Wednesday, June 24, 2020

Retail Responds to COVID-19 With New Fulfillment Models

Thomas John, Senior Director and Commerce Practice Lead
Innovation / Technology / Platforms

The seismic shifts in both consumer shopping habits and business safety practices created by the COVID-19 pandemic has created an opportunity for retailers to launch in-store (physical storefront) fulfillment programs, such as curbside pickup (BOPIS), ship-from-store (localized shipping models) and dark stores (localized fulfillment centers). The curbside pick-up and dark stores models have been particularly well-suited to help serve consumers’ needs despite the restrictions imposed by COVID-19. With the dark stores model specifically, they have been focused on the last-mile fulfillment models to support areas with high order volumes by offering choice of delivery slots or shortening delivery windows. 

The Dark Store Model for Delivery and Shipments

The model of dark stores are not necessarily a new concept, but the current state of business during COVID-19, makes it more attractive than in the past. During normal times, it was a big gamble for a retailer to turn a location (regardless of profit levels) into an exclusive staging area for deliveries & shipments. When a store is expected to remain shuttered for the foreseeable future, or is likely to have pervasive low foot traffic (25%-50% capacity rules) due to consumer concerns about in-person shopping, making it a delivery center can at least put the physical store asset to some level of revenue generating use.

 

While using a physical store asset as a fulfillment center can be risky, it can also result in healthy revenue boosts. In Q1 of 2019, Target fulfilled 80% of their online sales from their stores which resulted in a 45% reduction of costs associated to traditional warehouse model. Curbside or In-store pickup services produced even a stronger boost to the bottom line by cutting costs up to 90%. While smaller businesses might not have the scale of a large retail company, they can still benefit from smart and focused use of this practice.

Pickup-Only Options as a Soft Reopening Plan

A Kroger location in Cincinnati was one of the first few storefronts to create a pickup-only location during the pandemic. Given the massive online grocery sales growth – 37% growth in April 2020 compared to March 2020 – this move made a lot of sense from the point of view of both continuity of business and safety of their employees. The trend of using either an online grocery delivery service or pickup service has soared in acceptance in the midst of the pandemic. Even as more safety precautions are put in place to start reopening businesses, we will see a large percentage of consumers stick with online delivery services or pickup services for the foreseeable future. Rightpoint’s recent snapshot research report highlights this trend and others.

 

Retailers in other verticals are also starting to embrace this practice. Kate Spade, Coach and Stuart Weitzman stores reopened 300 locations as pickup-only at first. They are using this model as a way to bridge between closure to normal operations while connecting with their customers and engaging their employees.

Ship-From-Store is Not a Cure-All

Retailers are also using a Ship-From-Store model to prepare for the large scale reopening by depleting older and in-store merchandise inventory. Nordstrom is currently shipping 50% of US and 100% of Canadian online orders from its stores. As these stores reopen for normal operations, to maintain these practices will require significant additional investments. 

 

Continued success for a store-based fulfillment program is finding the right real estate. A store located in middle of a city could be used to reduce delivery overhead and timelines as a way to compete with Amazon or Walmart vs. a store located in a small town which would not have the order volume to ensure a positive revenue impact. In order to find continued success in this model, the retailer must make the right technology investments that will be needed to maintain a single set of inventory that will be used for two purposes. 

Getting It Right the First Time

Before trying to match the success of big retailers such as Target and Walmart, retailers will have to prove out their own capabilities. For the past several months, customers have been dealing with limited selections and long delivery windows. As more retailers return to normal operations, the brick-and-mortar retailers who are just starting to test out the pickup at store and ship-from-store models will be going head-to-head with the seamless order experience on Amazon.

 

The retailers who plan on utilizing dark stores model or new pickup options will need to get it right the first time or there might not be a second chance to impress their customers. Customer expectations continue to rise, even if they are not ready to resume shopping in some quarters. The right play is just making sure that you get your customers exactly what they ordered and consider how your online commerce strategy can take advantage of store closures and idle inventory. Learn more about Rightpoint’s commerce capabilities.

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