While the wild surge in e-commerce sales has finally subsided, there is no denying that several years of pandemic-induced shifts in consumer behavior will have a lasting impact on the retail landscape.
One of the most significant â and arguably longest lasting â impacts we will see will be in the realm of fulfillment operations. In recent years, there has been a proliferation of means by which consumers can obtain their purchased goods. The options are too many to list â from curb and couriers to lockers and drones, we’ve seen huge innovations and iterations in what the last mile of retail really looks like.
In almost all of these cases, the need for speed is imperative. And with that comes the need to keep inventory closer to the source of demand.
The result? The rise of the “store as warehouse”.
Transforming a sales space into a storage space â Is it profitable?
When the topic of using stores as mini-warehouses comes up, you’re bound to have a handful of naysayers who will proclaim “it can’t be profitable” or “where’s the business case?”
On the surface, their concerns make a lot of sense. Traditionally, retail stores have been located in higher rent neighborhoods than warehouses. And when you start reallocating selling space from the store to inventory holding space, traditional measures of retail store performance go out the window.
But isn’t it time to rethink how we measure retail?
In this unified commerce world we live in, retailers need to be very holistic about how they view retail space to identify its most profitable use. To fully understand the value of the store as a warehouse, retailers need to look at both the cost of fulfillment and the speed factor.
For example, while a traditional warehouse will provide the most efficient place to prepare and pack shipments, profitability will disappear if the retailer is forced to pay for expedited shipping to deliver that product within the buyer’s expected delivery time. .
And let’s not forget the cost of lost sales if a retailer can’t ship potential customers within the required delivery window because that inventory is positioned too far away.
Alternatively, if retailers are able to source from stores when needed, they can avoid having to cross areas when shipping. This allows them to save on shipping costs and deliver faster, which can offset the cost associated with storing inventory at an outlet.
But not all outlets are created equal when it comes to execution.
Dark Stores and Gray Stores – Oh My!
As demand for warehouse space has outpaced supply and retailers seek to gain speed and cut costs by positioning inventory closer to shoppers, dark stores and gray stores are popping up everywhere in commerce. Retail.
Dark Stores are locations close to a large concentration of customers and provide a store-sized level of inventory for order fulfillment, with no customers allowed inside.
Gray stores, on the other hand, are locations that balance customer attraction and provide logistical efficiency for fulfilling shipments from the store. While gray stores are more typical in Europe, we’re seeing an increasing number of US retailers looking at the model. With gray stores, the storefront can serve the assortment of a typical store â or it can serve as a showroom, which is becoming increasingly popular.
The decision to add dark or gray stores in the commercial offer is not to be taken lightly. The right approach will vary greatly depending on each retailer and various factors such as the location of their existing stores, customers and warehouses, the footprint of their stores (large or small format) and staffing considerations.
But first, optimize your inventory strategies
Before a retailer embarks on a transformation project to use stores for fulfillment business, it should be noted that none of this is possible (or profitable) as long as a pool of inventory company-wide is not established.
Retailers must first determine how best to position inventory across their network and how to maintain those positions over time, even when seasonality and peaks come and go.
There’s a lot of money to be made, costs to be saved, and customer satisfaction to be gained when retailers look at inventory holistically. With the help of stores as warehouses, retailers can be in a more optimal position to match available inventory to demand, regardless of the channel in which that demand is captured.