Finally, a Retail Solution. Patent Pending.
By Shlomo Chopp and Matthew R. Powers January 10, 2018 8:00 am
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Over the past few years, retail stakeholders have been presented with a unique set of challenges to their retail businesses and properties. E-commerce business has ballooned and transformed the expectations and habits of shoppers and unprepared retail chains have been forced out of existence.
The situation, however, is not as bleak as it appears. While some retailers have gone out of business, it has absolutely nothing to do with the fact they are in brick-and-mortar locations. It’s true, e-commerce has captured a large percentage of the market—but it is not as overwhelming as it may seem.
The U.S. Census Bureau’s third quarter 2017 retail e-commerce sales report pegs online sales as only 8.4 percent of total retail sales. A number of that size can only cripple brick-and-mortar retailers if they have razor-thin operating margins and no strategy in place to compete with, or incorporate, e-commerce.
Brick-and-mortar retailers’ supply chain processes traditionally involve processing pallets from manufacturers and combining the products into pallets sent to stores. E-commerce, on the other hand, focuses on individual product fulfillment.
The processes may seem similar, but building, operating and maintaining both a palletized (i.e., distribution to stores in bulk) and “eaches” (products sent individually, like fulfilling a single product for an e-commerce customer) supply chain is a costly undertaking.
Retailers must find a way to maintain their palletized product for in-store shopping, while simultaneously maintaining a separate line of stock to ship one product at a time. Until retailers can figure out a way to ship product using the store as a fulfillment center—clearly not an effective use of retail real estate or customer experience—they must carry double the amount of product, operate a two-pronged supply chain or provide a subpar service.
E-tailers on the other hand are crippled by not having a storefront location. The internet is akin to having a shopping center on a side street—with terrible access reliant on a tour guide just to get shoppers to enter. And once you finally get shoppers through the door, they can only view products through a glass window while being distracted by competitors. If you’re lucky enough to make the sale, product returns are probable—reaching as high as 40 percent for apparel—at a cost rumored to be as high as $8 per return. In short, e-tailers must find a way to lower customer acquisition and return costs and differentiate themselves beyond price.
Mall and shopping center owners recognize that humans will almost always seek experience without inconvenience. Yet, the experiential focus of shopping facilities has generally been additive and incremental. Experiential enhancements must go directly to closed sales. A restaurant is a draw, but we need transformative change to a process with systemic challenges.
The solution to this challenge seems to be the shopping fulfillment center (SFC).
The SFC is an omnichannel hybrid facility from which you can fulfill brick as well as click orders, streamlining a retailer’s supply chain—and almost no up-front cost. The SFC was developed by Case Equity Partners and consists of a modern fulfillment center stocking abundant product, and retail showrooms displaying the product in a sales-driven, experiential environment. To the shopper, it is lifestyle center, but from a logistics perspective, it is akin to last mile warehouse to end all retail warehouses. JLL (JLL) serves as exclusive adviser for the project.
Here are the key tenets of the SFC concept:
Core competency: Retailers must stick to what they do best—merchandising and selling. Maintaining a modern supply chain is too costly for any one company operating at anything less than peak efficiency. The SFC allows retailers to lease not only retail stores but also fulfillment-center space and inventory management services from its third-party logistics company operating the most modern of material handling and robotics systems.
Local showroom as a local fulfillment center: The SFC’s showrooms are connected to a fulfillment center. Pallets come in, and individual products are fulfilled—either via e-commerce or in-store orders. Whether at home or in-store, the shopper is provided with the same fulfillment and delivery options all handled on a local level; walk out with your product in-hand or have it delivered to your home while you head to lunch empty-handed. Plus, you have the option to view and touch the product in-store, just in case online photos and descriptions can’t give you the answers you need.
Omnichannel as a rule: Retailers can move from fragmented solutions to a single platform supporting both brick as well as click strategies covering the shopper’s experience as well as supply chain and logistics.
By replacing the regional mall with the SFC and bringing the product closer to shoppers, both retailers and e-tailers can increase sales, reduce fixed costs and provide customers with the value proposition they are longing for.
Matthew R. Powers is an executive vice president at JLL; Shlomo Chopp is managing partner of Case Equity Partners.
