by Hunter Reynolds, with Pat Nolan | 08/02/2018

VDC estimates that E-commerce accounted for 10.6% of all global retail sales at the start of 2018 and will grow to 17.6% by 2021 (source: VDC’s 2018 report titled Foundational Layout and Requirements of Enabling Omni-channel Retail Initiatives).  To capitalize on the growing E-commerce opportunity, many retailers have recently re-worked their logistics programs to better service online customers. Ship-from-store capabilities are becoming increasingly popular in the industry – they allow online orders to be fulfilled from the inventory of nearby stores in the event that the product is out of stock in the warehouse(s) that handle(s) most online orders. By enabling ship-from-store capabilities, retailers hope to raise revenues by reducing the number of online sales lost due to out-of-stock products. The Spanish fashion company Zara is the most recent retailer to announce a ship-from-store program: it will be rolled out in 48 countries (including the United States) and to a total of about 2,000 stores. In Spain, where the program has already been tested in full, Zara’s shipping costs were negligibly increased as a result of shipping goods from stores, so profits stand to rise if greater in-stock levels reduce the number of lost online sales as hoped. Ship-from-store capabilities allow mature retailers to turn their brick and mortar stores from what are nowadays often seen as liabilities back into assets that serve double-duty as points of sale and fulfillment centers for online orders. In theory, ship-from-store programs should also improve delivery times, as ordered goods in some cases can be shipped from the nearest store instead of from a far-away warehouse.

The deployment of an effective ship-from-store program, however, is burdened by the serious technology and logistics required to accurately track in-store inventory and reconcile that with in-warehouse inventory. A lack of inventory visibility remains one of the biggest hurdles for retail organizations today; in a 2017 VDC survey, only 23.8% of retailers rated their inventory visibility as excellent, which is fundamentally the level of visibility required to operate an effective ship-from-store program. Yet 83.8% of respondents said that leveraging stores for fulfillment was extremely important or important and 81.0% of respondents also agreed that providing customers with multiple fulfillment options is rapidly becoming a cost of business in the retail sector. 39.1% of organizations in the survey cited that ship-from-store was the channel experiencing the greatest increase in transactions (more respondents chose this channel than any other). To achieve the ship-from-store capabilities that over 80% of retailers know to be important, retail organizations will need to invest in robust in-store inventory management systems and employee-handled mobile devices with scanning capabilities to give retailers more visibility into their product stock. Realistically, inventory visibility needs to be at least 95%+ to enable an effective ship-from-store program and the majority of retailers are far off from that mark.

The good with the bad
Capitalizing on E-commerce opportunities comes with a price: higher returns frequency. Tobin Moore, Chief Executive of logistics company Optoro, estimates that returns are two to three times more likely when a good is purchased online instead of in-store. Optoro also estimates that the U.S. market for customer returns is $380B annually and will grow as E-commerce sales grow. To cope with doubled or tripled return rates, retailers are finding their reverse logistics (the logistics of dealing with a returned item) in need of improvements. Some retailers have found it effective to outsource much of their reverse logistics to third parties, such as Optoro. Another third-party provider is Happy Returns, a California startup that accepts returns on behalf of retailers. Co-founders Mark Geller and David Sobie realize that ordering goods online is great, but returning goods through the mail is a pain. Their solution is to open ‘return bars’ across the country that will allow consumers to return E-commerce sourced goods from a variety of retailers to a local brick and mortar store. Optoro found that 71% of shoppers are more likely to give their repeated business to a retailer if they had a good returns experience. Consequently, improved reverse logistics capabilities like those offered by Happy Returns will help retailers cash in on that statistic.

To keep up in today’s dynamic retail landscape that is highly affected by E-commerce and emerging technologies, retail organizations need to continue to invest in solutions that provide inventory visibility and logistical efficiencies, all as part of a full o mni-channel experience. For an unparalleled deep dive into ship-from-store, reverse logistics, and all other o mni-channel initiatives in the retail industry, see VDC’s 2018 report titled Foundational Layout and Requirements of Enabling Omni-channel Retail Initiatives.