3 million, or three cents a share, will be taken in the fourth quarter to cover severance, asset write-offs, moving costs and facility closure. Edwardsville had fulfilled online orders for the past four years.
In the same statement, the company said it will absorb another $1.0 million in costs in 2016 to integrate its online and in-store POS systems, order management system and transportation management system, also as part of its omnichannel focus.
On its third-quarter conference call in early December, Rick Brooks, CEO, ranked Zumiez among the leaders in working to build an omnichannel experience among retailers. The chain is “just being overwhelmed” by the consumer’s shift toward digital channels that’s being marked by eroding mall traffic and mobile expanding “at amazing rates,” he said.
Chris Work, Zumiez’s CFO, added that a seamless shopping experience should reflect “one inventory pull” that is “available to everyone through every channel in every way.”
Discussion Questions
Would having all online orders shipped from stores lead to greater efficiencies in the long run than flowing from distribution centers and other sources? How would you rate the pros and cons of such a “fully localized” fulfillment model?
Poll
BrainTrust
Max Goldberg
President, Max Goldberg & Associates
Keith Anderson
Founder, Decarbonizing Commerce
If Zumiez can successfully pull this off it could be a game changer. They will have to carefully monitor inventory in stores and adjust their website accordingly. Pick, pack and ship needs to be flawless. Can it be done? Possibly, but not probably.
Instant gratification and flexibility are two prime motivators of today’s omnichannel shoppers — particularly for Millennials.
Shipping from the store helps to satisfy these two prime drivers, especially since the inventory resides in the physical store for immediate purchase and is theoretically closer to the consumer for shipping and delivery.
What sounds good on paper is incredibly complex and costly to execute. Rick Brooks from Zumiez mentions some of the major costs and investments associated with creating a “seamless shopping experience.”
But there is a huge elephant in the room — or more appropriately, the elephant is in the store. If you eliminate centralized fulfillment:
In almost all cases it makes sense to have the in-store fulfillment option, but I’m not quite ready to dump DCs altogether. For most retailers, the combination of fulfillment options works well. I’ve even seen retailers reduce the number of DCs when they add ship-from-store, but this is the first time I’ve seen the DCs close altogether.
Store fulfillment as an option can lead to efficiencies by redirecting local supply to national pockets with greater demand. And freight/delivery fees can be lower from local stores versus national FCs. Compared to the capital investment required to build a new fulfillment center, it is often an attractive step on a pathway to optimized fulfillment operations.
That said, “efficiencies” is not the first word that springs to mind here. Maintaining adequate supply in-store is harder when you’re serving local and national demand. Labor efficiency tends to decline when you force new processes on already-stretched store staff.
Online selection is likely to suffer too if there were any online-exclusive SKUs.
Without more insight into their rationale, its tough to conclude whether this will be a net positive or negative, but it strikes me as risky to retire assets optimized for e-commerce fulfillment in the context of being “overwhelmed by the consumer’s shift to digital channels.”
I hope their HR department will alter any job descriptions and help wanted ads to reflect they will be warehouse order pickers. You can’t be both customer-focused and stock picker. The more the job becomes find and collect, the more the customers are a distraction and nuisance.
The last time we ran a survey on the subject, we found that more comp sales over-performers had a dedicated e-commerce warehouse space, regardless of retailer revenue.
I’m not crazy about Zumiez’s plan. I’d rather see store associates wait on customers and warehouse personnel pack orders. I would also argue that a good forecasting system that starts from where demand was generated rather than where demand was filled would help alleviate the problem of excess inventory in the wrong place and not enough in the right place.
I don’t see it.
If I read correctly, closing the online fulfillment center does not mean eliminating conventional distribution centers that service the stores. So in evaluating Zumiez’s plan I’m not that worried about overflowing backrooms.
I don’t love the idea of shipping from stores, however, due to the way it changes the work and personnel management. I do like the potential to drive mobile shoppers into stores for pickup. Making the stores into a preferred place for enthusiasts to visit, handle merchandise and hang out has to be good for business.
Pros:
Cons:
I have been quoted as saying that for most retailers (and wholesalers) there is already a network of “neighborhood distribution centers” called stores. It’s time for BOPIS (buy online, pick-up in store) to become more broadly and strategically deployed.
To me, shipping from stores is very difficult. A major advantage that e-commerce companies and Amazon have is shipping from centralized inventories where accurate counts and pick/pack efficiencies exist.
It will be interesting to see how this plays out.
One of the benefits of shipping from a distribution center is that it concentrates inventory and the retailer can service more revenues with less inventory. This idea goes in the exact opposite direction.
Inventory balance in stores has always been a challenge. This exacerbates the challenge. Now if there is a run on an item and size in Atlanta, they go out of stock quicker. Do they supply it from the San Francisco store that has an overflow of that item? How do they find the store in San Francisco? Do they just tell the Atlanta customer they are out of stock?
My prediction: disaster!
This is not omnichannel it is omniordering. Omnichannel means multiple order and delivery options. This is not the way to pull consumers into the store. While this approach will lower logistic costs it will also result in lower sales. One great value of online ordering and home delivery is the consumer does not have to live near a store. I live in New England, I guess they don’t want to sell me. The real power of online ordering coupled with store pickup is to offer the consumer a wider product selection. This approach says put your top items in the store and fill out the category online.
I’m not a logistics specialist, but I can tell you this: If the result is a happier customer, who receives better service, who gets a better experience, and any of the other benefits that come from a localized fulfillment and distribution, then it should be considered.
Distance to the customer is shorter, therefore merchandise should be able to get to the customer quicker. How much does it cost to stock locally versus a central location? Will the cost be worth it? Will a customer have that much better of an experience that they spend more and buy more often? Questions and answers to consider.
Zumiez is taking a big risk by having their stores take on the primary responsibility for fulfilling online orders. Individual stores may not be well-suited to manage online order fulfillment as efficiently and quickly as shoppers expect.
In a perfect world, local fulfillment may encourage shoppers to visit stores more often, enabling retailers to make a personal connection, help shoppers customize their selections, and enable sell-up opportunities. However, the “overwhelming” shift to digital and mobile is irreversible, and adopting a localized fulfillment model adds risk around meeting shopper expectations of quick and easy delivery.
It’s actually a pretty dumb strategy — one of the main takeaways of better retail in the future is “any way you want it,” and to make people go to stores to pick up online purchases flies in the face of that. If I WANT to go to the store to pick it up, that’s fine and BOPIS is a huge component of “any way you wan it,” but if have to go, fuhgeddaboudit.
I’d just get it at Amazon if they told me that.
This is a poor concept, that doesn’t embrace everything involved. First, many consumers don’t want the hassel of having to go to a store (or cannot). Secondly, many products are lower cost online because the packaging is different (a simple box or bag is all that is required, since the product will be packaged in a shipping box before sending) which lowers cost. Finally, the entire online process is faster, easier and cheaper compared to placing the product in a store (with all of the overhead, employees, etc.) then shipping it out…why duplicate matters?
Take a page from Amazon, and appeal to lower costs and higher efficiencies.
I believe this is a mixed bag, not a one size fits all item. There will always be slow moving, bulky, replenishment items that can easily and more profitably sit in the warehouse.
You just have to “Know When To Hold Em.”
For my 2 cents.
The issue I see is the complexity of pulling it off in terms of labor, stock and shipping. When you do purely localized shipping from store, you lose the efficiency of centralized supply chain. You have to dedicate space in the store for packing and shipping, as well as labor who can’t be retasked real time between helping customers, keeping the store well merchandised, and pulling stock for shipping. I would be curious to see if the technology and economies can make this successful in volumes.
Very interesting to see how being “store fulfillment” one of the hottest topics today, a lot of opinions seem to be against it. However, we should know more about Zumiez situation. For example this is a strategy that clearly improves inventory turnover in the stores. Nordstrom reported last year that as a result of its shipfrom-store program, turnover spiked to 5.41 from a previous five-year high of 4.84.
The challenges for the stores are however several, some of them already commented. Clearly the store operations are impacted. New functions for the employees, new areas for packing, carrier integration, more frequent replenishment… Some retailers for example are committing in 2 hours for an order to be ready in the store, so they must for example staff the pick-up desk at all times, which requires a new store space.
Talking about fulfillment, it doesn’t mean the customer must go to the store, but if this is an option, it can clearly also help to increase sales. According to a report by UPS and ComScore 45% of customers have made a new purchase when picking up the purchase in store, among those who have used an in-store pickup option.
In my opinion it represents a big challenge, but also a big potential benefit. And I assume they are aware of all potential benefits and risks.
We have to limit what we say on this one since Zumiez is our client. But we’re proud to be the software vendor that helped Zumiez launch this to over 600 stores last year and it’s going to be a game changer. That said, it’s also not the right strategy for every retailer.