Director, Silicon Valley
US core retail sales edged up 1.3% in January after a downwardly revised 2% dip in December 20181. January's gains reflected the biggest jump for building materials since late 2017 at 3.3%, the best rise for food and beverage stores since early 2016 at 1.1%, and the strongest gain for sporting goods and hobby stores since 2013 at 4.8%. Stores that sell clothing and home furnishings were the anomaly, recording -1.3% and -1.2%, respectively. Meanwhile, online and mail-order retail sales rebounded 2.6%, their highest rise in more than a year.
As ecommerce sales go up, one thing is clear: the omnichannel ocean of online shopping has all but eliminated retail's one-directional path to purchase. Today's consumer wants a fast and seamless experience, and to facilitate that, legacy retailers over the last few years have been making investments in expanding their array of fulfillment options. Buy online, pick up in store; buy online, return in store; buy online, ship to store; ship from store; etc. are omnichannel buzzwords that retailers have deemed essential to creating a favorable customer experience in the Amazon era.
These investments in stores and in building out new fulfillment channels have become necessary as legacy retailers try to bridge the gap between online and offline and keep up with digital-native competitors.
Amazon has indeed changed consumer behavior, with fast fulfillment for free becoming a rule rather than exception. In our 2017 home delivery survey, 96% of customers said free shipping impacted their purchase decisions2. And the amount of time consumers are willing to wait to receive their merchandise after placing an order has steadily declined over the years. (see Figure 1)
In this scenario, retailers must understand and deliver exactly what their specific customer needs. A key piece of the customer satisfaction puzzle is being smart about utilizing assets legacy retailers already own. Traditional retail has spent its entire lifetime until recently calibrating stores to make them more efficient for customers to shop at – they are not designed for fulfillment. For this reason, most retailers do not prioritize the process or associated payroll of, as one example, picking and packing ship-from-store orders. This is a big mistake, as efficiency in store-based fulfillment can speed up delivery times considerably. On the flip side, incorrectly picked orders prompt a higher rate of return, leading to increased costs and dissatisfied customers.
Retailers such as Target are leading the way by investing in backroom processes that address this neglect. The retailer is overhauling backroom operations in 1,400 stores that ship online orders. Target reportedly fulfilled 75% of its online orders in stores in the 2018 holiday season, with vast reliance on orders picked up in store. Perhaps not coincidentally, the retailer reported its strongest year-over-year same-store sales numbers in over a decade in 2018.
Here are some recommendations to improve the pick-and-pack process:
Retailers need to make stores a key part of the overall ecosystem of their business and the central hub of all interactions with the consumer. Another way to do so is to create enhanced in-store experiences such as Lululemon's yoga classes and Restoration Hardware's interior design program or services like the Apple Genius bar, which encourage customers to come back to the store to shop, since in-store purchases tend to lead to the highest margins.
According to an eMarketer report, global ecommerce sales may rise to $3.9 trillion by 2020. With it, fluidity in the way consumers engage in buying will only continue to flourish. Taking an analytical look at store operations and making smart investments can be the difference between sinking and swimming.