Stores must level up to match omnichannel hype

Online and mobile marketing have turned the retail supply chain upside-down. Gone are the days of moving volumes of product in efficient, bulk moves to stores across the world. Today, smaller shipments rule the supply chain, delivering — literally — on brand promises to ensure receipt of single, customized packages under same-day or next-day delivery.  

The store remains the core brand-connecting point for most retailers, even for those that see a large amount of growth coming from mobile and/or online sales. The store, in fact, plays a vital role in the marketing end of omnichannel retailing. As the next evolution of multichannel, omnichannel strategies represents a vital way to compete for customers who expect their retail interactions to be transparent across all channels. No customer touchpoint is left out, as websites, bricks-and-mortar stores and social media channels are integrated into one seamless communication stream. But customer expectations don’t stop when the sale is made — the order fulfillment experience is every bit as important to winning repeat business.

An omnichannel marketing strategy that does not fully address implications for store design, information technology support and integrated supply-chain management is an incomplete and inadequate strategy. The question for retail executives to ponder is whether their omnichannel marketing strategy is writing checks that stores — and supply chains — can’t cash.

Retail stores are adapting to their omnichannel commitment with such features as pickup stations for products bought online or by phone, as well as environmental branding to promote affinity programs through social media platforms. Point-of-purchase displays are important, and stores have become a way for customers who shop primarily online to talk to a “real person” or to pick up merchandise that they can’t wait to receive through online shipping options.

There is a number of options for store location and design features to support an omnichannel strategy, and there is an abundance of important questions to answer with each. For example, with in-store pickup, do IT systems support in-store pickup for merchandise marketed online? Which store locations have large enough backrooms or floor space to accommodate the inventory needed to support online ordering for store pickup? For larger stores, does signage guide customers easily to the pickup point, which may be inside or outside the store?

With the mall and shopping center pickup option, does the rentable space available match inventory strategies to allow for in-store pickup? Are stores located such that online shoppers have an “easy in, easy out” option near mall entrances or navigable paths to the back-delivery door or dock?

What about environmental branding elements? Does the branding in store continue the experience from online and mobile channels, down to construction materials choices and furniture? 

Then there are online options for in-store shoppers and supply-chain implications. Do store locations offer kiosks or other ways in-store shoppers can be encouraged to order inventory not available in-store or through other channels on that day? Do distribution center locations complement store locations, filling in gaps for same-day and next-day delivery when in a crunch?

The connecting point of where the store ends and the e-commerce strategy begins is, by nature, blurring. In-store features and online marketing alike make promises to customers that they can order online and pick up at a store, or shop in-store and have a customized order delivered same- or next-day to their home. To make good on such omnichannel promises requires retailers to adapt their information technology, distribution systems and all of their supporting real estate so they are properly located to handle integrated order fulfillment.

An omnichannel supply-chain strategy involves rethinking the number and location of distribution centers or points, as well as layout and design features within such facilities that enable multiple delivery modes. Large retailers are turning to “big box” distribution centers — typically more than 500,000 sq. ft. with clear ceiling heights of 36 ft. to 40 ft. — to accommodate deliveries to stores and direct to customer locations from a single location.

Virtually no existing distribution centers more than a few years old are set up to accommodate the needs of a typical omnichannel distribution strategy — in their location or in their building features. In the past, distribution has been handled on separate tracks for stores and for individual order deliveries. Omnichannel marketing many times requires a single distribution center to consider both traditional store inventory support, as well as e-commerce fulfillment. 

The differences can be significant; looking at current supply-chain real estate now will allow for necessary adjustments to be made as omnichannel marketing strategies mature.  Distribution centers designed for e-commerce users include larger mezzanine areas for such operations as back-office tasks, giftwrapping, call centers and handling of returned merchandise. Buildings with high ceiling clearance can accommodate two or even three levels of mezzanine space, as well as the highly automated material handling systems necessary to handle high-volume, single-package orders. 

These centers also require a much larger work force than traditional warehouses, and the presence of more people also means that upgrades to such building life systems as lighting and depending on location, heating or cooling capabilities. More workers also means more land for parking.

To deliver on the omnichannel fulfillment promise, distribution centers need to accommodate both traditional and e-commerce processes in one fluid system. Omnichannel fulfillment requires significant capital investments in IT, material handling, conveyor sortation and controls, optimized racking systems and lift equipment, inventory management and picking/packing software.

There’s no question that updating store design, as well as supply-chain real estate, from traditional to omnichannel strategies requires a capital investment — it’s a necessary step toward competing for today’s demanding customer. Failing to set up a reliable omnichannel system virtually guarantees that order fulfillment strategies will fall short of customer expectations. Without a coordinated in-store and distribution center design and integration initiative to back it up, omnichannel marketing success will be short-lived.

Kris Bjorson is international director and head of Jones Lang LaSalle’s retail and e-commerce distribution group.