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A new McKinsey study finds retailers can significantly benefit from using their stores for online fulfillment or pickup, including enabling greater overall inventory productivity, quickening speed to customer and avoiding markdowns. However, it also comes with challenges.
The five in-store fulfillment challenges to overcome identified in the study were:
- Inventory accuracy: McKinsey finds stores generally have lower inventory accuracy rates (70 to 90 percent) than distribution centers (typically more than 99.5 percent).
- SKU complexity: With online assortments typically including channel exclusives, endless aisles and third-party drop-shipments, minimizing margin-eroding split shipments across the network becomes challenging.
- Demand forecasting. McKinsey finds that, given the challenges inherent with positioning inventory across distribution centers, various store types and market fulfillment centers, accurate demand forecasting and distributed inventory placement remains one of the greatest struggles outside of network changes.
- Picking costs. For a majority of retailers, the cost of in-store picking is typically 1.5 to 2 times higher on a cost-per-pick basis than picking at distribution and fulfillment centers.
- Execution quality. Stores weren’t designed to do online fulfillment at scale. Particularly during peak times, managing exceptions, ensuring accurate picks and tightly controlling cycle times to customers present challenges.
- Retail’s need for speed: Unlocking value in omnichannel delivery – McKinsey
- In-Store Fulfillment Creates ‘New and Unusual Workloads’ for Retailers – Pymnts
- The downsides of in-store fulfillment – DC Velocity
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- What’s the formula for e-commerce profitability? – RetailWire