Retailers are taking drastic measures to compete with Amazon. One strategic initiative, known as Ship from Store, turns store locations into mini distribution centers. Historically, online or catalog orders would be filled through warehouses or distribution centers hundreds of miles from a consumer’s home. Now, companies like Walmart, Best Buy, Gap and Macys are routing orders through stores nearer to the ordering customer’s home. When a store receives an order, a store employee picks up the product, boxes it, and ships out via a third party logistics provider like UPS or FedEx, who then deliver the package to the customer’s home nearby. Ship from Store creates shorter delivery routes, thus yielding faster delivery speeds.
Amazon has become a behemoth in the retail marketplace because it has no stores with overhead costs, high market share, huge selection, and lower prices than many competitors. Analysts suggest that Amazon has beaten retailers on price and selection; but savvy retailers are working hard not to be beat on location. Walmart started implementing Ship from Store over two years ago and has enjoyed tremendous success in the first 35 locations. It plans to grow Ship from Store to hundreds of stores over the next few years. Currently 10% of online purchases from Walmart.com are shipped from stores, and those packages are delivered within two days. In addition, the shipping costs on those products are lower because the delivery routes are shorter.
Best Buy, recently labeled a Big Box Zombie by Bloomberg Businessweek, is hinging part of its turnaround strategy on Ship from Store. Best Buy gets over 1 billion visits a year, yet in 2-4% of those visits, customers cannot buy products online because they are out of stock. However, more often than not, those requested products are available in stores. According to Best Buy executives, shipping online orders from stores could generate over $168 million in profit in the next year.
The Gap considers its network of stores, including Gap, Banana Republic, and Old Navy to be distribution centers and says that its 2,600 distribution centers (stores) will be more nimble than Amazon’s 100 fulfillment centers.
Nordstrom has been incorporating Ship from Stores since 2009 and credits the initiative with its ability to offer new fashions quicker while also maintaining higher margins.
Another benefit of Ship from Stores involves reduced markdowns. When a store has an abundance of unsold products, online orders can be transferred to those stores to reduce the inventory.
Same day delivery is also being offered through mall operators in an effort to compete with Amazon. General Growth Properties is the second largest mall operator in the United States. In order to create an omni-channel experience for customers, it will begin offering same-day delivery of both online and in-store purchases from four of its properties in San Francisco, San Jose, Los Angeles, and Chicago. Customers can purchase online from participating retailers and have the purchases delivered the same day. In addition, shoppers at the mall can purchase items from the store and then have them shipped to their homes the same day. This effort is to attract customers who take public transportation and don’t want to haul their bags home.
Amazon continues to grow though, offering free two-day delivery for Prime members and testing same-day delivery with Amazon Fresh.
For years, retailers have built distribution centers to fulfill catalog and online orders. Now some are starting to fill orders from stores. What are the relative advantages and disadvantages of each approach?
SOURCES: Tom Ryan, “Will Same-Day Delivery Save the Mall?,” Retail Wire, September 3, 2013; Alistair Barr, “Retailers find a balance with ship-from-store option,” USA Today, September 30, 2013