KEY POINTS

  • E-commerce is cruising with no indication of slowing down. BI Intelligence forecasts that digital retail sales will reach $632 billion by 2020. This means online sales will continue to eat into in-store purchasing, placing pressure on brick-and-mortars to remain profitable. 
  • Digital is moving to the core of retailers' strategies, and existing real estate can be leveraged to support a digital business. Large retailers' stores are densely distributed, providing an opportunity for them to serve multiple purposes.
  • Ship-from-store — a fulfillment process where retailers use stock from their store's estate to fulfill orders — has proven to be beneficial for retailers that have tested it. The results retailers have seen include higher sales, faster delivery times, easier inventory forecasting, improved margins, and lower costs.
  • But ship-from-store is not suitable for every type of retailer. There are a number of actions retailers must consider before implementing this model, and they may not work for all firms. For example, retailers may have to integrate their inventory planning systems, allocate space within the store to handle online orders, confine access to low-turnover inventory or segment by product category, or open smaller-format stores in densely populated areas, among other options.
  • Large retailers with densely distributed stores and low-turnover inventory are in the best position to test the ship-from-store model. Retailers need ample square footage to turn existing aisles or backrooms into storage for online orders, and slower turnover in order to convert excess inventory to online orders. 
  • Ship-from-store opens opportunities and risks for multiple stakeholders in the retail value chain. It has the potential to break down the silos between in-store and e-commerce to create a thriving omnichannel industry that ultimately benefits shipping companies, retailers, and consumers.  

Introduction

Digital is dismantling the retail industry brick by brick. The most successful retailers are the ones with thriving digital businesses, while physical stores are becoming more liabilities than assets. The tectonic shift in consumer behavior has pushed digital to the center of many retailers' forward-looking strategies, rendering stores a necessary but costly channel supporting a new digital core. 

However, e-commerce isn't without its challenges. In contrast to waning demand for in-store retail, rising demand for online retail has created a bottleneck at the fulfillment stage, whereby carriers and retailers are struggling to manage the increasing volume of online orders.

Legacy retailers with an omnichannel presence have [...]