February 22, 2022
A recent McKinsey study detailed a wide range of inefficiencies in using stores for online fulfillment as well as the risks the method poses to the in-store experience.
According to the study, having pickers in the aisles, whether for in-line fulfillment or pick-up, can create a “warehouse feeling” for repeat shoppers. Sharing paylines can increase wait times for buyers.
Store pickers can also be slowed down to work and wait at the checkout counter alongside shoppers. Picking efficiency suffers compared to pulling product from a dark store or an optimized micro-warehouse.
Costs per order tend to be higher for traditional stores than for dark stores. The higher cost was attributed to the higher salaries typically earned by store associates compared to warehouse staff and space constraints caused by in-store consumer traffic that prevent optimized store layouts. The average order preparation time in a traditional store can exceed 15 minutes, while grocery stores using a dark store sometimes promise a maximum of ten minutes between consumer purchases and order taking.
Finally, from an inventory perspective, using dark stores tends to reduce the risk of selling the same product twice from shared online and offline inventory.
Still, having physical stores drives consumer engagement, brand building, and pickup, McKinsey notes. It also provides a significant halo effect on local e-commerce sales. Converting a regular store to a dark store in an area with a direct competitor can lead to consumer churn.
According to the study authors, dark stores optimized for fast order picking and shipping may be the best option to support high-density urban areas, but a chain may be able to deliver faster to a customer. from a nearby store.
While online delivery is still believed to be largely supported by regional warehouses, shipping from the store has accelerated due to the pandemic, with Target, Best Buy and Dick’s Sporting Goods among those who now fill well over half of online orders from store inventory.
Brian Cornell, CEO of Target, said last year of the chain’s omnichannel push, “Our goal was to use our proximity, nearly 1,900 stores within 10 miles of the vast majority of American consumers to deliver the fastest, easiest digital processing in the retail business.”
DISCUSSION QUESTIONS: How confident are you that stores will prove to be the solution for fast last mile fulfillment? Do the benefits outweigh the risks associated with the in-store experience, inherent pick-up inefficiencies, and other shortcomings?
“I think the scale of what will be needed for last mile delivery, when it matures, should not be underestimated.”