Retailers beef up online muscle
MARTINSBURG, W.Va. — The brave new world for retailers can be found in small cities like Martinsburg.
That's where department store chain Macy's recently opened a facility the size of 43 football fields — big enough to stock 1 million pairs of shoes — just to fulfill orders made online.
The $150 million building, its third one dedicated primarily to supporting macys.com, has been handling 60,000 orders on a busy day this holiday season. Macy's expects that figure to triple in two years.
“The customer is increasingly voting that she wants to shop both ways,” said RB Harrison, Macy's executive vice president in charge of integrating e-commerce and store operations.
From Macy's to Home Depot and Best Buy Co., retail executives are racing to speed up order delivery and improve inventory management, which if done well, can help profit margins.
Many chains are also hiring staff, or even buying firms in Silicon Valley, to get the edge in technology.
“Today, tomorrow and going forward, you are comparing the experience in our store to the experience of sitting in your living room, in the comfort of your home, ordering something on your laptop, your smart phone or your iPad,” said Home Depot CEO Frank Blake.
“Your willingness to put up with rude associates, dirty stores and out of stocks is just going to go down and down and down. Our bar on performance in our stores is going to go up and up and up,” he said.
To be sure, online sales to date account for just 7 percent of retail sales, according to Forrester Research. But the firm expects online sales growth to rise 45 percent to $327 billion and account for 9 percent of overall sales by 2016.
Retailers are realizing they must respond to that kind of growth.
“When I was meeting with brick-and-mortar retailers 24 months ago they weren't thinking about online,” said Carlo Bronzini Vender, a senior partner at New York-based investment bank Sonenshine Partners who helped advise Drugstore.com when it was bought by Walgreen in 2011. “Now people are being more proactive about it.”
Even if some retailers like Macy's are less exposed to the threat from e-commerce's 800-pound gorilla Amazon.com than a company like electronics chain Best Buy, they are all under enormous pressure to offer faster delivery times, better service and an array of products.
Already armed with 40 e-commerce fulfillment facilities, Amazon is set to open another 7 centers next year.
And by next year, Amazon could offer cost-efficient same-day shipping to every customer in the 10 largest U.S. cities, according to RBC Capital Markets.
This year, Saks, Dillard's and Kohl's Corp. are among retailers that opened the biggest online fulfillment centers they have ever had.
And those without much of an online presence are moving quickly to get one. For example, T.J. Maxx parent TJX Cos. Inc., which sells designer clothing and home goods at discounted prices, said on Friday it bought off-price Internet retailer Sierra Trading Post for about $200 million.
Most national retailers have largely stopped opening new stores as same-store sales growth has slowed compared to online.
But the stores can be a major weapon for companies like Macy's and Home Depot as they fight Amazon.
Since this summer, 292 of Macy's 800 stores have been doing double-duty as mini-fulfillment centers that assemble, pack and ship online orders, up from 23 stores a year ago. It plans to add this function to 200 more stores next year.
Nordstrom Inc has been doing this for years, giving it a big lead over other department stores.
At Macy's, already 10 percent of orders placed online have been dispatched through stores this holiday season.
“It's a natural extension for us because of our ability to leverage the 800 stores' inventory,” said Harrison of Macy's. He noted that the cost for equipping a store for e-commerce is relatively small, requiring a small space in the docking area for tables, scales, and room to pack boxes.
Saks is testing “ship-from-store” and expects to roll it out next fall. Wal-Mart Stores and Kohl's are also testing it.
“Fulfilling online orders from the store is the most important thing that will change physical retailers over the next five years,” said Matt Nemer, an e-commerce analyst at Wells Fargo.
The strategy is aimed squarely at boosting profit margins.
Saks CEO Stephen Sadove envisions a scenario in which a pair of shoes sitting unsold at his Saks Fifth Avenue flagship could be used to fill an online order and sold at full price, instead of ending up being sold at a discount, hurting profit.
Macy's computers have complex algorithms that scour companywide inventory, factor in distance and shipping costs to come up with an optimal way to assemble and ship an order.
Despite higher shipping costs, Macy's shipments are often split between locations if a computer determines that the benefit to margins from selling an item that a store doesn't need or has too much of outweighs the extra expenses.
Stores are also serving as pick-up spots for online orders, and many retailers are finding this a boon. Wal-Mart says customers spend about $60 in a store when they pick up items ordered online.
In November, Best Buy decided to assign additional employees to deal with in-store pick-ups since 40 percent of bestbuy.com orders are now picked up.
Danger of missteps
Even Amazon sees the benefits of a physical presence. Staples said last month it will install “Amazon Lockers” at its stores, allowing customers to have packages sent to Staples stores to avoid delivery hassles.
The biggest reason many retailers are only now offering ‘ship-from store' and in-store pick-up is that the traditionally managed store and e-commerce inventory had been handled separately.
That is changing rapidly. Saks is spending about $40 million this year to update its computer systems in part to integrate databases. Industry experts say Nordstrom's e-commerce lead over department store rivals stems in large part to technology investments it made years ago.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Small stores take big gamble by not upgrading credit card readers
- Yahoo investors losing patience with ‘star’ CEO Marissa Mayer
- Shopping beacons join list of ‘next big thing’ disappointments
- Amazon raises bar for other retailers with same-day delivery
- Signs of steady U.S. economy: Pay, home sales up, unemployment applications down
- Nutritional supplement makers, led by GNC, want to create voluntary safety standards
- Covestro leader MacCleary finds stability amid change
- Smartphones expected to overtake desktops for holiday shopping
- Many Black Friday deals not worth the hassle
- Take steps to make it harder for holiday hackers
- U.S. companies in 1st profits slump since 2009