April 2, 2014, 1:06 PM

Store fulfillment advances

Retailers find success by fulfilling web orders from stores when they have the order management process down right.

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Target Corp. launched its first buy online, pickup in store program in November, and the mass merchant says 10% of consumers who placed orders during the fourth quarter used it, with a higher percentage using it shortly before Christmas to get last-minute gifts. The program enables consumers to pick up items purchased on Target.com at the customer service desk in a store that has that item in stock in about four hours.

The retailer says that the program contributed to its 20% increase in e-commerce sales in the quarter despite a highly publicized theft of payment card data that hurt overall sales. Customers who went to stores to pick up items also bought other merchandise, said Kathee Tesija, executive vice president of merchandising, during the chain's recent earnings call. "About 30% of store visits to pick up an online order resulted in store shopping on that same trip, and the size of that store transaction was much larger than an average store trip," she said.

Target is an example of why retail chains want their stores to do double duty as miniature e-commerce fulfillment centers, whether to enable pickups by web shoppers locally or to ship web orders from inventory located on shelves or in back rooms. Evidence is growing that it drives additional sales online and incremental sales in stores. Getting there, however, requires that retailers implement order management systems to handle the process, and to make sure that store staff is up to the task. The experiences of several retailers show why.

Already, 84% of the top 50 retail chains ranked according to their online sales in the Internet Retailer's 2013 Top 500 Guide use their stores as pickup or shipping points for items ordered online, and the tactic is likely to increase and also filter down to smaller retailers and even manufacturers that sell through dealers, experts say.

"As physical stores fight against e-commerce shops and digital giants like Amazon, moves like this—baking distribution center capabilities into retail locations—could give bricks-and-mortar retailers the advantage they need to compete with online retailers for customer retention," says Sean Adkins, managing director and operations excellence practice lead at business and technology consulting firm West Monroe Partners LLC. Amazon.com Inc. last month said it has 40 distribution centers in the United States and 93 worldwide, with more coming online all the time.

Retailers say fulfilling web items from stores can also help them preserve profit margins because it can help delay markdowns, a concern especially acute for retailers that sell seasonal and trendy apparel. For example, a Target store in Chicago in winter may have to mark down flip-flops 75% to convince shoppers to buy, but an online shopper in Florida might pay full price for the same shoes.

A Forrester Research Inc. survey of 200 retail and manufacturing executives in November found that 46% of those planning ship-from-store programs are doing so mainly or partly to avoid such price reductions. That compares with 57% who cited quicker deliveries, and 43% who wanted to sell online products that are usually available only inside stores.

Combine all that with consumers' increasing expectations to be able to shop across channels how and when they want and have their needs met, and it becomes more clear why retail chains want to get more utility from their stores.

Figuring out the most efficient way to handle web fulfillment from stores is an evolving art form, according to retailers, vendors and analysts. And retailers are going about it in their own ways.

Destination XL Group Inc., a seller of big-and-tall men's apparel, this year began to deploy StoreNet ship-from-store software from eBay Enterprise to more of its 103 retail locations. StoreNet integrates with Destination XL's online order management system and routes orders to stores based on business rules Destination XL defines, such as the store's proximity to the ordering customer, the maximum number of orders a store can handle per day and how much stock must be maintained to satisfy store shoppers.

Typically, store associates log into StoreNet prior to a store's daily opening and retrieve orders through the user interface. Store managers assign certain staff members to pick and pack orders, and the chain has an oversight team to monitor the overall process, says Christina Shortall, vice president of customer service for Destination XL. After associates pack orders, the orders are flagged as "shipping" within the StoreNet system, which then passes their status and shipping information to Destination XL's order management system for tracking and communication to the customer.

Using that technology enables the chain to better satisfy its customers, Shortall says, noting there is no sense in losing a sale if the desired product remains on the shelves of at least one store. She will not reveal the percentage of online orders Destination XL ships from stores but says sales results so far from the program "have been positive."

EBay and Destination XL decline to reveal software or operational costs associated with the shipping program, but costs for deploying the software and services that enable fulfillment from stores can vary greatly. A retailer with 75 locations can expect to pay at least $100,000 to implement ship-from-store technology sold by OrderDynamics Corp., the vendor says—an estimate that Forrester analyst Peter Sheldon calls realistic. Similar technology from Shopatron that is geared toward manufacturers starts at $699 per month, along with a setup fee that costs at least $5,000, according to a spokesman for the e-commerce technology and services provider.

JL Audio Inc., which makes speakers, amplifiers and related equipment for cars, homes and boats, uses Shopatron technology to enable dealers that sell JL Audio equipment in their stores to fulfill orders placed directly with the manufacturer online.

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