The pandemic has placed a lot of pressure on bricks-and-mortar retail, not least by re-emphasizing quite how convenient and comprehensive e-commerce solutions are by comparison. But as store operators rushed to find new forms of revenue whilst premises remained closed – often by home-brewing their own delivery services – what many have realized is that the future of e-commerce is less about the global supply chain and more about the local one. And that’s a future in which stores could play a key role.
In a time of accelerating consumer demands, e-commerce has a logistics problem. Shoppers want the ease of online ordering but the instantaneous gratification – or as close to it as possible – of grabbing something off the shelf. A recent report by fulfilment company Fabric showed that 92 per cent of consumers now want same-day delivery or pickup, while 65 per cent would switch retailers if this service wasn't offered. Global supply networks are fairly adept at coping with this need for now, right up to the ‘last mile’ – the point at which your package leaves the mass-transit super highway that leads to national distribution centres and has to navigate the slow and complex B roads that take it that final step to your door. As a result, last-mile delivery is expensive, contributing 41 per cent of total logistics costs, and highly polluting, with the World Economic Forum forecasting that it will contribute a 32 per cent increase in emissions from delivery traffic in the world’s top 100 cities by 2030.
The solution? Many believe it’s to move inventory much closer to the customer. Rather than large, ex-urban or peripheral distribution centres, why not have many much smaller sites proximate to where shoppers actually live? These micro-fulfilment centres (or MFCs) have been in vogue for several years, with startups such as Ohi offering to help smaller brands compete with the service level of market leaders like Amazon. They do this by creating city-based outposts that can pack and ship – often by bike courier or moped – products to nearby customers in a matter of hours. ‘By getting inventory into cities, we are avoiding the need to take traditional delivery trucks to do routes dropping off parcels,’ Ben Jones, Ohi’s CEO, told Fast Company last year. Interact Analysis predicts there will be 80 such MFCs in the UK by 2023.
Urban centres are great locations if you want to serve a large customer body in a small geographic area, but that density also raises the question – where exactly do you locate an MFC? A fulfilment centre, even a small one, requires a reasonable amount of uninterrupted floor space. Ohi, which currently operates in New York and Los Angeles and manually builds orders, leases commercial or office spaces from landlords for its centres. Competitors Fabric and Takeoff Technologies started off targeting underused urban infrastructure, such as spare parking lots, as well as existing storage and warehouse capacity that wouldn’t previously have been considered viable sites to run fully fledge fulfilment operations. Both have invested heavily in developing automated fulfilment systems that can function within far smaller footprints and ceiling clearances than traditional distribution centres. One of Fabric’s first locations was an 1,672-m2 basement with 3.6-m high ceilings underneath a Tel Aviv grocery store. The company claims they can now create a 557-m2 warehouse that can process 15,000 SKUs and spit out up to 600 orders per day.
As technology and efficiency improve, consolidation within staging and stock areas within retailers existing outlets will follow suit
At the moment satellite locations that service multiple vendors are still the default, but as technology and efficiency improve, consolidation within the staging and stock areas of retailers' existing outlets will follow suit. ‘Right now, our model is built around getting a large number of robots into a small number of warehouses,’ says Fergal Glynn, vice president of marketing for 6 River Systems, another MFC developer. ‘Now, we’ll need to get a small number of robots up in running in a lot of grocery stores.’ They’ll need to figure that out fast if they are going to keep up with pace-setter Amazon, the bogey man that many MFC-technology providers market themselves against. Analysts spotted that the planning documents for the first of Amazon’s as yet unbranded supermarkets (distinct from their Go locations), supposed to open in California’s Woodland Hills neighbourhood this February, featured an MFC built into a ‘hidden perimeter’ surrounding the store. Fast forward a couple of months and it turns out that the Woodland Hills site hasn’t actually been out of operation, but rather flipped into a ‘dark store’ that’s played a part in helping Amazon boost its grocery fulfilment capacity by 60 per cent in a matter of weeks.
What ramifications does this have for store design? Many grocery chains like Kroger and Aldi already run a form of MFC from their grocery aisles, with so called ‘hired shoppers’ competing for products with customers as they race to fulfil online orders. This is as inefficient for the brand and as intrusive for on-the-ground customers as it sounds. The automation of that process will likely mean other kinds of imposition however. Tom Custer, vice president of strategic design firm FRCH Nelson, told Grocery Dive that he expected to see a growing number of retailers who don’t have sufficient back-of-house space reapportion footprint in favour of the stock room rather than the shop floor.
That incursion might be hard to stomach for those who have spent years trying to elevate the in-store experience precisely as a counteraction to e-commerce, but it should really be seen as a sharpening of the on-ground offer. Custer thinks this is a prime opportunity for brands to rationalize their in-store inventory, stocking front-of-house with only the most popular lines while offering a broader catalogue of products that can be ordered online or via kiosk for same-day delivery. ‘Do you really need a whole aisle of pet food when you’re already competing with pet food stores? That could be a subscription-based service or an online purchase,’ he explained.
Brands shouldn’t think of this shrinking of the sale floors as a linear or finite process
Brands shouldn’t think of this shrinking of the sale floors as a linear or finite process, either. Melissa Gonzalez, CEO of The Lionesque Group, sees stores’ new role as fulfilment centres as providing increased impetus for modular retail design. ‘Brands will need to deliver on quick-serve metrics as much as they do on customer service,’ she writes on Design Retail. ‘As order volumes vary, the allocation of square footage between the front-of-house and back-of-house will be required to seamlessly flex, morphing so that stores can accommodate and support the journey of a package as much as it does the journey of the customer.’
It’s important to note that Gonzalez isn’t talking in the context of FMCG retailers here, but fashion. While the grocery sector has been the basis for most MFC development thus far, others are quickly taking note. Fabric is opening two new fulfilment centres in Manhattan this year, and while it hasn’t disclosed its clients, they will both be serving non-grocery brands. Another MFC vender, AutoStore, counts US lingerie brand Adore Me and Japanese furniture brand Nitori as partners. So, if in three years’ time you’re organizing a dinner party and need to order a new outfit, or even a new dining set to your door in under an hour, it’s likely you’ll have your local high street to thank.
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