Why I am not a fan of delivering ecommerce orders from a retail store
Context
I was talking to the management team of a fashion retailer lately. And we were talking about whether to deliver from their stores or from a centralized warehouse.
And i have a strong preference towards delivery ecommerce orders only from a warehouse.
In fact i think its just wrong from a math perspective to deliver from your store in almost all cases, but with a few exceptions.
I'll explain why.
But first… you need to hear a bit of my view on fashion
It is hard to get a fashion purchase right without trying it on.
Im referring to things that have a fit and/or fabric issue to it. Meaning things like pants or a dress.
Things that are pretty standard and generally don't have a major fit or fabric issue like underwear, hats, belts, tshirts, etc. are NOT the stuff I am referring to in this article.
When I walk into a clothing store (eg. Zara) and grab stuff off the rack i generally reject about 60-70% of items in the fitting room. Are you very different? I doubt it. Because I'm not even that picky.
And note that this is clothing I touched and felt on the rack before taking it to the fitting room.
When you order online for things that you havent touched or felt, you need to assume the percentage will be at least as high as that (ie. 70%+).
But then one ecommerce manager awhile back told me something like... "you might be right.. but my ecommerce home delivery customers are happy and the return rate is <5%".
Now your return rate may not reflect what I am saying.. But will the person be truly happy?
The answer to that question came to me a few years ago when i decided to investigate it a bit... I found about 10 female customers of a specific ecom fashion retailer and asked them about their purchases.
Almost all the answers were some variation of “yeahhh i ordered a few items but...."
There wasn't a single person that said something like "yeahhh i ordered a few items and I loved all of them!
And so my next question was did you return it? And here the answers were typically something like:
And i was like... oh.. now I see why these return rates seem so low. It's not that customers are happy.. it is that they are lazy!
And when I looked at the poor retention rates of these customers and what the resulting crappy LTV was... the picture became clear.
The economics of ordering fashion (that is sensitive to size/fabric) online for home delivery doesn't really work. LTV just does not cover the CAC because of crap retention.
Now let me tell you what my ideal omnichannel setup is
This probably pertains most to fashion but I do think its relevant to many other, if not most other, categories as well.
The good vs. bad ‘paths’
What is a path in my definition?
Path = Order From (component) > Deliver to (component)
A 'Path' has components, which are:
"Order from" Components:
Home + Web = Order from home, but on your website, eg. your Shopify store
Home + Marketplace = Order from home, but on a marketplace like Lazada, Shopee (Marketplace)
Store + Web = Order from store, but on your website
"Deliver to" Components:
Home = Deliver to your Home
Store = Deliver to a Store
So the path combination possibilities are:
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Why delivering from a store is generally a bad idea
1. The lack of assortment issue
On the setup above you’re encouraging customers to order 10+ items online ideally (as rejection rate will be 70%+, ie. they keep 3).
And ideally you have an assortment in your warehouse that is like 10-20x (or more) what you have on the shopfloor of any retail store.
So if you're encouraging the customer to order 10 things wouldn't it be better to do it from a base of 10k+ sku’s (the warehouse) rather than 500 sku’s (the store)?
Yes of course it would.
2. You do not want to have multiple deliveries from multiple stores
For example if a customer orders 10 items but it needs to be picked and packed from 2 different stores. Then paying multiple delivery fees and getting separate deliveries is just bad CX.
3. Inefficient use of store staff / costly in-store operation
Do you really want your store staff spending their time picking & packing 10+ items when they should be serving customers? It is far cheaper & more effective to do that in a warehouse.
4. It looks bad for the store
Yes food delivery guys (eg. Grab) come into malls to pickup orders. But ideally you are not delivering ecom orders 1 by 1 like food delivery.
You’re having a 3pl come and pickup all the orders for the day (eg. 20+) and this generally looks bad in a mall. (Many malls in fact don't allow this during most operating hours)
5. It is inefficient inventory management
You need to stock a lot extra inventory in the store for ecommerce orders
So it becomes much harder to keep the store displays well stocked without holding a lot of excess inventory.
And do you really want your store to resemble a warehouse like the store in the picture above? Probably not the right experience for your customer.
Far better in my view to have all inventory centralized in a single warehouse. It is just math.
And note this also allows you to swap in and out new styles to the store fast as it's relatively 'light' on inventory.
6. Stores should focus on customer acquisition and being a pickup channel.
More on that in this article "3 things offline retailers should focus on"
Some concluding thoughts... the 'end game':
Do i think these omnichannel co’s that are delivering from their stores are making a costly mistake?
Yes
Are there some exceptions to this?
Also yes
What are they?
Exception 1: Fresh food / meals
eg. I like dark stores for fresh food because you're not going to deliver fresh, hot food from a centralized warehouse.
Exception 2. Stores that have massive assortment
Eg. Walmart has not 500-1000 sku's in store but rather on average about 120k. So much higher chance of the customer finding the things he wants.
Are there more exceptions to my rule?
Yes, perhaps. But not too many.
eCommerce | Technology | Entrepreneur
2 年Great read Ken! I had the chance to interface with 2 offline retailers here in PH and they all suffered the same fate when they penetrated the marketplace. Bad CX because of slow shipping and a lot of seller-initiated cancellations because of bad inventory management; Particularly over selling. They often cancelled orders because of shared inventory between offline and online stores.
Keynote Speaker and Author within Personalization and Omnichannel Marketing, CXO at Agillic, Board Member and Angel Investor
2 年Nice article Ken - but there are other examples where it makes perfect sense to ship from store. One of the client that I've worked with have a massive amount of stores. That means that a lot of their inventory is in these stores. So as not to be 'sold out' online (which we know is a killer for online sales...) they offer ship from store. This means their ecom business has way more sales than it would otherwise have had. Just my 50 cents :) Have a nice weekend!