What will the new normal be? How will consumers behave after the pandemic? What will my business look like after the crisis abates?
These are some of the common questions that were going through retailers’ minds around summertime 2020, a few months into the coronavirus pandemic when only essential shops were permitted to open and online shopping ballooned.
The answers to each are still unclear – we are still officially in a pandemic, after all – but there are certain Covid-induced technology-based trends in retail that look set to have longevity.
Video commerce and live streaming’s time has come, for example, as previously reported by Computer Weekly, and the hybrid workplace is being adopted across head offices too as businesses more readily permit their employees to blend home working with in-person attendance, thanks in part to better connectivity and communications platforms.
In addition, shipping online orders to customers from store estates is also cementing itself into the operations of multichannel retailers, following major organisational changes and technology investment over the past two years.
Morrisons, Waitrose and Pets at Home are among the retailers that increased their capacity to fulfil e-commerce demand from stores during the pandemic – although the former scaled back these operations at the end of last summer as shoppers began to rely less on online grocery shopping than in the early stages of the health crisis.
It is perhaps fairer to say that “ship from store” is a process that has been accelerated by the pandemic, rather than a result of the crisis per se.
It was an approach already used by retailers with the capability and systems to do so prior to lockdowns and temporary store closures making it more or less a necessity. Whistles, Ted Baker and Tesco are examples of retailers that had systems in place for this purpose prior to Covid-19.
But even now retail stores are open again, store-based fulfilment is still viewed by many retailers as a prudent way of doing business – certainly those with a nationwide footprint.
The need for agility and flexibility in retail is clear to see after a turbulent couple of years, and having the capability to use stores as mini warehouses as part of a centralised stock pool certainly provides an organisation with both of those.
Redistributing distribution
Before the pandemic, clothing and homeware retailer Matalan fulfilled online orders from one central distribution centre, but as stores were forced to close and pressure built on its single stockholding for e-commerce, shops became part of the distribution network.
Online orders can now arrive at customers’ homes from one of two distribution centres or 225 stores across the UK, and it is viewed by the business as a more efficient way of operating. Indeed, it is a central part of Matalan’s ongoing digital transformation, according to a recent announcement from the company.
Matalan says the shift to greater warehouse automation and a nationwide fulfil-from-store strategy marks phase one of its transformation and doubled the retailer’s capacity to meet rapid online demand. This move also provides the bedrock on which a new partnership with tech solutions provider THG Ingenuity is being built.
Before the pandemic, Matalan fulfilled online orders from one central distribution centre, but as stores were forced to close and pressure built on its single stockholding for e-commerce, shops became part of the distribution network
In 2022, phase two of the transformation will involve Matalan migrating its digital channels to THG Ingenuity’s infrastructure, which is expected to result in the introduction of a multitude of online user experience advancements, such as better product availability and the ability to see store stock when shopping online.
Describing the direction of travel, James Brown, Matalan’s chief commercial officer, spoke of an “incredible sense of energy around the business” as it follows a path of digital transformation to prepare for rising consumer demands.
Meanwhile, department store group Harvey Nichols has also made the move to enable goods to be shipped from its stores. To automate carrier allocation based on product dimensions and improve efficiencies in its delivery processes, the retailer started working with nShift – and that software investment has enabled it to ship directly from stores, providing speedier customer fulfilment.
Other multichannel retailers Computer Weekly spoke to that have made the switch to ship-from-store say they cannot see why their business would ever revert to using a sole location to fulfil online orders.
H&M and Footasylum are among the businesses exploring the possibility of using stores to distribute online orders, but they both recognise it is not a simple or inexpensive move to make, despite the benefits reported by those that have done so.
Stock management and economics
According to Andy Mulcahy, strategy and insights director at online retail trade association IMRG, the economics of shipping products from a store don’t always make sense. “Ship from store isn’t always going to be the best option in terms of keeping carrier costs down,” he says.
Mulcahy says “density of drop” is a major consideration, and if retailers can create sophisticated enough systems and use local multibrand carriers in the process instead of shipping goods the length and breadth of the UK from a centralised warehouse then it works, but the reality is it is not straightforward to set up.
“Some retailers have launched the capability but aren’t actually using it,” says Mulcahy. “In grocery, where stores are all over the country and have a high concentration of customer throughout, it is perhaps more appropriate.”
Ship from store was a suitable pandemic strategy because there were thousands of shops sitting dormant and full of stock, he points out, but those using it now must check it is economically viable.
Nevertheless, in a recent survey of 124 retailers conducted by Retail Gazette and Amazon Shipping, 41% of respondents said ship from store was a futuristic delivery innovation that would make a good fit for their customer proposition. Only “increased choice of delivery speeds” (51%) ranked higher in the survey, and ship from store was deemed a far more appropriate delivery innovation than shiny new technology like drones and robots.
Perhaps the real talking point here is more around stock management than choosing one system over another. If the pandemic has taught the retail industry anything, it is that having a handle on inventory – and being flexible in terms of stock storage and supply – is crucial to success.
According to Paul Hornby, digital customer experience director at The Very Group, which runs Very.co.uk, “a key learning from the pandemic was understanding the importance of agility around stock, stock holding, stock management and managing working capital position”.
Talking to delegates at IMRG’s Fashion Connect event in February, he said: “When customers’ buying habits changed significantly, retailers needed to pivot their stock model accordingly, otherwise they were left high and dry. We managed to do that successfully.”
Stores at the heart of e-commerce
Pure-play e-commerce retailers are recognising that multichannel players have strengthened their digital game over the past couple of years. The likes of Dunelm, Next and Seasalt have shown through their festive trading statements that they are making great strides in e-commerce.
Homewares and furniture retailer Dunelm reported year-on-year sales growth of 11% to £795.6m in the six months to 25 December 2021. Digital – which includes e-commerce, click and collect, and tablet-assisted shopping in stores – represented a third of all its sales, which was up by around 14 percentage points on 2019’s figure.
These results come after years of transformation, tech investment and appropriate structural realignment. The aforementioned businesses are simply now more comfortable serving an online shopper than they were before the turn of the decade, and many of their multichannel peers can say the same.
HSBC’s head of retail and leisure, James Sawley, suggests this year could see retail stores more widely recognised as a crucial piece in the digital-focused retail puzzle, arguing that industry power is shifting towards those adept at both bricks and clicks.
Many e-commerce teams have been demanding access to store stock for years, but it’s taken a pandemic and a larger than expected rise in online shopping activity for the C-suite to take action
Previously online-only business Gymshark, for example, trialled physical retail with a central London pop-up before the pandemic struck, and will soon open a Regent Street flagship store that will be used for audience engagement, brand building and much more.
Several online-only retailers, including Studio Retail, have remarked that attracting and retaining customers online is becoming more and more expensive and highly competitive, which underlines the challenges facing e-commerce pure-plays.
In its 2022 outlook whitepaper published at the turn of the year, the KPMG/Ipsos Retail Think Tank (RTT), which comprises industry analysts from banks, consultancies and research groups, said ongoing convergence of digital and physical retailing will be a notable feature of the year ahead.
In the paper, HSBC’s Sawley argues: “In some cases, being purely online may not be enough. In 2022, I expect to see more pure-play online retailers open stores for the first time.”
These observations talk to the power of the store in digital and modern retailing, but more specifically the power of an integrated store and online offering. Many e-commerce teams have been demanding access to store stock for years, but it’s taken a pandemic and a larger than expected rise in online shopping activity for the C-suite to take action.
Shipping online orders from stores won’t work for every retailer, but those getting the right systems in place and making the move as part of a wider investment in inventory management and stock transparency look set to progress.
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