What is a Shop? The Evolution of the Retail Store
By Phil Gibbs
Remember the days when a shop was a shop? A customer entered, evaluated items, purchased what they wanted and left with said items in-tow. With the growth of ecommerce, a shops purpose is no longer as clear. A shop can now be a showroom, a collection point or mini distribution center, with many retailers questioning the role of brick and mortar stores in fulfilling customer orders.
Some retailers even have stores that don’t provide the option for customers to actually shop in the store. An easy way for a retailer to start an ecommerce operation is to build it on top of an existing store network. But picking orders from the shop floor for home delivery or customer collection can be so successful that the store is swamped, leading to a poor experience for the traditional shopper, as well as difficultly in forecasting and managing inventory. This has led to the development of dark stores, a concept that started in the UK and spread throughout Europe. While a dark store could simply be a carbon copy of a walk-in store, moving to an industrial location and excluding customers opens up the opportunity for automation. This started in food retail, with Tesco reported to have opened six dark stores between 2009 and 2013, with the latest being a 120,000 square foot operation stocking 30,000 food lines near London. This is a long way from being a corner shop!
Range expansion has long been a trend in retail, but this has become exaggerated with ecommerce. With click and collect operations, reserve stock can be moved away from the collection point, allowing a larger range to be sold through a smaller store footprint. Argos in the UK has recently implemented a hub-and-spoke operation, which enables them to stock extended product ranges in approximately 150 larger hub stores, and make them available for faster fulfillment in local markets. In October 2015 they introduced FastTrack – a market-leading proposition for same-day home delivery and store collection, and in 2015 internet sales exceeded 50 percent. In this case, the shop is acting as a delivery depot.
How should click and collect be organized? A recent survey by www.edelivery.com said that 72 percent of UK shoppers use click and collect, but the in-store experience doesn’t meet customer experience expectations. I’ve personally experienced this as the shop assistant hunts through the backroom for an item I’ve ordered that hasn’t been taken to the collection area and may now be out of stock. Maybe the customer experience would be improved by moving the collection point away from the shop, possibly to a dark store or into a third party operation, but the same source quotes research that said 65 percent of people said they make additional in-store purchases when collecting an item purchased online.
The natural extension of reducing the items stocked for direct sale to customers in store would be to remove them completely, and make the shop a showroom. This has historically been the case for big ticket items requiring two-man handling, but it is now happening in clothing and jewelry. If you go into one of the twenty Bonobos shops in the US you can’t take away your purchase as they are stored in a central warehouse for subsequent delivery. Interestingly, the average order size in Bonobos’ stores has proven to be twice that of online orders. Another aspect of this is when on-line retailers use pop-up shops to display their products and take orders for fulfillment through their established ecommerce distribution networks, building their brand while avoiding the fixed costs associated with a conventional shop footprint. Zalora is taking the pop-up approach in South East Asia to introduce customers to internet shopping.
As well as providing a strategic platform for order collections and rapid home deliveries, the store still plays an important role in the customer experience for some products. Even with big ticket items, a store presence is a good advantage, as is illustrated by former online only retailers such as Oak Furniture Land and sofa.com opening physical stores that now generate as much as 60 percent of sales. And some customers simply enjoy the shopping experience, which is being enhanced by retailers like Nike and Apple investing in high tech stores. Shopping is a social experience: it’s going to be a long time before we fulfil our own orders on a 3D printer at home!
What makes retail so fascinating for those of us in supply chain design are the complex cost and service trade-offs that are involved in developing the best strategy. Where should we position inventory? Where should the dark stores be located? How many should we have? How should we carry-out home deliveries? What is the cost-to-serve and subsequently and how much should we charge? Where should the collection points be and how should we service them? Supply chain design software comes into its own in this arena, allowing retailers to make informed decisions on re-shaping their infrastructure and deploying their inventory to meet the demand of an ever changing market.