Blog postsSeptember 19, 2016
3 Fulfillment Strategies Giving Retailers an Advantage
In 2004, Blockbuster was valued at $6 billion. The blue and yellow glowing stores were a staple in nearly every suburban city, and a typical Friday night for an American family wasn’t complete without a trip to the video store.
Six years later, Blockbuster was bankrupt, every store shut down and families were ordering videos online from Netflix, only traveling as far as the mailbox before settling in for the night.
The fall of Blockbuster is a now famous story of how a disruptive idea can turn an entire market on its head. And, it’s a cautionary tale of how an inability to adapt and try new things can leave a business in the dark.
It’s natural to look at Blockbuster’s demise and point to the company’s failure to buy Netflix when it had the chance as the pivotal breaking point.
However, it's likely a much bigger problem was already in play long before the Netflix offer was made. An operational failure existed that structured the company’s growth model around a network that did not allow for new information.
Blockbuster had become an efficient, streamlined operation with little-to-no room for flexibility and responsiveness. They lost the ability to test, learn and try new things. In the middle of a massive market disruption, Blockbuster was unable to pivot, and by the time they tried, it was too late.
Fast forward to today and retailers have been thrown into another significant market disruption. Shopping is moving more and more online, and consumer expectations for fast, low-cost delivery is forcing companies to reassess how they do business.
Trying new things is no longer a luxury...
... But essential to the survival of the industry.
Amazon is leading the pack, putting everyone else in the position of playing catch-up. At the heart of the battle for market advantage, is finding a competitive fulfillment strategy. That sweet spot--where a company's online fulfillment strategy can both deliver on its customer promise and be profitable--is still elusive.
Many retailers are adopting a “try new things” mentality to stay relevant and competitive. This is evident in Walmart's acquisition of Jet.com and Amazon's continued exploration into drone delivery. As the race to win online customers continues, we are seeing more and more companies taking risks with new ideas. This blog discusses three emerging online fulfillment strategies that both big and small retailers have been experimenting with:
1. In-store fulfillment and BODFS
Brick and mortar retailers like Home Depot and Walmart are turning to their existing assets to gain ground on Amazon. Both retailers have started leveraging their vast network of stores, something Amazon does not have, to pack and ship online orders.
According to Business Insider, Walmart is now using 80 of its 4,500 stores across the US for online fulfillment, and Home Depot says almost half of its online orders—about 42%—are now picked up in its stores.
Home Depot continues to invest in fulfillment options to cater to its customers' demand. The latest venture is “BODFS,” or “buy online and deliver from store.” BODFS allows customers to pick a much-shorter delivery window and have purchases delivered from their local Home Depot store to their home or work.
BODFS takes Home Depot’s online retail to the next level by bringing the retail store to the customers using last-mile delivery.
“It’s definitely where the customer is taking everyone,” said Stephanie Smith, vice president of direct fulfillment and delivery for the $88.5 billion retailer.
Home Depot’s fresh approach to online fulfillment has the potential to become a big advantage for the retailer. Market analysts have noted the company’s investment in disruptive fulfillment and delivery initiatives makes them one to watch. And, the trucking industry seems to have its eye on this trend as well with companies from XPO Logistics to Schneider to Estes Express Lines expanding or adding last-mile services.
The BODFS program has rolled out in 700 of Home Depot's 2,200 stores, and is expected to be available at all stores by the end of 2016. The retailer has reported demand for the service has exceeded initial expectations at many of the stores.
2. Pop-up fulfillment
Pop-up fulfillment allows both online and brick and mortar retailers to add supplemental or complementary capacity to their existing supply chain networks in an on-demand fashion. This is particularly useful during promotional or peak periods when sales volumes peak, putting strain on existing infrastructure.
Pop-up fulfillment is an old idea with a new twist. Retailers have been popping-up distribution space to add capacity for years, but it has been a clunky and expensive process. Adding extra capacity to supplement a short, three-month peak, usually meant committing to a full year lease and sometimes a service contract costing upwards of $250K. Today, technology exists that makes this process on-demand.
Essentially, retailers are trading fixed costs—like service contracts and long-term sub-leases—for variable costs—such as temporary distribution centers with no long-term commitments or service fees.
Retailers can now pop-up distribution centers when, where and for however long they need them with no fixed costs.
Through this strategy, smaller companies can afford to add new distribution points without the high capital and start-up costs usually associated with adding extra capacity, and larger retailers can add capacity across their network, alleviating typical capacity constraints driven by peak season volumes in their existing distribution centers.
For example, when Cyber Monday hits a company like Urban Outfitters or Walmart their warehouse capacity goes to about 80%. Online sales go through the roof and they are trying to push orders through a pipeline that just can’t hold that volume. Pop-up fulfillment provides a relief valve to help them manage that extra 5 to 10% volume for a very short period of time. They can continue meeting their customer promise and deliver on their baseline service standards with minimal disruption and cost.
For smaller retailers, one might see them use pop-up fulfillment to add temporary distribution centers that get them closer to their customers during peak season. They could now offer things like one- or same-day delivery on certain product lines and improve sales conversion rates by offering free shipping.
3. Click and collect
Brick and mortar retailers who do not have the capital to invest in alternative shipping options are turning to “click and collect.” Keeping with the elaborate acronyms, this one is also referred to as “BOPUS” or, “buy online and pickup in-store.”
During the most recent holiday season, nearly one-third of shoppers opted to BOPUS, according to the International Council of Shopping Centers' Holiday Consumer Purchasing Trends Study.
The strategy is a good alternative because physical stores can be leveraged as distribution centers where consumers take over the cost of getting the items from the store to their homes.
A report from Slice Intelligence states that consumers used Wal-Mart's buy online, pick up in store option the most during the 2015 holiday period, followed by Best Buy, Target, Kmart and Macy's.
From large retail chains like Walmart and Home Depot to smaller e-commerce stores, companies are starting to adopt this “try new things” mentality for fulfillment. As the industry continues to be disrupted by new technology and fresh ideas, flexibility to test, learn and try new things will be an important strategy to stay relevant.
Here at FLEXE, we have adopted that ethos as well and are committed to working side-by-side with our customers to continue evolving our technology to support our customers ever-changing needs. Please let us know what you would like to hear about and how we can use this blog to help. We want to hear from you!
For more information on how FLEXE can help with your fulfillment needs, contact us today!