New Strategy For Offering Customers A 'Frictionless Experience' Still Hitting Snags For Retailers

Many big-box retailers, striving to keep pace with Amazon’s lightning-fast delivery times, rolled out plans in recent years to use their stores as mini fulfillment centers, establishing retail outposts as solutions to the tricky last-mile distribution problem, but as the idea has caught on, its inherent challenges have reared their heads.

"Consumers are demanding fast and frictionless experiences," Cushman & Wakefield Regional President, Northeast Barrie Scardina told Bisnow. "Amazon has created new consumer expectations and retailers need to respond to these changing requirements."

Fulfillment logistics, labor and inventory management have all proven to be thorny issues that have to be solved for both distribution and regular in-store shopping, and even the country’s biggest retailer is still working out the kinks.

Walmart began testing in-store fulfillment even before the pandemic, and is now increasing its use of the technique, though the company hasn't said how many of its stores are involved.

“Walmart is continuing to evolve how we use our stores to fulfill customer orders," a Walmart spokesperson told Bisnow. "One way we are doing this is through making investments in market fulfillment centers, or MFCs, which enable us to store and fulfill orders from our stores." 

MFCs allow the retail giant to keep goods closer to its customers and get them delivered quickly through pickup or local delivery, since it has more than 4,700 stores located within 10 miles of 90% of the U.S. population.

As a compact, modular warehouse built within, or added to, Walmart stores, MFCs can store thousands of the items that the company knows customers want most. 

Instead of an associate walking the store to fulfill an order from Walmart shelves, an automated system retrieves ordered items from within the MFC. The items are then brought to a picking workstation, where the order is assembled.

Beginning in 2019, Walmart started expanding the MFC concept in partnership with various tech providers, testing different designs. For example, in some locations, the company is adding on to existing stores, while in others, the fulfillment centers will sit inside the existing store footprint.

Amazon may have planted the seed by normalizing e-commerce, but the pandemic kicked online shopping into high gear, creating new challenges for retailers, including speed and shipping cost, Scardina said. In response, they have looked to shorten the time and expense between order and delivery.

Major retailers are still trying to adjust to online purchases and therefore are figuring out how to stage their inventory, so it's closer to the customer, either for delivery or pickup, JLL Managing Director, Americas Retail and Integrated Portfolio Services Geno Coradini said.

"It's based on immediate gratification," Coradini said. "You order something on your device and get in within a day, or even within hours, is pretty compelling. People aren't going to give that up, and retailers are having to deal with it."

Fulfillment via stores is one of a number of strategies that the largest retailers are starting to use, 1010data Chief Product Officer Jonah Ellin said.

"Big-box retailers are finding locations to hold customer orders for pickup to make it convenient to order online," said Ellin, whose company is a retail data analytics firm.

"Some retailers are fulfilling more frequent orders from the back of the house," Ellin said. "Most frequently purchased items may be stocked in a manner which allows for rapid order picking." 

In addition to Walmart, other major retailers now using stores to fill e-commerce orders include Best Buy, Macy's, Target and Ulta, Scardina said, and as they expand this option, they are working to address the sometimes knotty challenges associated with delivery using store-based logistics.

Such challenges include having the right product available in the store nearest to the consumer, managing the expense of labor associated with using in-store versus in-warehouse staff, and the lack of automation in the store compared with a distribution center, she said.

"Ensuring that the right inventory is in the right store so that the retailer can fill from the closest location can be very challenging," Scardina said.

The goal of store-based last-mile, for Walmart or any other major retailer, is to shorten delivery time to consumers, improve in-store inventory productivity, drive sales and increase the overall fulfillment capabilities of the brand, Scardina said.

Also, she noted, retailers need to operationalize back-of-house fulfillment. The labor there isn't warehouse labor — they may be more skilled in selling than fulfillment — and retail locations tend to lack the automation common in today’s biggest warehouses.

In sync with the rise of warehouses in stores, retailers are investing and incorporating technology for tracing deliveries, Scardina said, and evaluating the use of small fulfillment or urban fulfillment warehouses versus stores to understand the most cost-effective way to attack the problem of speed. 

Specifically, there will be a strong emphasis on accuracy in last-mile deliveries, according to DispatchTrack CEO Satish Natarajan, whose company is a last-mile logistics specialist. To ensure that deliveries make it to the right place at the right time, logistics will employ more sophisticated routing engines that leverage artificial intelligence and predictive analytics.

Other new last-mile tech will be more visible to the consumer. Technology is being developed to carry goods over that last mile more easily, including from stores to customers' residences.

"There are some significant shifts on the horizon that will impact the logistics market, particularly the last mile, as we look to 2023," Natarajan said.