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Walgreens recently closed a warehouse in Illinois focused on e-commerce fulfillment, joining Walmart, Target, CVS, and other retailers that are increasingly relying on stores for online deliveries.
With 78% of Walgreens customers living within 5 miles of one of its stores, fulfilling online orders in stores is expected to support same-day delivery and make things “more efficient by having a single system for handling goods rather than managing separate distribution networks for e-commerce and in-store,” according to the Wall Street Journal. Orders will be fulfilled by store employees or by an outside service such as DoorDash or Uber Eats.
For Walgreens, speedy delivery is expected to win more customers, and serving both store and online customers from a single pool of inventory should improve overall inventory productivity.
“There’s a huge amount of efficiency in leveraging the sunk costs of a retail store as a place for fulfilling online orders for customers,” Brendan Witcher, analyst at Forrester Research, told the WSJ.
As noted in a McKinsey study, one of the challenges of in-store fulfillment is lower inventory accuracy rates (estimated between 70% and 90%) compared to distribution centers (typically more than 99.5%). Stores also weren’t designed to do online fulfillment at scale, and there’s a potential for traffic jams if in-store pickers jam the aisles.
Both Target and Walmart have started to come up with solutions for these problems. Target has invested in sortation centers that remove the sorting and packing process from store backrooms, allowing the company to “save valuable time and space for our store teams to fulfill additional orders and serve guests.” Meanwhile, Walmart has invested in store-based market fulfillment centers as well as in other areas to drive ship-from-store efficiencies.
“In the digital channel, the percentage of orders picked and shipped on time and the average Drive-Up wait time have all improved from last year,” John Mulligan, Target’s chief operating officer, said last week during the retailer’s third-quarter analyst call. "Also in support of the digital business, the percent of items ordered but not found has declined from a year ago, meaning that we are fulfilling more items per order and canceling fewer, a key factor in guest satisfaction."
Best Buy, Dick’s Sporting Goods, Ulta Beauty, Zara, Macy’s, and Lowe’s are among other retailers touting the benefits of ship-from-store in recent years.
Footwear retailer Boot Barn, on an investor call earlier this year, said increasing in-store fulfillment to over 300 stores has expanded assortments to online customers. Boot Barn CEO Jim Conroy told analysts, “In-store fulfillment has resulted in shorter delivery times and a pronounced expansion of exclusive brand sales online, which further contributes to the profitability of the business.”