Stores as Distribution Centers: How Retailers Can Take Advantage of Their Existing Infrastructure

Today’s retail landscape has been drastically reshaped by the emergence of Amazon and other online retail giants. The success of these companies, and their ubiquity in the market, is so great that it has shifted customer expectations when it comes to how, when, and why people shop.

While this shift in shopping behavior has been great for online retailers, adjusting to the new reality has been a challenge for traditional retailers who operate predominantly out of their physical, brick-and-mortar stores. This is especially true for retailers who have not yet integrated ecommerce into their overall fulfillment process, who find themselves bleeding sales and losing customers while struggling to keep up with expensive overhead.

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But these brick-and-mortar stores don’t need to be an expensive liability. In fact, for retailers operating primarily out of physical locations who are considering scaling their ecommerce operation, it is possible to convert these stores from liability to asset by leveraging them as distribution centers to drive down costs while increasing customer choice.

Below, we discuss two ways that retailers can use their stores as distribution centers, as well as some of the most important considerations that must be kept in mind when pursuing this strategy.

How Retailers Can Leverage Stores As Distribution Centers

If you are thinking about leveraging your stores as distribution nodes or distribution centers to fulfill your ecommerce orders, there are a number of paths that you can take. Depending on your operation, this might include:

1. Using your stores as distribution nodes

For retailers with an extensive footprint of existing brick-and-mortar stores, using stores as distribution nodes can bring a number of benefits to both the business and the customer.

Instead of fulfilling an order from a centralized or regional warehouse, this strategy will allow you to treat your individual stores as though they are miniature warehouses, which allows you to ship from whichever store is closest to your customer. This leads to lower freight costs, less wasted inventory, increased margins for you, and a shorter delivery time for customers when compared to more centralized shipping.

2. Encouraging your customers to buy online, pick-up in store

Like shipping orders from your physical retail locations, incorporating buy online, pick-up in store as a piece of your order fulfillment puzzle has the potential to drive a lot of benefit for your business.

This model allows retailers to capture customers who prefer to shop online, but who want more flexibility in how they receive their product, helping to keep the customer happy and loyal and likely to come back for future business. But it also has the potential to drastically reduce shipping costs for the retailer, as it essentially makes the customer responsible for last-mile fulfillment. And of course, getting the customer into the store allows one additional opportunity to upsell or cross-sell additional merchandise, driving up the value of each order.

Key Concerns for Retailers

Though there is great potential for retailers to benefit from using their stores as distribution centers, there are certain concerns that should be kept in mind. The most important of these include:

• The impact on your freight charges: Last-mile delivery has the potential to be expensive without contracts for bulk-shipments, so it is important for retailers to work out the specifics to determine what true savings will be realized from shipping.
• The need for accurate inventory visibility throughout all channels: One of the primary challenges of omni-channel order fulfillment is the fact that it can be difficult to have a full picture of what inventory is where throughout all channels. But having a clear and accurate understanding of your inventory is incredibly important to the success of the operation; without it, you will not be able to efficiently route orders, etc
• The potential for infrastructure investment: Most retail stores were not built with order fulfillment in mind, and therefore may not have the infrastructure in place to support such a strategy. This means that a retailer may need to invest in additional racking and other equipment in each store in order to facilitate fulfillment.
• The cost of pickers: In a warehouse or DC, there are ample opportunities to reduce your labor costs by embracing automation, especially for tasks related to order picking. Unfortunately, there are fewer opportunities for automation on the relatively small scale that is the back room of a store. This means that, though shipping costs may decrease, it is very possible for labor costs to rise. Whether or not this will prove cost-effective is something that each retailer must determine on a case by case basis.
• The importance of store experience: If you decide to embrace omni-channel fulfillment by using your stores to fulfill orders, it is important that doing so does not negatively impact your store experience. If workers are unable to keep up with the demand and stores begin to get messy, unorganized, or otherwise offer an unpleasant shopping experience, customers will be quick to notice and quick to look elsewhere for a better experience.

The Bottom Line

Whether achieved by using stores as distribution nodes or encouraging customers to buy online, pick-up in store, there is a lot of potential benefit for retailers seeking to use their brick-and-mortar stores to fulfill ecommerce orders. But there are also a number of considerations and potential drawbacks which must be kept in mind. A trusted systems integrator can help you determine which strategy, if any, makes the most sense for your operation and business goals.