Guest comment: Central delivery versus delivery from store?

by Patrick Wall

At MetaPack we’re excited about the prospect of delivery from store. We certainly think it’s an important additional capability that adds choice and convenience, but is it the panacea that some people are suggesting? If a retailer can cost-effectively manage a range of delivery options and can offer these in a simple and reliable fashion, then in many senses the more delivery options the better. Delivery from store has distinctive merit: it provides the opportunity to offer same day delivery in more parts of the country; it provides instant gratification and that has to be good for online sales.

Pause for thought

Where we’d pause for thought is whether delivery from store will grow significantly and, ultimately might replace central and supplier home delivery. However exciting a prospect this may be, there is more to delivery from store than meets the eye. For a limited operation the service requirements need to be managed carefully. As a strategic consideration, the costs and benefits need to be weighed up with even more care.

Customer attraction

Delivery from store is where a retailer despatches stock directly from its retail outlet, typically running alongside their standard despatch from a central distribution centre to the customer. This is one of the ways retailers can introduce same day and same day timed delivery as well as enable flexibility in stock holding. For certain products at certain times the advantages of this are obvious: offering to deliver items purchased online that very day within a specified time window can be a compelling prospect for customers, who may be either impatient to get hold of their purchases, or wish to receive a product in a narrow time slot. It’s online catching up with the instant gratification of the high street with the added advantages of convenience.

Limited opportunity

However we believe that delivery from store will typically represent a small subset of total deliveries online, becoming a solution to service niche products, luxury products, or more expensive impulse purchases. Why is this? Because it will always remain expensive and it is prone to poor service execution. Delivery from store costs are inherently higher than central distribution costs; the stockholding policy runs counter to the strategic direction of most retailers and there are enormous hurdles to overcome in the store in order to provide a quality service to the customer.

Look at the full cost of service

It may be counter intuitive, but the full service cost of delivery from store is structurally more expensive than central pick, pack and delivery. Store pick and pack always takes longer to achieve than warehouse pick and pack; the latter is designed to be hugely efficient. The cost of local carrier pickup and delivery is higher than distribution from a central location because the carrier has to make a smaller, more expensive collection and ad-hoc back-of-store access is not always easy. From central and regional distribution centres, cost-efficient and fuel-efficient deliveries are made all over the country, at low unit cost. The last mile route is the same for both supply chains: except delivery from store might have a van or bike less fully loaded and therefore more expensive. Fully allocated costs therefore make delivery from store look relatively expensive. There is a convenience advantage for same day, it’s not clear there is any advantage for next day delivery.

What additional sales are being lost?

Customers who are attracted by a quick delivery option could well be those customers who are tempted into store to make a distressed purchase or are interested in immediate gratification. These shoppers are likely to spend more if they visit the store than if they make a single purchase online. Store stock availability will increasingly be popularised by Google Shopping so this approach needs thinking through. A difficult balance to be drawn between service and shopping basket value: but a useful consideration when choosing appropriate products to sell via delivery from store.

Restricted range in store

Many retailers are exploring ways to broaden their online offering without extending their range of stocked SKUs. This includes keeping to a minimum stock in the warehouses and stores. Commonly therefore, slower moving lines and range extensions are held at best centrally and preferably, for online orders, located with the supplier and delivered to the home directly by them (supplier home delivery or drop ship vendors). Logically then, as retailers expand their on-line offerings, a smaller proportion will be available in the store and therefore via a delivery from store service.

System support at point of service and in the store

Despatching from store may seem a simple task at first, but for a scalable solution to work, retailers need to introduce an automated process at point of sale and at store level*. A suitable system must match a customer’s delivery address with stock availability by store. The speed of this stock refresh is critical so that a process is only initiated when stock availability is assured. It’s likely that this can only cover fast moving/well stocked lines as a buffer needs to exist to allow for product that is held by a customer, but not yet checked out through the till. In the store itself an adequate system must identify the item location, calculate and record the necessary stock adjustments, produce the appropriate paperwork, produce a conformant carrier label, inform the carrier/courier of the need to pick up and provide real-time status visibility to store, central DC/head office and customer. All of this is eminently doable but approaching this as a quick fix or bolt-on will result in service failure, additional cost and dissatisfied customers.

Executing properly

When a retailer has committed to the delivery from store proposition, carrier choice and supply chain visibility is key. There are a number of solution types: for same day there are national networks with employed drivers like CitySprint, or regional aggregators of third parties like Shutl. Should anyone want to explore next day delivery, there is a range of national carriers offering timed delivery such as Parcelforce, DPD, City Sprint or UK Mail. Customers obviously expect an exceptional service having paid a premium fee for the same day privilege. Failure to adhere to the delivery promise often leads to far greater dissatisfaction (and potentially adverse publicity through social networking) than a failure of a low-cost or free service. Therefore complete end-to-end visibility of all despatches is essential as retailers need to be able to act proactively and in real-time if any problems do occur.

What of the future?

We expect delivery from store to continue to create interest and some excitement but over the next three years its adoption will probably fall behind expectation. It will be restricted to more specialist requirements and within each chain from a limited number of stores. Volumes are likely to be relatively small compared to total online sales. Argos are yet to roll out but in retrospect will probably be seen as a special case since its infrastructure is designed to provide a wide range of stock in store and each store is essentially a local warehouse with high levels of pick accuracy. At the same time some retailers are moving back from store pick to central pick, because of poor pick accuracy in store. Rewriting the rule book for home delivery is an interesting thought, but closer examination suggests that delivery from store will progress to be an important but niche innovation.

Patrick Wall is founder and chief executive of MetaPack.

*See MetaPack white paper