A Brilliant New Retail Format Supported by Last-Mile Logistics

In South Korea, Tesco has a chain called Home plus that has become the second largest retail chain in the nation. The 115-store chain consists of big discount hypermarkets similar to Walmart in merchandise, but also similar to mini-malls in that they feature numerous independently-operated smaller stores like travel agencies, fast food, and bookstores that lease the space from Tesco.

What caught my attention, however, is Home plus’s e-commerce initiative. Weekly grocery shopping is a burden for many urban-living, hard-working South Koreans. Also, what busy consumer would not value spending waiting time, such as waiting for a subway in a station, in productive ways?

The solution? Create virtual stores in the subways, as the video below shows.

These stores are currently located in Seoul’s subway stations. Seoul is South Korea’s largest city. The subway station has pictures of shelves stocked with food and other consumer goods customers would typically see in an actual store. Shoppers point their smartphones at the QR codes, click, and add items to their online shopping basket. Their goods are delivered after they get home. The Home plus online store is now the number one e-commerce site for groceries in South Korea.

Of course, supporting a virtual store requires a home delivery supply chain. The video says the e-commerce initiative allows Home plus to gain market share without building stores. But in crowded metropolitan areas, last-mile logistics is a challenge; it also requires an infrastructure, including pickers, trucks, and drivers.

I don’t know how Tesco has structured its logistics operations to support this model – whether it is picking in stores, in backrooms, or special e-commerce warehouses. And I don’t know what kind of IT the company is using. But Tesco’s capabilities would certainly be enhanced if it were using routing software (preplanned and dynamic), GPS tracking, and mobile devices for payment and signature capture.

This is the most innovative idea in retailing I’ve seen in a long time. You have a captured audience, and the virtual storefront also serves as a form of advertising. But the back-end logistics needed to support this, while not innovative, is very challenging. South Korea is a perfect launching pad for this type of operation. South Korea has more than 10 million smartphone users in a population of less than 50 million people; it has a dense metropolitan area supported by subways; and its people are time constrained. Nevertheless, this brilliant new format will almost certainly be copied by retailers in Europe and North America in the not too distant future.

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