What is a shop? The evolution of the retail store

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 e-commerce, a shop’s purpose is no longer so clear. A shop can now be a showroom, a collection point or a miniature distribution centre – some retailers are operating outlets that don’t even provide the option for customers to actually shop in-store. The changing nature of retail has left many companies questioning the role of traditional brick-and-mortar stores in fulfilling customer orders, turning to e-commerce as they prepare their operations for the future of retail.

An easy way for a retailer to start an e-commerce operation is to build it on top of an existing store network, though this can lead to its own unique problems. Picking orders from the shop floor for home delivery or customer collection can sometimes prove more successful than planned, resulting in the store being swamped, which can lead to a poor experience for the traditional shopper, as well as difficulty in forecasting and managing inventory.

This has led to the development of 'dark stores', a concept that started in the UK and has since spread throughout Europe. 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. The concept was first implemented in food retail, with Tesco reporting to have opened six dark stores between 2009 and 2013, the latest being a 120,000 square foot operation stocking 30,000 food lines near London – a long way from being a corner shop.

Range expansion has long been a trend in retail, and has only become exaggerated since the introduction of e-commerce. With click-and-collect operations, reserve stock can be moved away from the collection point, allowing for a larger range to be sold despite a smaller store footprint. Argos has recently implemented a hub-and-spoke operation in the UK, which enables them to stock extended product ranges in approximately 150 larger hub stores, and make them available for faster fulfilment in local markets. In October 2015 they introduced FastTrack – a market-leading proposition for same-day home delivery and store collection – and in 2015 purchases made on the Internet exceeded 50 per cent of total sales. In this case, the shop is simply acting as a delivery depot.

Click-and-collect: Challenges and opportunities

How should click-and-collect be organised? A recent survey by edelivery.com reported that 72 per cent of UK shoppers use click-and-collect, though many consumers stated that the in-store experience doesn’t meet their customer experience expectations. For example, many consumers have been vocal about experiencing disappointment as a shop assistant hunts through the backroom for an item they’ve ordered that hasn’t been taken to the collection area and may now be out of stock. While the customer experience could be improved by moving the collection point away from the shop, possibly to a dark store or into a third-party operation, the same source quotes research that said 65 per cent of people said they make additional in-store purchases when collecting an item purchased online.

The natural evolution of reducing the items stocked for direct sale to customers in store would be to remove them completely, essentially transforming the shop into a showroom. This has historically been the case for big ticket items requiring two-person handling, but it is now happening in the clothing and jewellery sectors as well. If you go into one of the twenty Bonobos shops in the US, you cannot take away your purchase with you, 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 the orders made through their online store. Another aspect of this is when online retailers use pop-up shops to display their products, taking orders for fulfilment through their established e-commerce distribution networks. This allows retailers to build their brand while avoiding the fixed costs associated with a conventional shop footprint. Zalora is taking this pop-up approach in Southeast Asia in order to introduce their customers to online shopping.

The physical store is still integral

As well as providing a strategic platform for order collections and rapid home deliveries, the physical store still plays an important role in the customer experience for many products. Even with big ticket items, having a physical store presence is a strong advantage. This 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 per cent of their total sales. Still, some customers simply enjoy the experience of shopping in brick-and-mortar stores, which is being further enhanced by retailers like Nike and Apple who are heavily investing in high-tech stores. Shopping is a social experience and 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 involved with supply chain design are the complex cost and service trade-offs that are involved in developing the ideal strategy, and finding the best answers to the many questions these challenges raise. Where should store inventory be positioned? Where should the dark stores be located? How many should be implemented? How should home deliveries be carried out? What is the cost-to-serve, and subsequently, and how much should be charged? Where should the collection points be and how should they be serviced?

Supply chain design software comes into its own in this arena, allowing retailers to make informed decisions on reshaping their infrastructure and deploying their inventory to meet the demand of an ever-growing and rapidly changing market.

Phil Gibbs, executive director of customer success, LLamasoft

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