This article by Jim Barnes, CEO of enVista, first appeared on Forbes.com.
Omnichannel fulfillment has moved to the forefront of the industry — accelerated by COVID-19 — as retailers and consumers explore different fulfillment options. Major retailers continue to make headlines with their successful store fulfillment models:
- Lowe’s fulfilled 60% of online orders from stores in 2020.
- Target stores fulfilled 90% of total sales in Q2 2020.
Other retailers are feeling the pressure to prioritize store fulfillment. We are seeing a shift from distribution center (DC) heavy models to increasingly leveraging stores as distribution points through micro-fulfillment models, ship-from-store operations or even buy online, pick up in-store (BOPIS) as brands work to improve e-commerce fulfillment. The question in many retailers’ minds: Is store fulfillment the future?
The Answer: It Depends
Retailers should be cautious about how much is read into these tales of success. The devil is in the details; “ship from store” can be executed differently across retailers. Those that have demonstrated public success have a few things in common:
- Free-standing stores with lots of inventory/space.
- Deep pockets to make necessary investments.
- Large workforces available in the store.
- Heavy investment in order management systems (OMS) prior to the pandemic.
While customers have rewarded Target, Best Buy, Walmart and Lowe's this year for investments in store-fulfillment capabilities, their specialty competitors play with different variables that mean the same strategy may not be the best fit.
Store fulfillment is only one piece of an overall omnichannel strategy. To understand if and how store fulfillment should be a priority within your organization, start by examining your omnichannel strategy.
Understand Your Omnichannel Strategy
The first step is understanding what you are servicing and why. What is your main competitive strategy? Examples include:
- Time (improved service level agreement) to customer.
- Nonproductive inventory.
- Gross margin return on inventory investment (GMROI).
Identify what your business is trying to accomplish before you turn on any fulfillment node or make any technology decisions. There is a difference between what you can do and what you should do.
Identify how stores fit into your omnichannel strategy. There are interdependencies and unintended consequences that can occur if not done right. For example, a small store with single associate coverage is unlikely to successfully fulfill from the store and service in-store customers. And a store using inventory to fulfill all online orders leaves little selection for in-store customers and can drive store comps down. If your brand has to break other rules to fulfill from the store, it may not be the most profitable route to the customer.
Verify Through Testing
Next, create the plan and test different scenarios. Start with a subset of stores based upon your defined picture of success and planned business outcomes. Your first question is can you do it, then should you do it? Do the analysis and ensure that bears out your strategic assumptions. For example, does it drive more revenue or take strain off your DCs?
And understand potential unintended consequences. If you ship from the store, do you ship priority orders out of the store? If so, what happens when the FedEx truck shows up and the orders are not ready? And within the store, what's the priority? If you have 10 orders that need to go out today but there is a rush of in-store customers, do you focus on packing out orders or sell what's on the floor?
A blended, well-thought-out strategy helps avoid unintended consequences and achieve goals, versus just flipping switches and crossing your fingers.
Implement The Strategy
There is a common perception that omnichannel starts with an OMS. While it is an enabling technology, it is one component of a larger ecosystem driving operational excellence, understanding who owns the customer experience and implementing the omnichannel strategy as part of empowering the order management platform. OMS without a valid omnichannel strategy can be an impediment to your success instead of an enabler.
As you implement your omnichannel strategy, define your organization's success criteria. Understand the importance of order profitability and its calculation. What you decide to ship from the store is as important as what you can successfully ship. Identify the leading and trailing indicators to define success and then ensure that the organization is aligned cross-functionally. There are interdependencies across the organization and the need to clarify who owns the responsibility for customer satisfaction and success. Often, the organization argues over the dollars coming from the customer but does not focus on customer ownership and experience within the omnichannel process to ensure success.
Reassess your omnichannel strategy as your market changes. Ensure your strategy takes into account flexibility. Your omnichannel strategy is not a fixed point so utilize a dynamic approach. Perhaps it is more economical to create micro-fulfillment centers out of closed store locations that are still under lease. And maybe there are different times of the year that are not like others. Maybe fulfilling from stores works in summer because of less foot traffic but that is not feasible in November and December. Flexibility and visibility into how your business changes is critical throughout the process.
Store fulfillment is only one piece of an overall comprehensive omnichannel strategy. It requires understanding the business and customer and the ability to adapt to changing needs. While some brands can and should invest in store fulfillment, for others, it may not be the best fit.
In this case, one size does not fit all.