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Retail

Ship from store: A smart competitive strategy for retailers

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Turning stores into virtual warehouses pleases customers and boosts your business's revenue.

Today's hottest retail trend has nothing to do with Paris runways, the rise and fall of hemlines, or figuring out what color is the new black. It's "ship from store" in which brick-and-mortar retailers fulfill online orders not from distribution centers miles away from customers, but from stores nearby.

This strategy can capture sales that might have been lost otherwise.

The strategy captures sales that might have been lost otherwise. The consulting firm Kurt Salmon reports that fulfilling web orders from store inventory when the warehouse is out of stock improves revenue 10 to 20 percent, and that Nordstrom increased online sales revenue 39 percent by integrating online and in-store inventories. Men's Wearhouse estimates it prevents more than 1,000 lost orders per day by leveraging inventory from other stores, according to Kurt Salmon data.

David Sisco, UPS retail segment marketing director, shares these additional benefits for retailers who adopt the ship-from-store approach:

  • Faster shipping to the customer, at lower cost. Putting inventory closer to customers gets products in their hands faster, allowing for single-zone ground delivery, which reduces transportation cost. "Retailers have the flexibility to offer free shipping when an item can be fulfilled from a local store," he says.
  • Reduced markdowns. Improved visibility into excess inventory across all stores can preserve margins and avoid costly markdowns. "If you have an order for boots from Maine, and a store in Florida has too many in stock, you can sell at full price and ship from the Florida store, because taking a hit on the transportation cost is better than a 40 percent markdown."
  • Improved asset utilization. Using a ship-from-store strategy increases inventory turnover and helps retailers maintain less inventory overall, Sisco says. "In addition, growth-oriented retailers can avoid investing capital in additional distribution centers by leveraging existing retail stores and turning them into virtual distribution centers."

Where to start

These benefits are compelling reasons for why many retailers are eager to adopt the ship-from-store model. But there are significant challenges, as Sisco explains:

  • Inventory visibility. Systemwide inventory visibility is an essential ingredient. "The first step is to understand your current inventory control system and the degree of visibility it gives you," Sisco says. "If you don't have it across all your stores, do you at least have a high confidence level across a subset of them?"
  • Store capability. Choosing the right stores in your network is equally critical. "The rule of thumb is to focus on flagship stores that are larger and have both the backroom space and the depth of inventory necessary to avoid stock outs," Sisco says. "Make sure they have the technology in place to have orders pushed to them for fulfillment, and can get product to the customer in a timely way."
  • Training issues. Getting stores up to speed in fulfillment takes time and training. You need an approach to pick, pack and ship that is simple and easy to learn, especially given part-time staffing and high staff turnover rates at many retail stores. "We can train in-store personnel in the proper packing procedures, and automate processes to minimize errors," Sisco says.

"The best bet is to contact our Customer Solutions Group," Sisco says, which can be done through your Account Manager. "They'll look at a retailer's brick-and-mortar footprint, online presence and customer base, and help them optimize their network, choosing the stores that will get items to consumers quickest."

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Mitch Cohn
This is a very interesting twist on optimal inventory strategies. Instead of carrying all products in all regions, you are able to service all parties by shifting the one off orders of overstock from one region to another, and keep the customer happy, reducing the need to carry inventory at all sites for the goods and run into markdowns. Nice approach!
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