Omnichannel Retail - Using the Physical Store Footprint as a Competitive Advantage
By Samuel Barajas, Associate Director, Walmart GoLocal Client Success
November 30, 2023 | 3 Min. Read | Insights
What is Omnichannel retail and fulfillment from stores?
Omnichannel is one of the biggest buzzwords in retail, and it’s the approach that’s driving the industry forward (McKinsey). With an omnichannel retail strategy, both physical and online presences are equally important, and retailers should be investing in store locations and the online shopping journey, finding ways to integrate and leverage both capabilities to create a seamless customer experience. One way retailers can do that is by using physical stores to fulfill online orders.
Fulfilling orders from stores can be implemented by any retailer but is most applicable for enterprises with multiple locations. Store fulfillment can take two approaches. In the first approach, local pickup and delivery, customers order online from a specific storefront which then fulfills directly from their local inventory. In the second approach, ship from store (SFS), a customer places an online order, and the retailer fulfills the order on the back end from a store location unbeknownst to the customer. SFS allows retailers to leverage technology and inventory systems to determine the fastest, most cost-effective mode of fulfillment for customer orders. Walmart has been using both approaches for years and has a unique competitive advantage using its store footprint to fulfill customer orders, fulfilling more than 50% of orders from stores. Fulfilling orders directly from stores allows retailers to use their store footprint for more than just traditional in-store shopping, providing benefits such as optimized inventory placement, quicker delivery speed and additional cost savings versus order fulfillment from a distribution center. As a result, more than 60% of retailers currently offer same-day delivery from stores via third-party delivery services, with another 37% planning to implement store fulfillment capabilities (SFDC).
Four advantages of store fulfillment
1. Faster delivery speeds
As eCommerce and delivery speeds have become increasingly important to customers, 76% of customers are more likely to order items if they can get same-day delivery (Deloitte). By leveraging a retailer’s physical store location and routing orders for fulfillment from the closest location, retailers can deliver products faster and more cheaply. Fulfillment from stores also gives retailers the added flexibility to move merchandise more nimbly between store locations, and out-of-stock items can be sourced and delivered from nearby stores same-day, thus improving the customer experience. Walmart has utilized stores to fulfill more than 50% of their digital orders and activated local delivery networks so products arrive faster and at lower cost.
2. Improved cost savings
Last-mile costs account for 53% of delivery expenses and are among the highest variable costs in business (Insider Intelligence). The current model of using central distribution centers for same-day delivery is capital-intensive to scale. Retailers need more than 8 distribution centers (DCs) to provide next-day delivery to 80% of the US population with each DC requiring more than $100MM in capital expenses (McKinsey). Furthermore, next-day and same-day deliveries cost more than $15 per package for retailers. As a result, not many retailers can afford to adopt this model.
Fulfillment from stores can help retailers mitigate some of these costs. Last-mile delivery costs for same- day delivery are 16% lower when shipped from a storefront (Capgemini). Retailers who use their existing store footprint for online orders can realize cost savings by not spending money to build, operate or source a network of fulfillment centers or warehouses responsible for fulfilling 100% of the eCommerce shopping journey. Additionally, leveraging fulfillment from stores allows retailers to batch orders, which provides additional cost savings through optimized routing, reduced delivery miles, time saved by delivery drivers, and more.
3. Increased sustainability
Fulfillment by store reduces packing cost and waste when compared to shipments from a fulfillment center or centralized location. Retailers can reduce waste generated from packaging fill, boxing, and potential transportation costs, by utilizing store-based packaging similar to an in-store shopping experience, while optimizing for batching and routed next-day deliveries.
4. Improved operational efficiencies
Retailers can optimize inventory placement throughout the network, by placing localized SKU’s closest to the target end customer. For example, a clothing retailer can place warm weather SKU’s closer to the customers most likely to buy them based on location and seasonality. This strategy increases localized availability while optimizing local inventory storage and dwell time, protecting precious retail space. In this case, SFS technology determines which location(s) can fulfill the customer’s orders with the least amount of shipments based on inventory availability and cost.
Considerations before implementation
Before a retailer can take on a fulfillment from stores approach, they should review their eCommerce and last-mile delivery strategy and determine if their current strategy and processes are a fit for this approach. Additional costs related to the SFS model include technology, software, labor, and space. This could be challenging for smaller or mid-size businesses with limited staff and budgets. Retailers may benefit from partnering with a third-party delivery service provider that can consult on important considerations like a central distributed order management system, tools for order picking and packing, staff training to execute online order fulfillment, routing logic, how to leverage stores more efficiently for order fulfillment, delivery promise / customer SLAs, and more.
The retail industry is embracing an omnichannel strategy as a way to personalize the customer shopping experience, build brand loyalty, and grow customer lifetime value. Data from omnichannel helps enable store fulfillment, lower costs, and reduce retailers’ environmental footprint. To make that ongoing shift, retailers need to maximize the use of their physical store footprint alongside their online presence and may consider deploying a fulfillment from stores approach. And with a strong eCommerce, last-mile delivery and fulfillment strategy in place, retailers and their DSPs are increasing their chances for profitable success. We on the Walmart GoLocal team would love to discuss whether store fulfillment is right for your business. Contact us today to learn more.
