Flexible omnichannel strategies are vital as retailers scramble to meet consumers’ growing e-commerce demand. As that demand has continued to skyrocket, retail shippers are now making significant investments in growing their logistics capabilities beyond store-based delivery. From small retail shippers to large nationwide chains, the industry has had to rapidly adapt to the increasing demand. while e-commerce has been propelling to an all-time high.
Omnichannel is Vital as Shippers Meet Consumer Demand
Not long ago, major American retailers such as Walmart, Target, and others were exploring strategies to meet growing e-commerce demand by utilizing existing brick-and-mortar space. These major retailers saw potential in designating resources in their existing stores as fulfillment centers for online orders. Since many stores were located close to their customers already, why not use them as ad-hoc logistics centers? E-commerce orders could either be filled directly from the store’s existing inventory, or goods could be shipped to the store along with push inventory and regularly scheduled stock replenishment, thereby eliminating the need for separate individual e-commerce shipments.
As e-commerce demand has continued to skyrocket, retail shippers are now making significant investments in growing their logistics capabilities beyond store-based delivery. Most retailers had anticipated the growth of e-commerce as consumer buying habits have shifted over the past decade and formulated strategies to keep pace. However, the pandemic sped these trends up faster than expected, as many people opted to stay home and shop online. E-commerce – once a convenience – has for many people become a necessity.
Home Improvement Invests in Supply Chain Transformations
The home improvement industry has been uniquely affected. Suddenly quarantined at home, consumers chose to spend their new free time working on DIY projects around the house, leading to an unexpected spike in activity for home improvement companies like Lowe’s and The Home Depot.
In August of 2020, Lowe’s revealed that it was pursuing a supply chain transformation to improve same-day and next-day home delivery, supporting increasing demand from their DIY and Pro customers. Included in the plans were seven bulk distribution centers for large products, such as appliances, grills, and outdoor furniture sets. These facilities would be supported by a network of fifty cross dock terminals and four new e-commerce fulfillment centers. Lowe’s hopes that its new streamlined logistics model will enable more consistent in-stock rates, increase supply-chain visibility, and give customers a better experience. So far, it seems to be paying off. By March 2021, Lowe’s reported that it was fulfilling online orders six times faster than a year ago.
The Home Depot is following a similar strategy. They are also building more fulfillment centers specifically to handle e-commerce orders, including sites that will specialize in same-day or next-day deliveries for common items.
In-Store Fulfillment Versus Specialized Distribution Centers
On the other hand, while Sam’s Club stores were similarly affected by the pandemic lockdowns and as stores experienced a sharp in-store decline in sales, Sam’s responded by expanding their omnichannel marketing strategy with in-store fulfillment. The company announced that it would completely retrofit a dozen underutilized stores into distribution centers to fill e-commerce orders.
Most Sam’s Club stores are already located in high-density urban areas that can easily serve a large number of customers. The company hopes that this will help it compete with e-commerce leaders like Amazon, enabling it to fill and deliver orders quickly and affordably.
While the competition between Walmart and Amazon has continued to gain momentum, and as they each continue their effort to win the devotion of consumers in terms of customer experience, service quality, and speed-of-delivery, Walmart has taken a different approach than Sam’s Club (even though Sam’s Club is a unit of Walmart, Inc.). In August 2020, Walmart predicted that their e-commerce business would be $75 billion in revenues by the end of 2021. Walmart has made gains in recent years versus Amazon on the digital business front, thanks to their strategy of investing in and leveraging e-commerce fulfillment centers while integrating its in-store and e-commerce merchant teams. One result of this integration is that the inventory for both online orders and purchases in brick-and-mortar stores is now managed together. The result? Walmart is now the second biggest online seller in the United States.
Walmart CEO Doug McMillon said that “the stores and online merchant teams are now integrated, and we believe we’ll benefit from that change going forward.” Walmart’s efforts reinforce that Walmart and Amazon will continue to be engaged in head-on competition; as Amazon expands its physical store presence through its Amazon-branded stores and its Whole Foods acquisition; and as Walmart delves faster and further into e-commerce. McMillion added detail on Walmart’s revamping of its membership programs, Walmart+ and Delivery Unlimited, in direct competition with Amazon Prime.
Walmart said that leveraging e-commerce fulfillment centers instead of their store footprint is more cost-efficient and cost-effective from their operational perspective. Walmart’s fulfillment centers are exclusively proficient in the specialized pick, pack, and ship function that is demanded by e-commerce orders. Studies proved that its focused e-commerce fulfillment centers can perform these operations in a fraction of the time it would take its stores. Walmart wants its stores to focus solely on providing in-person customers with the optimal shopping experience. If its stores were dividing attention between in-person shoppers and acquiring, training, and managing specialized logistics staff to handle e-commerce orders – much less the build out of additional resources and space to contain more inventory – costs would be higher and its commitment to a great e-commerce customer experience would suffer.
The results only solidify the disruption that COVID-19 is forcing on consumer trends and the subsequent response from retail shippers, including the blurring of lines between physical stores and online ordering as well as the continued expansion of an e-commerce fulfillment footprint. A rapidly developing realization around the needs for omnichannel flexibility is the order of the day.
The Rise of Micro Fulfillment Centers
Supplementing the dedicated e-commerce fulfillment model is a micro fulfillment strategy, such as in Walmart’s dedicated grocery stores. As the pandemic spurred the popularity of curbside grocery pickup, Walmart began investing in the micro fulfillment center model. This strategy redirects store associates to fulfill curbside orders from store shelves. During the pandemic, this model also helped mitigate the sudden decline of in-store grocery shopping. However, as the pandemic slowed down, so did online grocery orders. By the third quarter of 2021, in-store shopping had increased again, resulting in a slight decline in online orders. However, industry analysts believe that online orders will remain a popular option, and in-store fulfillment will remain one of many components in the omnichannel environment. Steve Hornyak, Chief Operating Officer of micro fulfillment solutions company Fabric, predicts that 10% of all big box retail stores will include back-of-store micro fulfillment centers within the next five years.
Amazon Continues to Experiment with Brick-and-Mortar
Furthering the omnichannel trend, Amazon announced in August 2021 that it would increase its movement into the brick-and-mortar retail space by opening several retail department stores. Their intention is to grab market share in retail sales of clothing, household items, electronics, amongst others by leveraging the Amazon brand with consumers who want to shop in a store. Amazon’s market disruptive nature continues.
Amazon had already opened its first stores in 2016 and now has outlets ranging from cashier-free convenience stores and grocery pickup locations to pop up stores curated with top-selling brands. Some examples include, Amazon Books; Seattle’s Amazon Go Grocery (a 7,700 square-foot store that lets shoppers pick up produce and other fresh foods cashier-free); Amazon 4-Star (a selection of customer favorites from across Amazon.com); Amazon Go (good food fast); and Amazon Pop Up (a themed selection of top brands). On top of these experiments, Amazon bought Whole Foods to gain more physical brick-and-mortar locations across the country in the grocery sector.
Omnichannel Strategies Meet Consumer Demands
The takeaways? Even though brick-and-mortar is still the predominant channel in the United States in terms of total percent of sales, COVID-19 has dramatically accelerated the e-commerce share of retail transactions. Consumers are ordering more items online – more frequently, and more confidently. People who never ordered anything online before COVID-19 have now learned how to order online, and in many cases now trust e-commerce as a shopping experience.
Retailers large and small are adapting to the disruption. It’s clear that omnichannel strategies will be critical, including:
- ROPO (research online, purchase offline)
- BOPIS (buy online pickup in store)
- ROPIS (reserve online pickup in store)
- Buy online with curbside delivery
- Buy online with home or office delivery
Retail giant Target is a prime example of leveraging their nationwide footprint. Target’s 1,900 stores – equipped with omnichannel selling strategies – bring them within ten miles of most U.S. consumers.
Retail shippers ranging from small businesses to large nationwide chains are rapidly adapting, as no single strategy seems to provide a one-size-fits-all solution. Large, nationwide big box brands like Lowe’s and The Home Depot are developing specialized e-commerce fulfillment centers while simultaneously nurturing other omnichannel solutions. Target and Sam’s Club decided to compete with omnichannel strategies straight out of their nationwide network of stores. Finally, Amazon and Walmart continue their various incursions into each other’s domain; with Amazon experimenting with physical stores and Walmart adopting their unique approach to e-commerce fulfillment.