Chicago has served as the primary transportation hub for the country since the mid to late 1850s .
Eastern train lines terminated in Chicago and Western rail lines originated here. Supplemented by waterways and subsequently also by refrigerated cars (incidentally invented in the Midwest), Chicago became the center for warehousing, manufacturing as well as a home of legendary retail corporations.
Bring people to stuff AND bring stuff to people
Chicago based corporations figured out the way to maximize the value of its location by building both “get-stuff-to-people” as well as “get-people-to-stuff” models. Truly, the great catalog businesses such as the ones built by Ward and Sears illuminated the original get-stuff-to-people model, starting here at the turn of the last century. These endured well into the era which heralded the birth of Amazon; which, in turn is fundamentally a similar model reprised for the digital milieu.
On the other hand; these corporations, and others, built amazing palaces for physical retail in elegant and pervasive department stores which became a destination for bringing people-to-stuff. With carefully selected, intelligently assorted and, astutely priced and promoted merchandise; department stores and malls became destinations. As retail models were iterating; starting in 1901 for the entirety of the last century, Chicago based Walgreens Co opened store locations across the country sometimes leading the residential build out of America to build a come-get-your-stuff model for consumers in the now prototypical small drug store format.
All that to say that location and people are inextricably linked in the history of commerce and whether consumers come to stuff or they get the stuff delivered to them, last mile economics have always been a blend of the two even as investment lurched from one extreme to the other.
The dogma of Omni Channel and the rituals of destructive creation
With platforms, technology and consulting prevalent in the face of persistent and growing retail disruption, jargon and approaches have started to get canonized. From “eCommerce” in the late 90s to the “Multichannel” models of the mid 00s to the recent “Omnichannel” phenomenon and now dabbling with “Digital”; the approaches to managing consumers in this fundamentally disrupted model have harkened back to the chaos of the emergence of railroads in early America. We have done everything, including test flights of drones.
The last mile however has gotten very messy. We have shipped items to her (the consumer) at her home or at her work. We have picked items from her store and delivered them to her at her home. We have ordered her items from within the store and shipped them to her home or to the store. On the flip side, we have had her return items by dropping them off at the store or at the shipper’s location. Or we have made her wait, printed receipt in hand, for the shipper to come pick up. A few have even asked her, and upon her agreement, shipped her items to a store of her choice. Its an intricate Kabuki, with frenetic activity across retail to complete the pattern of connecting locations to locations. No one can be blamed, with declining sales and dropping foot traffic retailers of all ilk are in a constantly changing landscape. If we were to look at the results of this elaborate approach in the cold heart light of day; this smorgasbord strategy has done diddly for traditional retailers.
Amazon has taken share from everyone and everybody else has suffered consistently quarter over quarter, year over year. A cat amongst the pigeons.
Getting all these options and permutations implemented is the focus for most retailers. Even though they divert precious capital (many times diverted from store improvements, working capital and labor), no one stops to wonder about what might be an optimal competitive strategy that leverages traditional brick and mortar strengths (yes there is such a thing) and their privileged investment in location.
The “having all omni-channel models implemented” dogma implies equivalence in all models whether they involve getting stuff to people and people to stuff. However all of these models are not created equal.
Amazon has now attained a near unassailable lead on the getting stuff to people model. Platforms that can take that lead on are very hard to find within retail corporations.
Follow the money to find the truth, the truth will set you free
For a traditional retailer, not unlike a pure play online retailer, a complex execution challenge traps cost between their top line revenue and their hard earned net earnings. Big parts of these costs are in working capital (Cost of Goods/COGS), store occupancy and labor (Opex) and recently in technology, both new and upgrades to old (Capital) to deal with all of the complex omnichannel strategies.
So if we were to look at these costs what is the most favorable omnichannel model? Lets walk down the P&L.
To ensure that working capital is optimized, the need for buffer stock should be minimized in the face of geographic and item unpredictability in the order arrival rate. Said differently, to make sure most people ordering online get most items in their orders fulfilled successfully, the retailer has to make sure that the inventory especially for items in demand are available for all orders. If they decide to pick from store then they will need to have extra inventory to make sure both store walk in traffic and online orders can be fulfilled. The more they send on working capital the more their COGS is and lower their gross margin especially as they invest in pricing and promotions.
The rate of online orders is variable by geography and has stochasticity in its arrival rate. That is to say, that sometimes some stores will get a rash of orders at unpredictable times. This is painful for store managers because they need to ensure that they have enough labor for stocking, helping customers and checking them out. When a customer order comes into the store, since no one has budgets to have staff wait around, someone has to drop everything and go fill that order for the customer so they can pick it up or hand it to them on the curbside. If they are filling online orders to ship to other locations, then that is an even higher labor planning burden. Remember, labor is a huge part of a retail P&L so the more efficiently it is utilized, the better the performance of a retail chain.
To orchestrate the in store pick up and to ship from store models the technology cost is pretty steep given that most retail chains have considered stores a destination node and not an origination node in their supply chains for decades. They need to invest in upgraded enterprise resource planning software, fulfillment software and also inventory management technology in every store. The inventory forecasting technology they now use will need to significantly upgraded.
If they want to pick and deliver from store, they now need to also invest in drivers and delivery labor and technology.
At the end of all of this complexity, cost and, difficult execution; the consumer gives them no more credit than if they themselves just bought online, retailer fulfilled in warehouse and they themselves picked up from store.
So here is my thesis, all digital commerce models are not created equal and while a version of most of these models are an imperative for traditional retailers to be relevant, there is one that is clearly superior in its cost burden and also ease of execution.
The one way, the way of the retailer
Order online, ship to store, pick-up in store.
Bring people to stuff even when you are bringing stuff to people.
Working capital is optimized (assuming the assortment and pricing etc are competitive) since there is consolidation for online orders into warehouses. Also with increased order rates from digital channels (most likely from the phone) more fulfillment from warehouses reduces working capital deployed into stores and the cost of handling it onto the shelf.
Shipping to store is far cheaper than shipping to residential addresses. So even as eCommerce grows for every retailer the cost per order is optimized by penetrating more into self pick-up from store.
Finally with one or two day shipping the store managers have a forewarning and a capability to plan their labor in advance and not be constantly in reactive mode. Constant defense is tiring.
If stores know who is coming when, a well planned and executed personalized marketing plan can be executed which works on upselling or basket building even before they have set foot into the stores. Offense, is exhilarating.
Dogma would have retailers believe they need to execute on all digital models on equal footing, when the reality is that you don’t. Also you need to certainly favor consumer mobile led interactions over anything else.
We know that this financial and operational influenced approach has not been practiced till now in the US. According to an OrderDynamics study of more than 1,000 retail websites, Only 29 percent of major U.S. retailers offer click-and-collect services — a significant gap from the 67 percent of their UK counterparts.
The Packyge platform exclusively focusses on lighting up retailers for ship to store
@Chandra and I started Packyge six months ago explicitly with the intention of creating a digital platform that made interaction between a consumer’s mobile phone and the retail store elegant and easy. We intended to make the store more relevant in the digital context and to drive more traffic and value into this most privileged asset for retail.
Our open ship to store platform is now in closed beta in Naperville, IL and many local progressive retailers are participating already. We enable ship to store for consumers and make their phone the key with unified tracking, notifications and, an elegantly easy pick up experience.
With ship to store, since we are bringing people to stuff. We know who exactly is coming in and when with their mobile phone in hand. It is the perfect marketing signal and it provides every store with access to an audience locally whether or not they have purchased in that store ever, thats what modern retailing is all about. We are building on our platform a 1:1, personalized marketing/ad platform for retailers to also start building upsell or basket building campaigns right into the platform by geography specific audiences even before they step into the store.
We are committed to building “in the real world” bring-people-to-stuff experiences for retail on the back of the growth of bring-stuff-to-people experiences. We are here for any retail organization who believes us when we say #fightoutofyourstores [email protected]ackyge.com.
We are also looking for smart, intelligent, committed folks who want to jump into the fight. Starting with developers, user experience, and graphic designers who dabble in marketing but would like to do a whole lot more. [email protected]