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Why retailers should avoid store-based fulfillment

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With brick-and-mortar retail upended as a result of COVID-19, retailers have had to pivot quickly in order to continue attracting shoppers. This has taken many forms, from BOPIS (Buy Online, Pick-Up In-store) to curbside returns and ship-from-store.

What do all of these retail journeys have in common? The use of in-store fulfillment strategies to facilitate faster delivery and more convenient shopping experiences for customers.

But although store-based fulfillment might appear to be the solution that retailers are looking for in this increasingly omnichannel environment, it’s not quite as simple as it seems.

In this post, we’re going to dive into the world of store-based fulfillment – and why it’s not always the best option for retailers.

What is store-based fulfillment?

Store-based or in-store fulfillment is a system for fulfilling both online and offline orders within a brick-and-mortar storefront, while still being accessible to regular in-store customers. This differs from the standard warehouse-based fulfillment model, where orders are fulfilled from non-customer-facing locations and sent out for home delivery. 

As retailers continue to expand across online and offline channels, we’ve seen store-based fulfillment grow in popularity as a way to expand fulfillment capabilities and meet consumer expectations for faster and more flexible delivery options.

However, in-store fulfillment also offers its fair share of challenges that many retailers aren’t equipped to manage effectively. Due to the cost and inefficiencies involved with making this a permanent part of your fulfillment operation, choosing to partner with a fulfillment provider is often a better strategy.

Why is store-based fulfillment becoming more popular?

In the past twelve months, we’ve seen store-based fulfillment grow exponentially as a result of the COVID-19 pandemic. As in-store retail restrictions forced many brands to shut their doors, the corresponding increase in ecommerce activity saw many retailers turn their shuttered stores into so-called ‘dark stores’ with the sole purpose of fulfilling online orders.  

But as restrictions begin to ease, this has caused several big-box retailers to consider store-based approaches as part of a longer-term, hybridized fulfillment strategy.

Target is trialing a ‘sortation’ model to improve the efficiency of its store-based fulfillment operation, which currently fulfills 80% of its online orders. With alternative shopping options such as BOPIS and curbside pick-up having skyrocketed by 212% YoY due to the pandemic, Target has experienced a drop in fulfillment costs by as much as 90%.

Retailers are also experiencing the pressure of shifting consumer expectations; 96% of consumers now consider fast delivery to mean same-day delivery – but only 51% of retailers are able to offer it. By transforming store locations into suburban micro-fulfillment centers, many brands are hoping to shorten last mile delivery times.

However, COVID-19 has also illuminated the serious shortcomings of store-based fulfillment – and why it isn’t a viable long-term solution for many retailers.

4 reasons to avoid store-based fulfillment 

1. Complex reconfiguring of your store space

While running a dark store that dedicates all your space and time to online orders is relatively straightforward, the same can’t be said of a hybrid fulfillment set-up. Unlike a warehouse, storefronts are not purpose-built facilities designed to hold large amounts of product or facilitate rapid picking/packing operations. 

While it’s possible to convert store space for fulfillment that’s away from your customer’s eyes, this is unlikely to meet the same level of efficiency of a full-fledged fulfillment center. 

A key reason for this is that if staff are walking across the shop floor to grab SKUs arranged by aesthetics rather than picking efficiency, you’re going to experience long walking times in addition to long periods between picks. This adds a lot of friction to your fulfillment operation and lengthens the time it takes to complete each order.

In sum, a single fulfillment facility in a nearby area is able to provide quick shipping times without the massive restructuring and efficiency struggles that stores must face by taking up in-store fulfillment. 

2. Inaccurate inventory reporting

Store-based inventory behaves in a very different way to inventory in a warehouse. Rather than sitting on racks or pallets until it’s ready to be collected, items are frequently moved around the sales floor as customers interact with it. 

For example, a customer may pick up an item and put it in their basket, only to change their mind and put it somewhere else. Alternatively, they might bring a garment to the changing room to try on, and then decide not to proceed with the purchase.

This means that physical stores can’t track their inventory accurately in real-time. Because it’s so difficult to keep SKUs in their assigned place, employees cannot build a complete picture of what items are in stock at any given time – or where they’re located. This leads to highly inefficient fulfillment processes, such as staff spending excess time hunting down SKUs that may have sold out, or else declining orders in the mistaken belief that an item isn’t available.  

By contrast, an organized fulfillment center helps a business to keep track of its inventory at all times through optimized storage processes and software which can record changes as products move in and out. Because there is no intervention by customers, retailers can be confident that their inventory levels are accurate.

3. It negatively impacts the in-store experience

As a result of the pandemic, the online shopping sector has experienced unprecedented growth in the past year. However, retailers shouldn’t mistake this shift as heralding the end of brick and mortar; if anything, the pandemic has proved that ecommerce has some significant shortcomings. A surprising 72% of digital shoppers rate the in-store experience as the most important channel when making a purchase.

Why? Because no matter how convenient online shopping is, it still struggles to replace the tactile nature of brick and mortar. By going in-store, consumers can test products, get advice from sales professionals and compare alternative offerings.

However, store-based fulfillment has the potential to seriously disrupt the in-store experience. By housing order processing and customer service underneath the same roof, this effectively splits the attention of staff in two directions; they must meet the needs of their in-store customers, while also preparing online orders that require a rapid turnaround time for rapid delivery or pick-up. 

Even if teams are segmented into fulfillment and floor service, there is still the possibility of staff being repurposed to meet a rush of online orders. This means that in-store customers are neglected, and revenues are likely to suffer as a result.

Because the primary goal of devoted warehousing space is to accommodate order processing as efficiently as possible, this leaves your physical stores free to be bastions of excellent customer experiences that foster brand loyalty.

4. It’s not always necessary

While shipping from your stores may appear to accelerate delivery capabilities, this isn’t always the case. 

While your store locations may be physically closer to some of your customers, this doesn’t guarantee that speed will outweigh the cost when it comes to same-day delivery. If your order volumes are relatively low, you could end up eroding your profit margins to an unsustainable level. There’s also the risk that you may end up cannibalizing your in-store sales because local customers are electing for home delivery, rather than in-store shopping options.

If you’re set on having some kind of store-based fulfillment, it’s much better to focus on offerings that bring customers into your store for further conversions, such as BOPIS. Furthermore, it’s important to assess each store location carefully to determine whether or not introducing in-store fulfillment will benefit you. 

For example, if one of your stores is in a rural area, the cost of shipping from that location is going to be much higher than a metro store that has more customers in closer proximity. Therefore, it’s better to limit ship-from-store to locations that support a larger number of customers.

Why it’s more effective to partner with a fulfillment provider

Inventory visibility

By leveraging your 3PL’s WMS (Warehouse Management System), you can gain real-time insights into inventory levels across your warehouse and fulfillment facilities, in addition to up-to-date sales data from across channels that will help you to allocate SKUs with greater accuracy, minimizing the cost and inefficiency of regularly moving stock. 

Establishing partnerships with local carriers

Because 3PLs contribute such a high volume of parcels into carrier networks, they are eligible for wholesale rates that dramatically reduce shipping costs for their customers. This allows retailers to offset the extra costs imposed by growing online order volumes, while still benefitting from the rise of digital shopping. 

Sophisticated multi-node fulfillment

There are more effective ways to leverage multiple fulfillment locations than using your brick and mortar stores. Fulfillment providers who have a nationwide footprint can allocate warehouse space to retailers in multiple strategic locations, allowing them to run a multi-node fulfillment strategy without the expense of converting valuable floor space. 

Full-fledged omnichannel fulfillment

The pandemic has led many retailers to dip their toe into omnichannel retail for the very first time out of necessity. But there’s a lot more to omnichannel than introducing O2O (Online-to-Offline) retail strategies to offset the loss of foot traffic. Without an optimized fulfillment process that ensures products are where they need to be, it’s impossible to facilitate the seamless shopping journey that your customer expects. An experienced fulfillment provider puts their expertise and infrastructure at your disposal to ensure the most streamlined fulfillment strategy. This means happier customers – and a happier bottom line.

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