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Is the Store Obsolete or Is It the New Omni-Channel Hub
Dwight D. Hill, The Retail Advisory LLC
The store is dead! E-commerce will render stores obsolete!
We've all seen these headlines in the media, and I am a firm believer that the retail store as it currently exists today, is dying and will cease to exist in the next 10 years. A retailer with stores that operate in isolation of the digital side of commerce will be irrelevant to the consumer - period. Why? Because e-commerce is driving fundamental changes in your customer's shopping behavior and, as a result, is driving fundamental changes in how you as a retailer must learn to operate your stores. The key word here is CHANGE. Market trends, led by the customer and competition, are forcing retailers to rethink and reimagine their customer experience and provide new levels of convenience to their customers. To survive, retailers must reconsider how to leverage one of their greatest investments - their brick and mortar store base.
From ship to store to in-store pick-up options being made available either via mobile and online, this trend is driving multiple implications for retailers. While I could write a book on these implications (and just might!), I will now focus on one - stores being designated to operate as omni-channel hubs. In other words, some progressive retailers are leveraging their stores as distribution centers for customer orders - a role many stores are just not equipped to play. Just how should a retailer adapt to these trends and what are the challenges retailers face with this approach? In my experience, it comes down to a series of questions.
1. How should orders be processed?
Store back rooms and receiving areas have been continually downsized over the years as retailers attempt to minimize unproductive square footage. Thus, for some retailers, "truck day" takes on a whole new meaning as the delivery either sits on the dock for days - creating gridlock - or merchandise is processed on the floor - creating a service disruption - or worse - both. Now, add in the need to fulfill customer orders coming in from the online channel, which must be shipped immediately. Where do you install dedicated processing areas? What will the process be for queuing, pulling selected items, staging for shipment, wrapping and packing, and ultimately shipping merchandise to customers? In addition, how and where will orders be posted? A clear end-to-end process must be drawn out, tested, and refined with time studies to ensure orders get out the door efficiently for the e-commerce customer.
2. How will wrap and pack associates be trained?
Distribution centers are typically models of efficiency, leveraging a dedicated staff typically trained in lean Six Sigma practices. Most stores, however, have not been set up to handle this type of operation and back room associates generally are not trained in these practices. Associates will require cross-training by their distribution center brethren to get them up to speed.
3. How will associates be scheduled?
In addition to physical size reductions, labor hours allocated to operations staff at the store level have been reduced to bare minimum levels at most retailers. These are just the resources required to process inbound orders from the web and ship to customers. Retailers must now be considering a new labor driver that should be used to generate the required labor to service the customer - as an example, order quantity at the item level. Whatever driver is used, the scheduling process will require study and evaluation to ensure a labor budget is developed that supports excellent service levels.
4. How will stores be selected to act as "hubs?"
For a retailer with multiple stores concentrated within markets, this is no simple consideration. Is it simply the largest store? Is it a select group of stores within the market or markets? Retailers will need to consider several factors including typical inventory levels and the store's physical ability to process order volume, in addition to the potential transportation costs of additional merchandise deliveries to support the customer demand.
5. How do you consider inventory management and merchandise planning for stores selected as "hubs?"
Merchandise planning for stores designated as omni-channel hubs should be treated with care during the planning process; however, the same principles of planning will apply, albeit with a new driver - e-commerce sales within a given market. Considering expected sales and orders to be shipped from the particular store will drive the allocations of inventory and ultimately GMROI plan, just as with any other store or category/department. The challenge for a retailer starting in this area is in determining on what basis to forecast the plan. While there is no simple answer, planning will need to get to the market specific level for the hub stores, to ensure the right amount of inventory is in place to support the customer demand. In addition, strict inventory management processes must be in effect to ensure accurate inventory levels are reflected to the customer.
There are great examples of retailers currently tackling these issues. Place an order with Walmart, Macy's, or Neiman Marcus (just to name a few), and you may find it comes from a store location - or even multiple stores for large orders. Are the kinks worked out? Likely no, but the transformation to operating as a fully operational omni-channel retailer is a journey and those that prioritize listening to and responding to their customer are blazing the trail.
Dwight D. Hill, whose background includes leadership roles with Neiman Marcus and Deloitte LLP, is Founder and Retailer Strategist, The Retail Advisory LLC. Dwight can be reached at email@example.com.