We have had several stories over the last couple years about retailers using inventories at their stores to fill web orders. At one time or another, there have been stories about Nordstrom, Wal-Mart and Macy’s all treating that big box at the mall as a warehouse. Now the Wall Street Journal reports that even more chains — including Sears and Office Deport — are hopping on the bandwagon (Retailers Turn Store Clerks Into Web Shippers, Dec 9). You can here the reporter discussing her findings here:
It is not surprising that more retailers are going this way. They are all facing pressure from on-line competitors and finding some way to utilize their existing physical network is appealing. If nothing else, I suspect that everyone in the C-suite wants to be able to tell the board they are trying something.
But how can you set up this up quickly? You need to develop a system that updates inventories in real time while dispatching staff to fetch what has been ordered and scheduling the shipper to pick stuff up. Nordstrom is often identified as the first mover on this. The New York Times reports that it took them a couple of years to get it set up. How can a Johnny-come-lately ramp this up quickly? By working with UPS and FedEx.
UPS and FedEx Corp. which were critical to helping launch the e-commerce boom, are now eager to help traditional retailers deal with it. They have engineered new strategies for jockeying inventory across the country to avoid overstocks and markdowns and to keep customers from defecting to Amazon, a big problem last year. The strategy is also important this holiday season as clothing retailers are threatened with heavy inventories.
UPS says it is working with about 40 retailers on implementing these strategies—about double the number a year ago. FedEx said these partnerships helped boost revenue in its ground delivery business 11% in its fiscal first quarter. Both forecast record holiday-season deliveries: UPS with 34 million packages on Dec. 16 and FedEx with 22 million packages on Cyber Monday.
In the case of Sears, UPS provided software that shows shipment statuses of all orders across the entire system. It also sends tracking numbers.
Now is this surprising? Hardly. Both FedEx and UPS have added services over the years (e.g., computer repairs) that add value to their basic service of schlepping. Such a strategy differentiates their offering and may (for a time at least) lock in customers.
There is the question of what is actually hard to do in a ship-from-store environment. One issue is inventory accuracy. Store records need to be up-to-date and everyone needs to be using the same SKU for the same item (see this post from Gady for an example of what can go wrong).
Another issue is from where a particular item should ship. For some items, this seems pretty straightforward. Suppose that something has a short product life (e.g., swimsuits). Demand is likely correlated across the country. If it is really popular, it sells out quickly and there is no inventory anywhere. If it is a dog, there is plenty of stock to go around. If it is neither a top seller or a dog, then shipping inventory between stores or having stores back up the web site prevents lost sales in some locales while the item is marked down in others. And it doesn’t matter too much where you ship from since this will be relevant at the end of the season and the item will not be resupplied.
But Sears is shipping chain saws and microwave ovens from its stores. Those items have longer lifespans and will be resupplied. Now deciding from where to ship gets trickier. Shipping from the closest store will be cheapest and fastest approach but if we are taking the last unit of an item, we may be setting that store up to disappoint a conventional customer. That is, shuffling inventory between stores may result in a chain reaction as responding to an initial shortfall creates another. The challenge is to be able to decide quickly from where an order should ship given the configuration of inventory at all the stores that could fulfill the order.