When E-Commerce Got Big, Some Retailers Responded By Thinking Small

In the wake of the pandemic, many Americans began relying on the internet as their primary mode for shopping, collectively spending $791.7B online in 2020. As the e-commerce boom has continued to grow since then, retailers have been adjusting their business practices to fit people’s purchasing habits. 

Their efforts have been hampered, however, by the struggling supply chain. A shortage of people working at ports or delivering goods as well as increased transportation costs have made it more difficult than ever to get products to consumers in a timely manner.

To accommodate the rise in e-commerce and mitigate delivery delays, many retailers have been looking into using micro-fulfillment centers. These warehouse spaces, which typically range between 10K and 20K SF, are located either within a segment of a brick-and-mortar store or in a designated facility close to where a majority of customers live. Customers can receive their goods by buying them online and picking them up in stores or having them delivered right to their doorsteps.

Alex Harrold, first vice president and senior director at Matthews, an investment services and technology firm, said that micro-fulfillment centers serve as a home base for stores to drop off goods for pickup or delivery, so that customers can receive their orders on time.

“Although these centers are small, they have to have consistent inventory,” Harrold said. “They’re typically going to be restocked on a 24-hour basis, which allows customers or fulfillment workers to pick up goods without disrupting the store operations.”

Harrison Auerbach, associate vice president at Matthews, said that aside from the size, what differentiates a micro-fulfillment center from a traditional distribution center is its location. Because traditional distribution facilities are generally in more rural regions adjacent to highways, it may take longer for customers to get their purchases.

Micro-fulfillment centers, he said, can serve a more populated urban area and are typically found in locations with major retail hubs.

“Micro-fulfillment is really just tailoring directly to consumers on a faster basis,” Harrold said. “Because these facilities continuously stock goods, customers have the choice to go there and get them directly through these automated systems. If there’s a need to have those items today, that’s also what’s going to differentiate these centers from larger ones.”

Harrold said these centers can also help to lower the cost of last-mile transportation, which can benefit a retailer’s bottom line.

“These goods could get transported hundreds of thousands of miles, which can be costly. Finding creative ways to lower the cost of that last mile is where micro-fulfillment comes in,” Harrold said.

Auerbach said that today’s customers have speed, safety and convenience at the top of mind when shopping, which is why they have largely chosen to continue shopping online. With the benefit of proximity, micro-fulfillment centers can help businesses meet these expectations.

“Before, it was easier to head over to the store to purchase items in person, but during the pandemic and before the vaccine, many customers did everything they could to shop from their own homes,” Auerbach said. “Midsize and large companies can open up micro-fulfillment centers for both faster and cheaper shipping.” 

Harrold said that for retailers, having a micro-fulfillment center can communicate to consumers that they are willing to take their shopping preferences into account.

“This shift satisfies customers who have been changing their purchasing habits to shop online,” Harrold said. “Retailers that are willing to make this shift are going to be a lot more profitable.”

Auerbach said that the future of retail will likely consist of a joining of the retail and industrial sectors, with businesses finding innovative ways to fulfill e-commerce orders. Additionally, he said, the businesses that are increasing their e-commerce, opening up more businesses and continuing to keep customers’ purchasing behaviors at the forefront are most likely to come out on top.

“People will always expect fast shipping and convenience, and that’s something that will always be important for us,” Auerbach said. “The retail labor force will likely increase, and these businesses will adopt new ways of focusing on their e-commerce, which will really help out the retail sector.”

This article was produced in collaboration between Studio B and Matthews. Bisnow news staff was not involved in the production of this content.

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