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Store Warehousing Remakes Retail Distribution

Volume 2, Issue 20
October 31, 2014
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Truck and highway at sunset - transportation backgroundRetailer use of brick-and-mortar store back rooms as warehouses and fulfillment centers is growing along with the burgeoning trend in Internet order package pick-up and ship-from-store services, according the commercial real estate firm Jones Lang Lasalle.

As more retailers evolve their ship-from-store strategy, JLL said it expects to see a growing demand for space in the form of an e-fulfillment center (EC) with a broader inventory offering and up to 15% of fulfillment space inside traditional retail locations.

“More stores will be used as mini-distribution centers where they can fulfill online orders in-store,” said Kris Bjorson, Head of Retail/e-commerce Distribution at JLL. “Customers expect a seamless shopping experience where they can choose the most convenient way to order, receive and return their purchases, and retailers are responding with a ship-from-store option.”

Retail Distribution and Warehousing is Changing

According to JLL, 45% of Internet customers for brick-and-mortar retailers are using in-store fulfillment, making the role of the store essential to a retailer’s distribution strategy.

The seamless integration of physical stores and the virtual marketplace is what retailers are striving to reconcile as consumer shopping habits continue to evolve. Balance across multiple channels is the end-goal because 60% of retailers are still formulating their omnichannel approach, JLL noted.

While all brick-and-mortar retailers replenish their store inventories from distribution centers, some also plan to invest in ECs, the company said. Others will use existing store inventories to ship directly to shoppers (in addition to their ECs), while some may add a new type of facility such as an urban logistics center or cross-dock.

“There isn’t a one-size-fits-all strategy,” Bjorson observed. “But we expect stores to become an important part of the customer fulfilment strategy supporting larger DC and EC networks.”

He added, “Among JLL’s brick-and-mortar clients with ship-from-store capabilities, 10–15% are using this option, and there is strong interest in growing the channel.”

Using ship-from-store will give the customer more flexibility, faster delivery times and lower shipping costs, JLL said.

Transportation Cost Edge

Retailers that already have prime real estate in the form of brick-and-mortar stores, enjoy a huge competitive advantage against e-tailers that are without a physical presence on our nation’s main shopping streets and centers, JLL pointed out.

It said retailers will experience lower transportation costs and increased inventory turnover, which could enable them to bypass markdowns.

“The ship-from-store model not only increases delivery speed but also creates a store pick-up option that often brings the e-commerce shopper back into the store, creating a new sales opportunity that didn’t previously exist,” said Lew Kornberg, head of Retail Tenant Representation at JLL.

“This revenue opportunity is the beauty of omnichannel; it unifies the brand’s physical and virtual/online storefronts and marketplaces, and creates new customer opportunities.”

However, JLL is not the first to note that retailers’ omnichannel strategies are not only driving reconfigurations at the store level but throughout the entire supply chain as well.

According to a recent survey of retail executives by KPMG, seamless omnichannel selling is at the forefront of their minds, with, 70% saying they have adopted omnichannel strategies to link the consumer’s in-store experience with the company’s website, mobile devices and social media platforms.

Effective Retail Inventory and Distributing

Man standing in front of truckIn addition, 53% of the retail executives said they believe they are ahead of their peers when it comes to omnichannel adoption.
“Organizations that have adapted well to the rise of ecommerce, customer mobility and other technological disruptions of the last decade are showing some early signs of breaking away while others are still near the starting line,” said Mark Larson, KPMG U.S. and Global Retail Sector Leader.

HRC Advisory, a strategic retail advisory firm, also found that outdated organizational structures and processes, non-integrated IT platforms and a lack of a clear road map are blocking customer data enabling for retailers’ omnichannel efforts.

Retailers aren’t operationally structured for omnichannel, HRC argued. More than 87% surveyed said they have taken initial steps or are planning to initiate an organizational change to better integrate processes across all purchase channels. But for 88.2% of the retailers surveyed, ecommerce operations and marketing largely remain separate silos.

Inventory isn’t being fulfilled effectively, HRC said. About 85% of retailers surveyed said they are focused now or over the next 12 months on enabling new fulfillment options to avoid the lost sale. However, only 10% of retailers surveyed have the capabilities to effectively fulfill from store, although it is a way for them to contain fulfillment and return costs, as well as avoid some markdowns.

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