Omni-channel continues to push the bounds of commerce, with companies scrambling to meet customer expectations without sacrificing the bottom line. The rise of e-commerce has been an incredible journey, and one that has opened up new opportunities for retailers and consumer brands alike. But, with the rise of these opportunities comes the growing pains associated with them. One of the biggest concerns is what exactly is the brick and mortar store’s role in the ever-changing omni-channel landscape. I’ve written about some of my omni-channel research lately, specifically looking at returns management and order management systems. This post will look at the store’s role in omni-channel, especially as it relates to store fulfillment.
With the rise of e-commerce, the store’s role has changed. Prior to the e-commerce boom, customers would simply come in to a store to shop for a product. Now, the paradigm has shifted, and the store is often used as a showcase for products. Customers research and explore products online well ahead of time, and depending on the product category, may come into a store to physically handle the item. Often times, the customer will then shop online to find the lowest price.
When it comes to fulfilling e-commerce orders, my latest omni-channel survey indicates that 60 percent of respondents use a traditional distribution center that also serves e-commerce orders as their primary means for fulfillment. This means that the DC is replenishing stores as well as shipping products to the end consumer. In these cases, the DC generally employees a variety of segregation techniques to ensure that items are picked properly. The most common approach is to segregate by physical layout, where there is an actual physical separation between the two operations – either a barrier that separates the two or distinct set-up locations for pickers, packers, and shippers. Other methods include inventory-based segregation, where store replenishment inventory is kept separate from e-commerce inventory, and labor management segregation, where the inventory is common, but workers are assigned to either e-commerce or traditional fulfillment.
According to the survey data, 32 percent of respondents indicated that they fulfill e-commerce orders from the store. This is where things can become tricky for retailers. There are a specific set of criteria that needs to be examined when deciding whether to fulfill e-commerce orders from the store or not. On top of that, there are a variety of ways in which a store can fulfill an e-commerce order, each of which has its own merits and drawbacks.
Obviously if a customer wants to order an item online and pick it up from the store, there really isn’t another option for how to fulfill the order other than in-store. However, when the customer does not have a preference for fulfillment, retailers need to lay out the criteria for store fulfillment. In a survey question, I asked what the primary and secondary criteria were for making this decision. Overwhelmingly, two criteria stood out as the primary reasons for using the store. First is the distance to the customer delivery location (55 percent of respondents). This is all comes down to meeting the expectations of a prompt delivery for the customer. By shipping from a store that is significantly closer, the retailer can get the item there on time, without worrying about the cost of expedited shipping. Second is inventory constraints / stock outs at local DC (50 percent of respondents). This is where the store becomes the safety net for the retailer if they do not have the item in stock at the preferred DC.
The other piece of the store fulfillment puzzle is how to actually fulfill orders. According to my latest survey, 65 percent of respondents are actively picking orders at the store. These orders are then fulfilled in one of two ways (and the percentages are the same for both). First, the order is held at the store for customer pick-up. This method gets the customer in the store which always opens up the possibility of up-sell opportunities. However, this requires an appropriate staging area where customers are able to retrieve the order, and it requires a store associate to pick the order and then confirm receipt. The other method is to pick the items and ship them from the store. This is most often used when a DC or warehouse is facing the aforementioned inventory constraints, or if the store has a glut of inventory it is trying to move. In both cases, survey respondents indicated that orders are more commonly picked from the front of the store rather than the back, meaning they are pulling inventory off the shelves.
The third option for store fulfillment is to have an item shipped to the store for customer pick-up (45 percent of respondents). The item can be shipped from a DC or another store. In this scenario, the item must go through the receiving dock, get pulled from other inventory, and set aside for the customer to pick up. This requires a few more steps and is more time consuming than the other methods.
The e-commerce boom has certainly changed the way that the brick and mortar store fits into the overall omni-channel landscape. While historically the store has been the weak link in the omni-channel world, things are changing. With more streamlined and integrated strategies and approaches, the store is becoming a vital component to the omni-channel customer experience. As store fulfillment becomes a bigger part of the e-commerce world, the store’s position will continue to gain importance.