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Retail store vs. warehouse: The best way to ship

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

To what degree should a store be used to fulfil e commerce orders?

In the omnichannel retailing world, the physical store, once merely a humble sales channel, knows it has to become a far more versatile and multifunctional beast to stay relevant.

Specifically, it has three new functions in sustaining the omnichannel model: to be a place where e-commerce purchases can be collected by the customer (click and collect), a place where e-commerce orders can be made by or for the customer (the endless aisle), and a place where e-commerce purchases can be fulfilled for home delivery in the manner of a distribution warehouse (ship from store).

Theoretically, these three new functions along with the traditional one should present the customer with a slick brand interface that makes it ridiculously easy to shop. It all seems great on the surface but lately the last of these – shipping from the store – has come in for critical evaluation.

Glenn Murphy, CEO of global apparel retailer Gap, boasted famously this past October about the company’s “2,600 distribution centres”, a reference to its store network that was now being leveraged to fulfil online orders.

Wal-Mart, the world’s largest retailer, already ships more than 10 per cent of its e-commerce orders from retail stores in its own vast network. There are things about it that make sense.

cardboard boxes

Smart shipping equals smart sales

First, if a store is closer to the customer than a distribution warehouse, shipping from the store will typically involve quicker delivery time and lower cost. It pleasantly surprises the customer, who gets expedited delivery without paying more than the standard shipping rate.

Second, if it can be used to leverage inventory that may be selling poorly in one place then it also boosts store productivity and merchandise margins. Not long ago a friend of mine in Washington, DC ordered a couple of high-end business shirts online from a prominent men’s clothing chain. The shirts were delivered to him not from a distribution warehouse and not even from a store close to his house, but rather from a store at the other side of the country on the west coast.

One can’t say for sure but chances are the retailer had routed my friend’s online order to a store where those particular shirts were selling slowly. Think about the implications of this for the retailer. Items are being moved from the store, probably at full price, that otherwise would have been discounted if the only option were to sell them to customers coming in the door.

Hit or miss

Despite its advantages, some industry professionals have raised objections to the practice of shipping from store. One criticism is that if shipping is permitted from a store too early in the season – for example if spring merchandise is shipped from the store in August or Christmas merchandise in early November – two adverse things can happen. One is that the visual appeal of a store is upset and the other is that full assortments become fragmented, so that customers coming through the door are unable to lay their hands on the full set of colours, styles and sizes.

Another objection about the ship from store practice is that store personnel are not trained to ‘pick and pack’, so it opens up a can of worms around employee training and utilisation.

Finally, critics have warned correctly, that it is just so very difficult to execute shipping from the store without systems that provide deadly accurate inventory information at the item level. This simply does not exist for most stores today and it won’t until technologies such as RFID (radio frequency identification tagging) becomes mainstream, which may be a few years away.

Verdict

When the technology is in place, it is difficult to imagine most retailers not using their stores as fulfilment centres. The ability to better utilise a substantial real estate network and improve customer service at the same time is too compelling a prospect to ignore. Possible adverse effects on store image, merchandise assortments, and employees will all have to be solved in other ways.

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