10/10/16, 9:28 AMGuest Voices: In-Store Fulfillment is No Defense Against Amazon - WSJPage 1 of 4http://www.wsj.com/articles/guest-voices-in-store-fulfillment-is-no-defense-against-amazon-1469635863Facing a growing threat from Amazon.com Inc. and its e-commerceimitators, many traditional retailers and supermarkets are trying toturn a weakness—their costly brick-and-mortar stores—into acompetitive advantage. The so-called omnichannel solution envisionsthose outlets operating both as familiar sites for merchandise displayand as fulfillment nodes for online sales.The idea is that customers that buy goods online can pick uppurchases at the store or receive deliveries at home from the store.The goal is to outflank the e-tailers’ cost advantage by using thephysical store network to serve the online buying channel.In reality, however, there are critical flaws in the strategy, and withoutadjustments retailers won’t get the gains in efficiency and lower coststhey need to compete with online marketplaces.This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visithttp://www.djreprints.com.http://www.wsj.com/articles/guest-voices-in-store-fulfillment-is-no-defense-against-amazon-1469635863BUSINESS LOGISTICS REPORTGuest Voices: In-Store Fulfillment isNo Defense Against AmazonIn a commentary, MIT’s Yossi Sheffi writes that e-commerce strategies forged by traditionalretailers have critical flaws as storefronts try to meet the online-marketplace cost advantage|So-called click-and-collect strategies add new work tasks at brick-and-mortar stores wherecompanies have been moving to reduce jobs with greater automation. PHOTO: BLOOMBERGNEWSJuly 27, 2016 12:11 p.m. ETBy YOSSI SHEFFI10/10/16, 9:28 AMGuest Voices: In-Store Fulfillment is No Defense Against Amazon - WSJPage 2 of 4http://www.wsj.com/articles/guest-voices-in-store-fulfillment-is-no-defense-against-amazon-1469635863In-store fulfillment requires store employees or contractors to roamthe aisles and “pick” the goods that customers have placed in theirdigital carts. The goods are then held, and for supermarkets they maybe stored in a temperature-controlled space. When the customerarrives or the home-delivery vehicle is ready to depart, the goods areretrieved and handed over to the consumer or loaded onto thedelivery vehicle.The trouble for the store is that all this handling of goods runs counterto the concerted efforts companies have made to use technology toreduce costs and employee head count by shifting work fromemployees to customers.This is called load shifting, and it has become commonplace across theworld of customer service. Bank customers conduct financialtransactions on ATMs, eliminating the need for tellers; airlinesprovide automated check-in desks that allow them to drastically cutback the number of agents at airport counters; supermarkets providescanning kiosks that have customers scan and bag their groceries.In-store fulfillment moves retailers in the opposite direction bycreating work for store employees that used to be performed bycustomers. It disrupts work flows at stores and adds new, inefficienttasks in sites ill-designed for the new duties. The picking operationsaren't mechanized—as they may be in highly automated e-commercefulfillment centers—and the efficiency of backroom operationsdeclines because too many people undertake too many different tasksin limited space. Operations behind the display aisles can be critical toa store’s profitability, but satisfactory technological solutions formechanizing backrooms and reducing congestion there are notreadily available.Some retailers believe in-store fulfillment can spur sales by bringingonline customers into stores. That is a dubious proposition, however,and it’s more likely that it reduces impulse purchases in stores.Retailers also may believe they are lowering their transportation costs—having customers pick up goods in the store replaces spending ondeliveries, after all.This equation is suspect, however. The biggest cost in the in-storefulfillment model is the picking and packing operation, nottransportation, and here companies are adding new costs and newcomplications that spread across their business.TOP LOGISTICS NEWSGet the latest logistics and supply chain news and analysis via an email newsletter. Sign uphere.10/10/16, 9:28 AMGuest Voices: In-Store Fulfillment is No Defense Against Amazon - WSJPage 3 of 4http://www.wsj.com/articles/guest-voices-in-store-fulfillment-is-no-defense-against-amazon-1469635863Yet traditional retailers still need to compete effectively with the likesof Amazon.com. E-commerce business volumes are growing, unlikethe relatively stagnant brick-and-mortar sector of retailing. And themajor online players continue to pull customers away from storeswith expanded product offerings and aggressive free-shippingprograms.How can traditional retailers fight back? There are several possibleways forward:• Brick-and-mortar retailers could compete head-on with pure e-commerce players by building a network of efficient fulfillmentcenters. Perhaps large retailers could band together to build therequired infrastructure.• Using a third-party to take on fulfillment is another option; manysmall retailers employ Amazon’s system.• Refine the current in-store fulfillment model by, for example,developing stronger yield-management solutions that improvecapacity, truck utilization and pricing. In addition, store employeesshould be better trained to perform multiple functions including e-commerce fulfillment, eliminating the need for a management andexecution team dedicated to online customers.• Rethink the traditional model for the actual stores. For example, cutfloor space, and have customers buy products by pointing theirphones at item bar codes or CR codes. The front of the store becomes ashowroom and the backroom prepares the purchases for pickup.Amazon’s own growth plans are closely held, but my guess is that thecompany will open retail outlets operating in a fashion similar to thelast suggestion with a redesign of the entire concept and function of astore. If this comes to pass, there will be even more pressure on brick-and-mortar retailers to change their fulfillment models.These options aren't easy; they involve substantial investments,creativity, silo-busting, and a good deal of experimentation.But the alternative is even less
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