Best Buy has converted many of its stores to a combination of retail and warehouse space. This allows them to make quick deliveries to customers. The other day they delivered a toaster in three hours to my house.
I had a chat with Steve Ross, Global Head of Pervasive Solutions at Aptos, who brings 25 years of industry experience serving big-box and specialty retailers. He told me how several companies have converted retail spaces into warehouses. He cited Under Armour, Ulta Beauty, Target and Kroger as examples of retailers that have reallocated some store space to make way for a variety of fast-paced omnichannel service options in recent years.
Take the upsurge in curbside collection caused by the pandemic.
“There are two worlds of commerce. There are the big-box retailers, which benefit from the autonomy of operating at a larger scale of last-mile fulfillment – big-box retailers like Target have dedicated teams to handle curbside pickup operations only. Street. In contrast, much of the specialty retail trade faces operational and real estate constraints and must rely on the mall for operational assistance in many cases. »
“At Aptos, we recently conducted an assessment of the number of our own customers.” said Steve Ross. “What we’ve seen is that curbside retail accounts for 2-3% of average demand (higher averages are seen for big box stores than for specialty retail). In contrast (except in grocery retail, where curbside is king), we find that almost 25-30% of sales come out the back of the store, as shipping from the store to retailers. where the money is, for specialty retailers and department stores. The future for specialty retailers, in particular, is shipping from the store, not the curb.”
If the store is located in a strip mall or if it’s a stand-alone store, Ross explained, it’s easy to see that merchandise can be picked up curbside. However, the mall environment makes it difficult to enforce optimal curbside pickup (for in-store pickup, however, it’s great).
Expanded warehouse space helps stores fill orders without removing desired merchandise from the sales floor, no matter what type of fulfillment service is right for you (such as curbside, in-store pickup, or lorry). shipping from the store).
Ross went on to say, “But, be warned. Adding racks to the back of the store will not turn a store into a mini distribution center. You need to plan for additional inventory, manage replenishment, and manage labor to manage these operations because the store acts as a DC in the back. As e-commerce sales have doubled during the pandemic, serving the walk-in shopper and e-commerce has become an in-store imperative. As these changes unfold, the retailer must assess the overall profitability of these adjusted operations in some repurposed stores, moving from distribution centers to additional in-store support. This change is inherently less profitable. But it’s a necessary evil: the client wants her things now. So what? This is where stores are uniquely positioned to facilitate this last-mile journey: curbside, in-store pickup and ship-from-store are the answers – and now it’s about optimizing those operations by store, removing any band-aid approach applied during the pandemic.
Ross went over with me the anatomy of the store real estate changes being made to accommodate this new sales/service model. In many cases, the front of an urban store could still be a typical retail space, but the back has been partitioned off to allow for curbside pickup/trade or home delivery.
Curbside pickup, in some locations, has a long shelf life for some retail sectors (e.g. grocery). In contrast, for some retail verticals (as mentioned above, malls), sidewalk has no long-term sustainable commercial application; “The retail space is often optimized to help the walk-in customer. Now, stores have to serve walk-in customers, drive-in (curbside) customers, and customers shipped from the store,” Ross said.
The counterpoint to all of these in-store fulfillment options is Macy’s recent move to build a massive 1.4 million square foot fulfillment center in China Grove, North Carolina. It is expected to open in 2024 to meet the growing demands of the omnichannel industry. It will have direct-to-consumer fulfillment capabilities and employ nearly 2,800 workers. Dennis Mullahy, Macy’s chief supply chain officer, said it “will support Macy’s business growth as a leading omnichannel retailer.” The China Grove distribution center will represent approximately 30% of Macy’s digital supply chain capacity. It’s likely other department stores will follow Macy’s lead.
Macy’s has already invested to expand the capacity of its Houston, TX distribution center by moving to a modern facility in Tomball, TX that will be nearly 1 million square feet. The processing center will be completed by 2023 and will provide online processing for bedding, furniture and toys. Additionally, Macy’s has invested in automated technology in existing fulfillment centers in Portland, TN and Martinsburg, WV.
“The other challenge for retailers is to stay in stock regardless of channel,” Ross pointed out. Store management must constantly strive to maintain a profitable selection that juggles to meet the demand for buy-it-now in-store and ship-from-store items demanded by local e-commerce shoppers (for same-day delivery , the next day).
Originally, when the pandemic started in 2020, most executions were done from execution warehouses. “Omni-demand has doubled for Aptos customers in two years, something no retailer was prepared for,” Ross said. “The best-positioned retailers were those who were already thinking about omnichannel before the pandemic. There just isn’t enough warehouse space to meet this new demand. That’s where stores come in. game, making the retail store relevant in a way it hasn’t been in years.
POST SCRIPTUM : Aptos is one of the largest technology providers, exclusively focused on retail. I’m told it has the end-to-end solutions needed to meet the changing fulfillment needs of retailers and unified commerce transformations, taking into account online and in-store requirements and managing demand by store to help retailers make better decisions. In today’s post-pandemic world, where consumers now expect more diverse buying and fulfillment options, it’s imperative that every retailer rethink how they productively (and profitably) use all of their physical spaces to serve its customers. These plans will vary widely. We see Macy’s heavy investments show that department store companies need more space to technologically ship goods to the customer. I also expect other retailers to invest more in expanding warehouse capacity in one way or another. In any case, it’s the speed that counts.