Smart Shipping Strategies: Using Stores as Fulfillment Centers

11/4/2013
When is a store more than just a store? When it also acts as a fulfillment center — something that is happening with increasing frequency in the world of apparel retail. The practice of using inventory from brick-and-mortar stores to fill all or parts of ecommerce orders is a growing trend among apparel retailers looking to enhance customer experience while also helping to improve inventory management and better optimize assortments.

Ship-from-store fulfillment, as it is known, has been embraced by leading apparel retailers including Macy’s, Nordstrom, Gap, Saks, and Ann Taylor. The strategy is gaining traction for a variety of reasons, explains Nikki Baird, managing partner with RSR Research.

Most importantly, Baird says, ship-from-store helps apparel retailers fulfill customers’ most basic quest: finding the garments they want in the right color/size combination. “The ship-from-store strategy enables retailers to access all of their inventory across the entire chain to make sure that the shopper who wants a red size 8 in California can get the one that isn't selling in Illinois,” Baird explains.

“For retailers, the benefits are tremendous,” she continues. “Ship-from-store is fulfilled transparently from the consumer's perspective, and it gives the retailer an opportunity to better optimize their assortment across the chain. The result is more control, and a greater ability to capture and respond to demand.”

The strategy also helps apparel retailers to improve delivery speeds by fulfilling orders from nearby stores, as well as minimize markdowns by selling slower-moving or misallocated inventory to online shoppers, notes a recent RetailNet Group report, Ship from Store: What Retailers Can Learn from the Early Adopters. And, because the strategy utilizes already existing physical assets — ie, stores — these benefits can be reaped without investing major capital to support new infrastructure, the report notes.

Maximizing assortment for the customer at Peter Glenn
This has been the case for Peter Glenn Ski and Sport, an 11-location ski and outdoor apparel and equipment chain that was an early adopter of the ship-from-store approach. The company, based in the southeastern United States, sells a wide variety of skiing, snowboarding, running, and water sports apparel for men, women, and children, and has been utilizing ship-from-store since 2007.

Peter Glenn Ski and Sport uses in-store inventory to fulfill between 10 percent and 40 percent of ecommerce orders, on average.  The amount fluctuates because the company has developed algorithms that take a variety of factors into account — including the time of year and the sales performance of certain brands, categories, items, and stores — when deciding where e-commerce orders should be fulfilled.

“Given that ski and snowboard clothing is so fashion-driven, we always need to offer the broadest selection possible in our stores and online, while at the same time mitigating our inventory risk,” says Jason Merrick, Peter Glenn’s director of ecommerce. “Using ship-from-store helps us maximize our assortment to make sure we always have whatever the customer is looking for.”

The company also counts on ship-from-store for increased inventory flexibility to help it effectively deal with weather-driven business shifts. “If we have a store that isn’t performing well due to bad weather in that market, we can use that store’s inventory for online orders, which helps the store out of a bad inventory position,” Merrick explains.

Having ship-from-store in place also makes it easier for Peter Glenn store locations to test new categories, brands or products. “We can experiment with a lot more confidence because we have that extra selling channel with the web,” Merrick explains.

A win-win for Saks
For luxury retailer Saks Fifth Avenue, ship-from-store has been a “win-win for the customer and the company” because of the fulfillment strategy’s ability to provide customers with greater selection and convenience, while helping Saks to more effectively leverage inventory, according to Saks spokesperson Julia Bentley.

Saks, which began piloting its initiative in November 2012 and officially launched ship-from-store in February 2013, uses in-store inventory to fill orders only when saks.com inventory is depleted. To execute its ship-from-store initiative, Saks implemented an order management system and added process and operational support in its stores. The ship-from-store process utilizes Saks’ existing POS “locator” system — which allows sales associates to search across the Saks network to locate a particular item or size that might be out of stock in their store — and has been in place for years at the company’s brick-and-mortar locations.

“When an ecommerce order comes through and an item is out of stock in the saks.com inventory, the order gets broadcasted to all Saks stores via the locator system. The first store that can fill it closes the order,” Bentley explains. “Previously, when an item was out of stock at saks.com, the customer’s order could not be fulfilled.  Now, we can better serve our customers.”

But of course, as with any supply chain strategy, there are challenges involved in setting up an efficient and effective ship-from-store fulfillment initiative. Ensuring that online order fulfillment doesn’t deplete in-store inventory is one key concern, says Baird.

“Retailers must be mindful of protecting store inventory so that the store still serves the function of a traffic destination. It’s also crucial that they preserve the look of ‘the line,’ so that certain stores aren’t raided of all their red shirts, for instance, leaving an incomplete assortment on display,” Baird says.

This is a familiar issue for Merrick. While Peter Glenn ships the majority of online orders from its ecommerce fulfillment center, it uses ship-from-store frequently enough that, unchecked, it could have a negative impact on store inventory levels, especially during peak times.  “We don’t want to damage the store business and hurt the experience for our retail customers, so we have built tools that help us manage the inventory flow to be sure we are not depleting the stores,” Merrick explains. Throughout the year, the company makes continual adjustments to its fulfillment levers to ensure that the right mix of brands, categories, and products are flowing throughout its network.

Balancing store employees’ workloads can also be challenging for retailers implementing ship from store. Should associates be focused on filling online orders or driving sales out on the sales floor? “Retailers must find a balance so that employees are serving all customers, whether virtual or physically in the store,” Baird notes.

For Saks, the solution was to keep sales associates on the floor and add dedicated associates who locate, pack and ship ecommerce orders. Peter Glenn opted to empower store managers to determine how best to execute ship-from-store orders.

“We have to be sensitive to the challenge of priority,” Merrick says. “With ship-from-store, you have a ‘fulfillment center’ where their primary responsibility is to their in-store customer. We communicate as much as possible with store managers to let them know what has to be shipped so they can effectively manage within their workflow.” That “communication” occurs via Peter Glenn’s automated fulfillment operation software, which helps the company meet its promise of same-day fulfillment for all online orders (even those that will use ship-from-store fulfillment) placed by 4 pm.

Retail stores are also not as well equipped as warehouses to execute fulfillment operations, which has caused retailers utilizing ship-from-store to sacrifice some efficiency gains. “With our highly trained warehouse staff and our robotics-based fulfillment system, fulfilling from our saks.com inventory is fast, highly efficient, and accurate — nearly all orders are fulfilled and ready to ship within four hours (and many within two hours) of being received at our saks.com facility. While we seek to replicate a great fulfillment experience when shipping from stores, it is a more manual process and simply takes a bit longer to process an order,” Bentley explains.

Other challenges facing retailers enacting ship-from-store fulfillment include a possible increase in shipping costs, as well as difficulty tracking and attributing sales by channel. But if the growing number of apparel retailers adopting the approach is any measure, the benefits still seem to outnumber the detractions.

Amy Roach Partridge is a New York-based Apparel contributing writer.
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