Warehouses Coming to a Store Near You
By Kris Bjorson and Lew Kornberg, Head of Retail Tenant Representation at Jones Lang LaSalle
An unlikely hero is emerging at the back of a store. A store’s back-room space has become a secret weapon in the war for e-commerce market share. It enables goods processing, returns and a new delivery channel: ship-from-store. With a critical IT investment to support inventory visibility across a retailer’s entire platform, this method of retail combat is driving revenue, supporting same-day delivery, avoiding costly markdowns, and integrating the customer experience. Back rooms are now doubling as local, mini-distribution-centers.
Ship-from-store is an evolving trend piquing interest from both retailers and customers. It gives the discerning Internet shopper another channel to receive online orders where and when they want them. It also means that brick-and-mortar retailers can compete with pure-play e-tailers currently driving the industry standard for same-or next-day delivery.
Many retailers reside in the most prestigious real estate in prime locations, close to large population centers. This gives them a new distribution channel that pure e-tailers can only dream of. It also has the potential to bring Internet customers into a store for returns to drive incremental sales while reducing shipping and transportations costs. No wonder retailers are either adopting or seriously considering this option.
What about DCs?
Does the growing interest in ship from store mean that distribution centers (DCs) or e-commerce fulfillment centers (ECs) are surplus to requirement? Absolutely not. These specialized warehouses are still a critical part of an effective supply chain. However, all signs indicate that today's multi-channel distribution model is evolving. Among JLL’s brick-and-mortar clients with this capability, 10%–15% of online sales are now being shipped from stores.
Inventory visibility and creating a synergy between warehouse, truck and store are key to achieving the ultimate omnichannel strategy. Retailers can create a seamless shopping experience for customers by reconfiguring both their supply chain and their store.
Adding the next channel to ‘omni’
Whether ship from store will be an effective addition to your fulfilment strategy depends on what locations you already have in place.
When reviewing your real estate portfolio to support your omnichannel strategy, the key questions to ask include: Does my current supply chain allow customers to receive their online purchases on the same day? Am I offering as many delivery options as my competitors?
Existing supply chain scenarios and facility types are unique to every retailer, and ship-from-store strategies will be equally customized. For example, for retailers close to major population centers, it may make financial sense to ship directly from DCs. In other regions, the same retailer may rely on ship-from-store delivery. Some regions may add an EC as another layer to bridge a broader inventory offering for online sales with existing stores.
Reconfiguring the store
As ship-from-store models gain traction, the next step becomes setting up in-store protocol. Here are three typical ship-from-store configurations in use today:
1. Floor fulfillment: Limited to no change on the retail floor with technology investments to support inventory visibility and priority allocations by customer
2. Hybrid: Increased function/size of back room operations and added truck loading
3. Mini-DC: Conversion of back room to a small-sized e-commerce fulfillment center
While adjusting the supply chain to optimize ship-from-store strategies, the value of being closer to the customer base will typically outweigh the investment required up front. In fact, many retailers will find that this new model helps them optimize existing real estate and get more from their investment.
Real estate adjustments will typically include store layout changes, as well as adjustments to the DC and/or EC network. Retailers may require up to 15% more retail space to implement ship from store. However, as in-store space needs trend downward, retailers can convert 5%–20% of that to back-room space without compromising the in-store shopping experience.
Connect the facility dots
Ship from store is another innovation to help retailers compete with pure-play e-tailers and meet ambitious industry delivery expectations. When integrated into a complex fulfillment system, stores can become companions to DCs and ECs in the heated competition for online customers.
The secret: leverage the real estate you have, add space where needed, and connect the dots. By doing so, you just might find the magic formula in the back room of your store.
Kris Bjorson is head of retail/e-commerce distribution, Jones Lang LaSalle. He can be contacted at [email protected]. Lew Kornberg is head of retail tenant representation at JLL. He can be contacted at [email protected].