Should Your Stores Fulfill Ecommerce Orders? 9 Pros and Cons
Should you be using your brick and mortar retail stores as a part of your order fulfillment strategy to fulfill your e-commerce orders as distribution nodes? For many retailers, it’s a question worth asking.
Centralized shipping through large distribution centers used to be the most efficient way for retailers to fulfill orders, whether to retail stores or directly to customers. By consolidating inventory in a single location, businesses were able to reduce overhead costs while maintaining the inventory visibility they needed to be successful.
Need an Expert Opinion?
But thanks to the emergence of faster and cheaper order delivery options offered by e-commerce giants like Amazon, customers have grown to expect same-day and next-day delivery—and they expect it to be free! That expectation has led many retailers to incur greater and greater fulfillment costs just so that they can compete with Amazon.
In order for traditional retail companies to truly compete with the giants of e-commerce, they need to find a competitive advantage.
Luckily, retailers (especially those with an extensive network of brick and mortar stores) have something that the e-commerce companies don’t: A built-in infrastructure of retail stores. For some retailers, it may be a smart business decision to treat each of these physical locations as miniature distribution nodes in order to fulfill e-commerce orders more efficiently, effectively, and cheaply than they otherwise could.
That being said, using stores as distribution centers to fulfill orders may not be the right decision for all retailers. Ultimately, the answer to the question “Should you use stores to fulfill e-commerce orders?” boils down to the specifics of your operation.
Below, we explore some of the pros and cons of using brick and mortar stores to fulfill e-commerce orders so that you can make the right decision for your business.
Pros of Using a Store to Fulfill Orders
Retailers who are capable of leveraging their retail locations as distribution nodes to fulfill e-commerce order have the potential to realize a number of benefits that can help their operations become more profitable. The most important of these benefits include:
1. Faster Delivery Time
In this business model, when a customer places an order online through a company’s website, the retailer would fulfill the order through whichever store location is closest, physically, to the customer. This instantly reduces the amount of time that the order must spend in transit to reach the customer, transforming same- or next-day shipping from an expensive task into a much more manageable feat.
2. Lower Freight Costs
This is related to the point above. Because the retailer is shipping from the location closest to the customer, in many cases they will be able to reduce freight costs compared to shipping from a central DC. It is important to note, though, that in some cases this may result in a loss of bulk shipping discounts, which can negatively impact a retailer’s margins if not managed correctly.
3. Less Wasted Inventory
While shipping costs are often a factor in which location a retailer ships from, another factor which may be taken into consideration is the age of the product that has been ordered. In order to reduce waste, some retailers may decide that it is more cost effective to fulfill orders from the oldest stock—regardless of location. Doing so means that they can sell older inventory, avoiding shrink and the need to run costly sales due to an aging product.
4. Increased Margins
Selling store inventory by fulfilling e-commerce orders placed by customers increases inventory turns. While this may not increase overall revenue, increased inventory turns is more profitable for the company overall
5. Captured Revenue from Returns
Processing e-commerce returns can be incredibly expensive for retailers due to the shipping and handling expenses that it often entails. By encouraging customers to make returns or exchanges in-store at their nearest retail location, retailers can decrease the cost of processing many returns by repackaging and reselling the product from the store.
Cons of Using a Store to Fulfill Orders
Even though there are some compelling reasons for using your retail stores for distribution nodes, each company will have to look at their infrastructure to determine whether or not it is truly the right fit for them. If the overall costs outweigh the benefits then maybe this is not the right direction for your operation. The most important of these considerations include:
1. Inventory Visibility
Using retail stores to fulfill e-commerce orders comes with a number of benefits. But in order to take advantage of those benefits, retailers must have exceptionally good inventory visibility. Without a system in place that allows all distribution centers and retail locations to keep track of inventory in real time, it would be very challenging to make the system work.
2. Limited Shipping Windows
One of the benefits of fulfilling orders from a centralized fulfillment center is the ability to fulfill and ship orders as they come in throughout a 24-hour period (if it is so desired). Because most retail locations are not open and staffed 24 hours a day, they tend to be much more limited in when and how they can ship. This can cause meeting same-day and next-day shipping requests a challenge if not handled correctly.
3. Increased Expenses
Though fulfilling e-commerce orders from stores has the potential to reduce some costs (for example, shipping costs), it also has the potential to increase other costs. Most stores were not designed to operate as fulfillment centers. This means that pursuing a strategy such as this one would likely require some upfront investment in the facility to make order fulfillment possible. Retailers would then also likely need to increase staffing levels (by hiring and training new employees) to perform the order fulfillment duties, resulting in an ongoing increase in labor expenses.
4. Fewer Options for Automation
Another benefit of fulfilling orders from a centralized warehouse or DC is the fact that companies are able to take advantage of large-scale automation technologies to reduce overhead and increase efficiency. While effective on the large-scale (such as in a warehouse) most of these automation technologies are not cost-effective on the small-scale such as in the store), limiting options for retailers.
The Bottom Line
Whether or not it makes sense for you to use your retail locations as distribution nodes to fulfill e-commerce orders will depend largely on the specifics of your business. That’s why it’s important that you consider the pros and cons of following such a strategy before diving in. A qualified systems integrator can help you make the right decision for your company.
- Romaine has spent over 30 years involved with organizations looking to optimize their distribution, manufacturing, and warehousing operations. Focusing on the customer’s processes, automation and business model, Romaine has helped dozens of organizations improve profitability by reducing labor, floor space, errors and inventory while improving accuracy, inventory turns and cut-off times.
Within the industry trade association, MHI, Romaine has taken numerous leadership positions including: Chairman of the Automated Storage & Retrieval (AS/RS) Group, Chairman of the Order Fulfillment Council of America, Chairman of the Warehouse Execution Systems Group and was one of the originators of the Carousel and VLM Product Section Group. He has also spearheaded the efforts to create the first ANSI industry safety standards for horizontal carousels.
Romaine is a frequent editorial and information contributor to hundreds of publications, blogs and online publications and has been a speaker at dozens of Supply Chain, Logistics, Lean and Facility organizations and functions. Just a few include the Parcel Forum, Institute of Industrial Engineers (IIE), Promat, North American Material Handling, Modex, National Mfg Week, Southern California Plant Operations, NJ Material Handling Assoc., Applied Ergonomics, Warehousing Education & Research Council (WERC), Lean Manufacturing Conference, Council of Supply Chain Management Professionals (CSCMP), NeoCon, Health Information Distribution Association (HIDA), National Catalog & Operations (NCOF), CSCMP and more.
- Trends2019.12.038 Statistics about Autonomous Mobile Robots (AMRs) in Order Fulfillment
- Strategies2019.11.264 Warehouse KPIs You Should Be Thinking About (But Probably Aren’t)
- Trends2019.11.1912 Warehouse Safety Statistics to Guide Your Design Build
- Robotics2019.11.14Types and Applications of Autonomous Mobile Robots (AMRs)