Apparel brand Pacific Sunwear of California Inc., better known as PacSun, was planning to launch ship-from-store in May 2020. Then COVID-19 hit the U.S. in March 2020 and the retailer knew it needed to accelerate its plan.
“We got the team together and I said, ‘We’re going to roll out ship-from-store and we’re going to go live in a week,’” co-CEO Michael Relich told Digital Commerce 360 at the Manhattan Associates Inc. Momentum 2023 conference in May in Phoenix.
PacSun’s two week ship-from-store roll out
PacSun was already in the process of implementing Manhattan Associate Inc’s. Active Omni order management software in the PacSun brand and with its other apparel brand, Eddie Bauer. But it was still months from fully rolling it out.
The merchant trained its employees over the video conference platform Zoom, piloted the program at 50 stores, and went live across PacSun’s 315 and Eddie Bauer’s 200 stores in two weeks — still in March 2020, Relich said. PacSun sold Eddie Bauer to SPARC Group in May 2021.
Despite pandemic restrictions closing malls, PacSun sent a store manager to pack online orders to its mall-based stores to meet social distancing rules. In markets with multiple stores, the employee would go to one store in the morning to pack orders allocated toward that store, and the next store in the afternoon.
The next hurdle was getting its shipping carrier FedEx Inc. to pick up its packages. In many markets, the carrier no longer made stops at the closed malls. And so, store managers packed up garbage bags full of ecommerce orders in their cars to drop off at their local FedEx, Relich said.
Despite the scrappiness, the system worked. PacSun and Eddie Bauer stores fulfilled roughly 40,000 orders a day at the peak of stay-at-home orders in Q1 and Q2 of 2020, Relich said.
“I would not be exaggerating to say it saved the company,” he said.
With ecommerce volume spiking — Digital Commerce 360 estimates PacSun’s online sales grew 46% in 2020 compared with 2019 – the closed stores went from fulfilling no orders to roughly 80% of all its orders during the peak of the pandemic, Relich said. However, this varied based on staffing levels at the warehouse.
Distribution center employees
Even though PacSun feared regulations would force its one distribution center to close, it remained open. The real struggle, however, was finding employees willing to come in. The picking, packing and shipping process often meant employees working close together, which didn’t align with pandemic protocols.
Besides fulfilling ecommerce orders, warehouse employees receive goods, process returns, put away goods and warehouse maintenance. Staffing should have been around 450 employees at the warehouse, but PacSun would have been lucky to have had 150 employees to show up, Relich said. Plus, if an employee got COVID-19, that would take out about half the department as many employees would have been exposed to the virus, he said.
Because of this, PacSun shipped the majority of its orders from its stores. When PacSun’s stores reopened that summer, most of them were cleared of merchandise and ready to receive and sell the new season’s merchandise. Because its stores did not need to clearance nonmoving inventory to make room for new styles, the brand drove some of the highest margins in company history, Relich said.
PacSun fine tunes the Manhattan order management system
Even though the new Manhattan Active Omni system was working well during an unprecedented time, PacSun knew it could unlock more of the features than just the basic ones.
“I’ve used other order management systems, but [the Manhattan] order management system is extremely sophisticated. But with sophistication comes complexity,” Relich said. “While we made it work, we started looking at shipping costs. And during the time, we really didn’t care, just get it out.”
The retailer targeted reducing its split shipment rates, which is when an ecommerce order with more than one product ships in multiple packages. With shipping orders from stores, split shipments were higher than normal as store inventory is often inaccurate. Relich cites average industry data he’s seen through his tenure as store inventory being 70% accurate and average omnichannel retailers shipping 1.5 packages per every order.
With PacSun having an average order of 2.1 units per transactions and stores fulfilling many orders, its split shipments were high, he said without revealing the rate. Fulfillment vendor Narvar Inc. reports that 21% of orders from an online retailer arrive in more than one shipment, according to data from collected October-December 2021.
Split shipments are not only a bad experience for the shopper, who wants to receive her order all at once. But this also costs the merchant.
“Parcel rates have almost doubled in the past two years, so split shipments end up costing you quite a bit,” Relich said.
Reduced split shipments would also help its brand when it comes to sustainability, Relich said.
“Nothing bothers me more than to see two boxes of corrugate, and I’m looking at that waste, and then I think they were on a truck, and how much carbon was emitted,” he said.
Reducing split shipment with loads of data
PacSun started working with demand forecasting vendor Antuit.ai. Retail hardware vendor Zebra Technologies Corp. owns Antuit.ai. Antuit gave the vendor its online sales data by ZIP code and sales demand and sell-through at stores in that area. This helped look at the stores like mini fulfillment centers. It also helped determine how much additional inventory the brand should allocate to stores.
This way, if the order management system selects a store to fill an order, the store should have all the available inventory to fulfill the entire ecommerce order and still have ample merchandise for its in-store shoppers.
“The last thing we want to do is to have a top come in, and then we ship it out for next-day ecommerce, and then a customer comes (into the store) and it’s not there,” Relich said.
“If I don’t account for ship-from store, then basically what’s happening is, I’m robbing the store,” Relich added.
Using the demand forecasting data helped reduce PacSun’s split shipment rate by about 20%-25%, Relich said, without sharing what its rate is.
Having the order management system factor in hidden costs
PacSun tapped into some of Active Omni’s sophisticated rules in July 2020 to help determine the best stores to ship from. What’s unique about this software, unlike others Relich has seen, is the retailer can input store activity into the rules.
For example, if there are two nearby stores to a customer and one has 30 units of a pair of jeans and another store has 10 units, most order management systems allocate the order to the store with the 30 units. The new platform, however, can look a layer deeper and see what the sell-through rate of that product is at that store. For example, PacSun found in some busy stores, 30 units may only be a two-week supply. But for the store with 10 units, that may be an eight-week supply. The system then factors this in and could allocate the order to the store with the 10 units.
PacSun can also input other costs into the system, such as labor costs. For example, PacSun can say the incremental cost of having store labor pick and pack an order is $1 more than a warehouse order picking and packing that order. If that’s factored in, even if the warehouse is farther away from the shopper than the store and the shipping rate from the warehouse is technically more than shipping from the store, the system may select the warehouse to fulfill the order if the true cost of the order is lower when factoring in the labor.
“It wasn’t like, ‘Let’s do it and we’re done.’ This was continuous improvement,” Relich said about refining PacSun’s order system.
The ideal ship-from-store rate
While ship-from-store surged during the pandemic, now, the average is about 20%-25% of online orders ship from store.
Amy Tennent, senior director of product development at Manhattan Associates, said there is no ideal ship-from-store rate. It all depends on what the retailer’s fulfillment goals are.
Relich said around 20% is a good rate for PacSun. If it’s higher, PacSun has to consider if it is shipping product from a store that could sell it from normal foot traffic.
In addition, if a store has too many orders to ship, PacSun may have to hire additional store employees. Currently, nearly all of its stores handle ship-from-store orders during the lull throughout the day, he says.
“A lot of this, we don’t add extra labor. It gets absorbed,” Relich said. “But if the level gets too high, we’d have to add incremental labor. And if we have to add incremental labor, we’re better off doing it in the distribution center.”
PacSun is No. 239 in the 2023 Digital Commerce 360 Top 1000.
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