Fulfilling web items from stores is not cheap, but it yields benefits.
Thad Rueter , Senior Editor
It's about 30% cheaper, on average, for Peter Glenn Ski and Sports to fulfill web orders from a warehouse than to ship the same product from one of its 13 retail stores, says Jason Merrick, the chain's director of e-commerce. "But it's worth the extra expense, if the trade-off is losing the sale," he says.
Retailers that fulfill from stores do so for a variety of reasons.
Merchants that operate stores want to leverage the inventory they have in those stores to compete with Amazon.com Inc., the leading e-retailer in North America and virtually everyone's direct or indirect competitor. This is especially true as Amazon moves inventory closer to consumers so it can deliver quickly; the leading e-retailer will have 54 distribution centers spread across the United States by the holiday season, up from 46 now, according to e-commerce service provider ChannelAdvisor Corp. Executives of Wal-Mart Stores Inc. have emphasized that their more than 4,000 stores give them lots of inventory close to consumers. Wal-Mart now fulfills web orders from 35 stores, with plans to add another 15 later this year, using FedEx Corp. and other carriers to deliver.
Retailers also don't want to frustrate online shoppers by making them wait for out-of-stock merchandise to be replenished at a warehouse, especially if the ordered product is sitting on a store shelf somewhere. That holds especially true for apparel retailers dealing with fast-moving trends. "In fashion, it seems like a slam dunk," says Nikki Baird, managing partner of research and advisory firm Retail Systems Research LLC, of fulfilling from stores. "It doesn't take that much space [to fulfill from a store] unless you are doing a huge volume, in which case ask yourself, 'Should I have a fulfillment center?'"
The cost to set up in-store fulfillment processes can be significant, however, and retailers need to weigh that against the sales and benefits they would gain. Merchants can implement software that makes fulfilling from stores easier than it was just a few years ago, but logistical issues remain. Still, that hasn't stopped some of the biggest chains from embracing the ship-from-store method.
Peter Glenn, which sells skis, snowboards, shoes and related outdoor items, began fulfilling orders from multiple stores in 2005, just before e-commerce became a company priority, Merrick says. Back then, the fulfillment process involved calling a store to see if it had the product, then faxing the order to the store, where staff rekeyed it into the point-of-sale system. "It was inefficient and a pain for the stores, so it was costing us money and morale," Merrick says.
In 2006 the chain opened a distribution center for web orders, and in 2007 it moved to homegrown order-management software that integrated web orders with the retailer's store checkout system, he says. "By going from a manual process to a more automated one we were able to cut costs while increasing orders," he says. Store manager bonuses are based in part on the accuracy of shipments from stores. Today 80% of online orders are fulfilled from a warehouse while 20% are fulfilled from stores. Where an order is shipped from is based on an algorithm measuring store inventory levels versus sales, Merrick says.
One of the challenges of fulfilling from stores versus from a warehouse is that store stock has legs—consumers sometimes pick up a product, walk around with it, and put it down elsewhere—and staff have to track it down, Merrick says. That increases the relative cost of shipping from stores. With 40,000 labeled storage locations at its warehouse, products rarely are misplaced, Merrick says.
Price estimates from vendors of ship-from-store technologies provide a glimpse of other costs associated with fulfilling from stores. OrderDynamics Corp. says a retailer with 75 stores can expect to pay at least $100,000 to implement its ship-from-store technology. NCR Corp.'s NCR Retail Online tool, which is aimed at relatively small store retailers who want to build their own e-commerce sites and use store stock to fulfill web orders, starts at $75 per month, a NCR spokesman says. Initial setup costs start at $2,995 for the web-hosted software, which connects with the store's checkout system.
Prices for ship-from-store technology can range greatly based on retailer size; implementation alone can cost from a few hundred thousand dollars to more than $1 million, according to IBM Corp.'s Sterling Commerce. Its order management system integrates with the TCxGravity system Toshiba Global Commerce Solutions introduced in January to allow a retailer to fulfill orders from any source of inventory, including stores.
It's difficult to say exactly how many retailers ship from stores, but Sterling Commerce estimates that at least 10% of the merchants ranked in the Internet Retailer Top 500 Guide do so. The concept is gaining traction, in part because it reduces the chance a consumer will shop elsewhere to find an out-of-stock item. "If you execute this perfectly well, you have a chance to increase sales," Baird says.
That opportunity hasn't gone unnoticed by some big players in e-commerce. Best Buy Co. Inc. last month announced it will test shipping online orders from 50 stores when online inventory is exhausted. CEO Hubert Joly said BestBuy.com loses 2-4% of orders because the site shows the item as out of stock, though about 80% of the time the product is available in a Best Buy store. Sears Holdings Corp. also fulfills some online orders from store inventory, but customers have to pick them up. If a customer is open to visiting a Wal-Mart store, the chain since 2007 has offered same-day in-store pickup where store inventory is used to fulfill orders placed on Walmart.com.
Now Wal-Mart wants to go a step further. About two years ago the retailer began testing its Ship from Store program. Wal-Mart views the program as a cost-effective way to deliver to many consumers quickly. The reason is simple: two-thirds of the U.S. population lives within five miles of one of Wal-Mart's more than 4,000 U.S. stores, says Joel Anderson, president and CEO, Walmart.com U.S. "Ship from Store will enable us to do same-day and next-day delivery at a low cost to us and offer convenient and expedient delivery to the customer," he says.
He says Wal-Mart has the experience to pull it off. "For 50 years we've been picking from the back of the store and putting items on the shelf," Anderson says. "Taking from the truck, putting items on shelves: Ship from Store is no different, except that you're putting the item into a box."
The program has limits, though. Neil Ashe, president and CEO of Wal-Mart Global eCommerce, says Wal-Mart will ship only from stores items it stocks in stores. That's a far smaller number of SKUs than it sells online. Ashe says the typical Wal-Mart store holds about 100,000 SKUs, compared with nearly 2 million offered on Walmart.com, of which some 1.5 million are sold by the half-dozen outside retailers that sell on the Wal-Mart site. "So not everything you're going to buy online is going to be available in your store," he says.
What's more, he says, Wal-Mart will place inventory in stores based on where online consumers order those items, perhaps ski apparel in Colorado and sandals in Florida. "The most important part of this fulfillment network is having the right item in the right place for the right customer at the right time," he says. "So we won't put that inventory in that store unless we know we're going to turn that inventory through this program. So it's actually an incredibly efficient way to optimize the network."
Wal-Mart may not ship from all its 4,000 U.S. stores, and it may not guarantee same-day delivery on slower-moving products. "So Ship from Store may be same-day, but isn't necessarily same-day," Ashe says.
The Finish Line Inc. is "all in" when it comes to fulfilling web items from stores, says Sam Sato, president of The Finish Line brand. That's because the athletic shoe and apparel chain started shipping web orders from stores more than 12 years ago, and now does so from each of its 657 locations.
Those stores fulfill more than half of FinishLine.com's orders, he says, with its Indianapolis distribution center supplying the stores and handling the rest of the web orders. On a typical day, a store will process more than a dozen web orders, Sato says.
Here's how that fulfillment process works: When a consumer places an online order, it goes to a specific store—the store is selected according to a combination of store stock levels and proximity to the consumer's shipping address—via the point-of-sale system, which records the reduced inventory. A store employee picks that item from the shelf, packs it, prints a shipping label and hands the package off to a delivery carrier. The retailer is working to upgrade all of its technology, Sato notes, and that effort will include better inventory forecasting tools so that it can better predict what web items will ship from particular stores at particular times.
Sato would not specify how much it costs to fulfill items from stores—or the sales bump it brings—but the chain can boast of a 25.1% increase in e-commerce revenue for the fiscal year ended March 2. That compares with a 5.1% increase in total sales and a 5.9% increase in comparable-store sales.
He says the cost of shipping from stores is similar to shipping from its warehouse. "It depends on the number of units per order and whether a single store can fulfill the entire order versus multiple stores," he says. "There is an initial cost to ship product from our distribution center to our stores. However, this cost has a much lower impact on us versus a dissatisfied customer or taking a markdown."
Fulfilling from stores also lets retailers test product lines, as American Apparel Inc. has learned.
It has fulfilled web orders from stores for two years, says Ryan Holiday, director of marketing. When an order is placed online for a product out of stock at the retailer's e-commerce fulfillment center, the order is routed to the store nearest the customer that has the item in stock.
The apparel chain also uses this system to fulfill web orders of products it is testing. "These products aren't made in vast quantities and the inventory may be spread out across the stores," he says. "These sort of unique or exclusive products are definitely well suited for the store distribution model because we can display them on the store floor and online without having to sit on large amounts of them."
Similarly, Peter Glenn has more confidence in trying out new product lines because it knows that even if the product doesn't sell well locally, web shoppers elsewhere may want it. Having the ability to fulfill those orders from store stock increases the chance the retailer can make a profit on them. That's yet another reason why it's a fair bet more retailers will expand ship-from-store capabilities. l
@thadreuterIRTips for fulfilling online orders from stores
Source: Nikki Baird, Retail Systems Research LLC