8 minutes

Retailers are working to get more out of their stores and having them double as warehouses to fulfill online orders. But making those changes isn’t easy.

Selling eyeglasses is a logistical challenge, says Andrew Devlyn, director of innovation at multichannel retailer Devlyn Optical. That’s because after the retailer sells frames, it has to send them to a lab to get fitted with lenses. The lab then has to ship the frames to the customer or a store for pickup.

Devlyn Optical operates 1,200 physical stores and has a sizeable inventory catalog: the retailer has 75,000 frames, and about 130,000 SKUs when counting frames in different colors, contact lenses and sunglass frames. However, each store only carries about 800-1,200 SKUs, and only one or two units per SKU. And, until recently, if it didn’t have an item in stock it couldn’t sell it because each store lacked visibility into each other’s inventory and the retailer’s online inventory was on a separate system, Devlyn says.

The retailer wanted to ensure that if a shopper couldn’t find a product in a store, it could still showcase its deep product catalog and hopefully close the sale digitally using another store’s inventory or its warehouse inventory to fulfill the order, he says. That required Devlyn Optical to develop one master list of inventory and have buy-in from its 3,700 stores associates.

The retailer deployed the Magento Commerce Order Management plug-in into its Magento e-commerce platform to keep track of its inventory across its stores, one warehouse and 70 labs where the retailer fits the prescription lenses to the frames. (The labs also house a small supply of the most popular frames). In addition to the order management software, Devlyn Optical equipped many of its store associates with tablets that an associate can use to view inventory across all stores, show the products to a shopper and place an order for the shopper.

It’s definitely a challenge making sure you are meeting the expectations of all of your customers, whether they are sitting in their bedroom shopping online or walking into the store shopping the shelves.
Kent Hedtke, vice president of online sales

Devlyn Optical has plenty of company among merchants attempting to find ways to better manage their inventory across digital and physical channels. After all, as sales shift online, store-based merchants could, in theory, use their stores as warehouses to fulfill online orders reducing shipping costs and time. But achieving a successful store fulfillment operation is not easy. In fact only 56 retailers in Internet Retailer’s Top 1000 had ship from store capabilities in 2017, according to Internet Retailer’s Top500Guide.com. Retailers need the technology, a combined list of inventory, a physical footprint that supports online orders and employee buy-in to execute this strategy. Some retailers are using technology that easily integrates with their e-commerce platform while others are seeking new vendors to bring their inventory management system into an omnichannel world.

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Half Price Books, for example, has different inventory in every store, as about 75% of its merchandise consists of products it purchases from consumers and then resells in that store or to online shoppers, says Kent Hedtke, the retailer’s vice president of online sales.

At any given time Half Price Books has up to 5 million SKUs. And, because the retailer can’t control what books its sellers will offer, it may only have one unit of a SKU. But that doesn’t prevent Half Price Books from listing the product online. “The more inventory you have the more of a chance you have to sell,” Hedtke says.

In addition to its direct-to-consumer website HPB.com, the retailer also sells on a number of online marketplaces, including those operated by Amazon.com Inc., Alibris Inc., eBay Inc. and AbeBooks.com, an Amazon subsidiary.

The retailer’s approach requires its employees to play a key role in its ability to fulfill orders. For instance, when the retailer buys a book from a consumer that it plans to resell, the employee scans the book into its Monsoon Inc. inventory management system, which monitors inventory across its website, marketplaces and stores. The book is then simultaneously placed on a store’s shelf and listed online for sale. Half Price Books has three warehouses; however, more than half of its e-commerce sales are fulfilled from stores, Hedtke says. This effectively means the retailer’s 120 stores also operate as warehouses that receive and distribute inventory, making the retailer’s inventory complicated to manage, Hedtke says.

While the retailer has real-time inventory—as do 449 other retailers in the Top 1000—the capability is only as good as the speed of the employee picking the product. Consider, for example, a situation in which a shopper buys a book from HPB.com at 11 a.m. and the Dallas store nearest to that shopper is tapped to fulfill it. At 11:15 a.m. a shopper goes into the Dallas store and buys the same book. At 11:30 a.m. the Dallas store employee goes to the shelf to fulfill the e-commerce order and the book is gone. In that scenario, the retailer’s system will look up the next nearest store to the shopper to fulfill the order. If the store sold the retailer’s last book, the retailer cancels the online order. Luckily this doesn’t happen often, Hedtke says. He estimates that 5% of online orders encounter a fulfillment complication and roughly half the time the problem is solved with another store fulfilling the order (and half the time it has to cancel the order), Hedtke says.

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“It’s definitely a challenge making sure you are meeting the expectations of all of your customers, whether they are sitting in their bedroom shopping online or walking into the store shopping the shelves,” Hedtke says.

Offering ship-from-store fulfillment is worth the hassle, Hedtke says. “Sometimes you might have a really great textbook that’s worth $200 bucks online,” he says. “We want to sell it but it might be so obscure that nobody in Orland Park, Illinois, may want it, so we throw it out to millions of people online, and it’s going to be super desirable.”

At stores, employees typically pull online orders off the shelves for shipping about three or four times a day and more frequently during its busy season around the back-to-school months in August, September and January, Hedtke says.

Because our stores are the fastest and most efficient fulfillment method, they’ll continue to be our preferred shipping point in the long run.
John Mulligan, Target’s chief operating officer

While this works for Half Price Books, many retailers may not be able to pass the extra task of finding store inventory for online orders onto employees, says Sucharita Kodali, a Forrester Research Inc. analyst. “You often need to have designated pickers for these online orders which is an additional expense—few retailers are able to use existing store labor for ship from store,” she says.

Moreover, not every retailer is set up like Half Price Books, and uses its store’s sales floor to showcase nearly every product. Mass merchant retail chain Target Corp., for example, last year tested a store model that has less inventory in the back of the store to make more room for fulfilling online orders. The retailer is using the new backroom design in 150 stores and reengineering the operation in more than 1,000 others.

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While this takes a capital investment to get the stores set up to do it, in the longer run it will lower the total cost of digital fulfillment, says John Mulligan, Target’s chief operating officer.

“We hear a lot about optimizing picking and packing, which can help make fulfilling an online order more efficient,” Mulligan says. “But step back and look at the total cost of fulfillment. There are fixed and variable costs required to run and staff the fulfillment center, but no question shipping is by far the largest chunk.”

Target stores fulfilled more than half of online orders in 2017 and that bumped up to 70% of orders during the holiday season in November and December, Target says. “Because our stores are the fastest and most efficient fulfillment method, they’ll continue to be our preferred shipping point in the long run,” Mulligan says.

Employees are also key in the new inventory management system at Devlyn Optical, Devlyn says. Devlyn Optical’s associates can be the first promoters of DevlynOptical.com since they are working with shoppers who are trying on glasses. The retailer says it is still undergoing a learning process “to break the fear” of losing sales. Employees earn a commission based on the number of sales attributed to them and some associates fear going online will cause them to lose the commission—even though orders placed on an employee’s tablet generates a commission.

Despite those issues, the process appears to be working. It took about six months for Devlyn Optical to unify its inventory and enable online ordering through stores. Omnichannel sales grew from “almost nothing” to 3-4% of revenue in 2017, and the retailer expects this to reach 6-7% of sales by the end of 2018.

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Devlyn Optical considers an “omnichannel sale” one that starts in the store and the store associate places the order to ship to the customer or to the store. It also considers an order placed online by a customer who received an eye exam at a store an omnichannel sale.

Devlyn Optical also relies on its employees for the checks and balances it has in place to ensure store inventory remains accurate. District managers visit stores quarterly to check the store inventory against the digital system, and managers are asked to check a random assortment of 10 SKUs each week.

Jeans retailer G-Star Raw takes a different, more technology-focused approach to inventory accuracy. Each pair of jeans has an RFID tag within the normal store tag. The retailer has a sensor box mounted on the wall that uses Intel technology to sense the number of products. The store deployed RFID vendor Riot Insight LLC software in April 2017 to interpret the data and understand the number of products both on the sales floor and in the back room.

The technology allows G-Star to know when one of its 300 stores can fulfill an online order, or if its European warehouse or U.S. warehouse should fulfill the order, says Patriek den Haan, the retailer’s information technology project manager. The retailer previously had a unified inventory management system, however, it was not always accurate. Now the enterprise resource planning software is updated regularly based on the RFID data.

The tags prevent the retailer from having to cancel orders because it doesn’t have enough inventory in stock or delay orders because a faraway warehouse has to fulfill the order. RFID helps retailers get a handle on what inventory is in stores and help retailers “pick to the last unit,” which helps expose more store inventory online, Forrester’s Kodali says.

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That’s true for G-Star since many of its products tend to go out of stock in the warehouse during a high sales season, which increases the importance that its store inventory levels are accurate.

On average, G-Star has 15 of the sensor boxes per store, but that varies depending on the size of the store. For example, its flagship store has 39 boxes, but its next biggest store has 29 boxes, den Haan says. The RFID readers are currently in 20 stores, and the retailer plans to install them in 17 more stores by the end of May.

Within a week of installing the technology in a store, the store accuracy improves to 98-99%, says den Haan. Previously, its flagship store was at 75% accuracy while other stores averaged around 94% accuracy.

Mass-merchant retail chain Meijer has both in-house technology and also uses outside grocery delivery service Shipt to fulfill online orders. Meijer has two ways shoppers can order groceries online: via its Meijer Curbside pickup program, which Meijer is testing in a handful stores, or via its Meijer Home Delivery program with Shipt, which is in about 90%, or more than 200, of its 230 stores.

The retailer made more than 1 million home deliveries in 2017 and the two programs are driving incremental sales, says Justin Sessink, Meijer’s manager, program development, digital shopping, e-commerce.

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“It’s been great,” he says. “Our Curbside and Home Delivery programs combined give customers more ways to shop Meijer.”

Depending on the avenue in which the shopper makes the online sale, either a Shipt employee or a Meijer employee will shop the store to gather the merchandise for a shopper. Meijer shares its inventory with Shipt and store’s floorplan, down to the shelf, so the worker can efficiently shop the store, Sessink says. Meijer also increased its staff in stores that do the Curbside program, he says, without revealing specifics.

Like Half Price Books, however, Meijer had its own set of challenges using the store to fulfill an online order. Meijer’s stores are large, an average store is between 150,000-190,000 square feet, which can hinder efficiency. For example, if an online shopper buys a lot of groceries, and then a random general merchandise product or a health and beauty product, that would require the shopper to walk to a far-away part of the store, which takes time.

To improve efficacy, Meijer now has one employee each morning gather all the merchandise from all of the online orders placed the previous day and stage them in the back room. Then, when an employee is gathering the groceries, he will head to the back room, and add the pre-picked item that he needs to the shopper’s order. One person shopping all around the store once, versus multiple employees doing it several times saves a lot of overall steps and speed, Sessink says.

Plus, like Target has found, Meijer’s store backroom is not set up in the most optimal means to fulfill online orders. For example, storing the curbside orders is a challenge. The store has to ensure it has enough space in its backroom to store the items, and make sure that there is both dry, refrigerator and freezer storage, and that the shopper shows up in her designated two-hour window.

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While shipping-from-store has its challenges of managing inventory and figuring out the proper operations, it can be efficient for retailers in the long run, Kodali says.

“Companies that do it well can reduce shipping costs and get items to customers faster,” she says.

Retailers have yet to find the magic puzzle piece that seamlessly merges online and store operations when it comes to inventory management and order fulfillment. Technology helps smooth the complexities of ship-from-store operations, but hurdles such as employee training and store layout still challenge retailers.

april@verticalwebmedia.com

@AprilBertheneIR

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