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When June Adamski plucked three sets of Magna-Tiles from a bin in the back of a Target store in Minneapolis for delivery to a customer in Wisconsin, the discounter’s ordering system suggested a Size 439 box.
The first two sets of magnetic building toys fit just fine. But when she tried to pack the third, she realized the box was an inch or so too short. It was a minor error, but also a small example of the challenges brick-and-mortar retailers are running into as they try to adapt their sprawling chains to a digital world.
The fast rise of rivals like Amazon.com Inc. and a far reaching change in shoppers’ habits has made it obvious that traditional retailers need to compete online. The trickier question is how to pull it off. Retailers’ answer is something called “omnichannel”—an attempt to use one set of inventory and assets to fill all orders.
The plan is driven by economic reality. Companies that already spend heavily maintaining thousands of stores aren't able or willing to shell out the billions of dollars necessary to replicate Amazon's 135-plus network of warehouses and fill them with inventory. While they are building distribution centers, they also hope some sweater sets can be shipped to online customers from a local Macy's, or that Internet shoppers will pick up the television they ordered at a nearby Target.
Retailers are relying on the approach more heavily than ever this holiday season. It makes perfect sense in theory. In practice, though, the efficiencies possible in tightly packed, highly automated warehouse are hard to reproduce with inventory spread across stores built for live customers. Workarounds run up against space constraints, and items aren’t always where computer algorithms predict them to be.
“This is the first year,” said Jason Goldberger, head of Target.com, which is shipping orders from 136 of the company’s 1,800 U.S. stores. “We’ll learn.”
Big retailers have thousands of often sizable stores built near where their customers live. But the chains were built decades ago on a hub-and-spoke model. Pallets of goods were trucked to centralized warehouses. From there, boxes were sorted and transported to thousands of stores. Now with e-commerce, retailers are faced with delivering millions of items to millions of customer homes.
Companies have figured out adjustments to make the process smoother. Target, for instance, is limiting the number of orders per store to a few hundred a day and is now keeping seven box sizes on hand instead of six. Wal-Mart Stores Inc. is giving in-store pickers tablets whose screens turn bright red when they scan an incorrect product. Macy’s Inc. blocks off time before its stores open to fill the bulk of the online orders.
“There is a long way to go from an omnichannel capability for most retailers,” saidMichael Mashintchian, the former head of Wal-Mart’s ship-from-store program, who is now the director of logistics for ShopRunner, which works with retailers to provide two-day free shipping and free returns to customers.
After two years of falling traffic, Wal-Mart has put some of its cavernous stores to use as mini-distribution centers for online orders. The 83 Supercenters that are shipping out online orders now handle more than a fifth of the goods bought on walmart.com.
Days before the Black Friday shopping rush this year, ship-from-store supervisor Emily Merritt darted through the aisles of a Wal-Mart Supercenter in Springfield, Mo. She plucked Transformer robots and Easy Bake Ovens from store shelves, logged them with a mini bar code scanner she wears on her fingers and dropped them into the 10 black plastic baskets she wheeled around on a metal pushcart.
She walks about 5 miles every shift, steering around other shoppers with help from instructions on a tablet computer. But she also is required to greet any customer within 10 feet and answer any questions they have. Just as she was about to grab a Nintendo Wii gaming console off a shelf, a customer stopped to ask her for help opening a locked case of videogames. Leaving her cart—and losing time filling her online orders—she went to find an employee who had the keys.
Ms. Merritt and her team handle about 1,000 items a day from the one store. At some robot-equipped Amazon warehouses, workers handle as many as 300 items an hour.
Wal-Mart says the ship-from-store operations are only one piece of a larger network serving its online customers. “We have fulfillment centers that deliver the vast majority of online orders,” said spokesman Dan Toporek.
In addition to building new e-commerce fulfillment centers, the company says the ship-from-store program has helped increase online shipping speeds by 15% since it began in 2012. Most goods shipped from its stores can get to customers a day after they are processed.
“Our stores actually become our advantage,” said Michael Bender, chief operating officer of global e-commerce at Wal-Mart.
Half of Wal-Mart’s online orders get delivered from or picked up in stores. Shopper studies, however, suggest the practice might not actually save customers much time.
During trips to Macy’s in October, it took shoppers an average 8.5 minutes to pick up cosmetics ordered online from the time they entered the stores, according to a study by StellaService Inc., which collects data about online shopping. By contrast, it took an average of just five minutes for the same shoppers to walk into the store and find the same items themselves.
Jim Sluzewski, a Macy’s spokesman, said the results aren’t necessarily a true comparison, because customers may sometimes come to a store for an item that Macy’s doesn’t have in stock. When they order online, “the customer knows the item is there and waiting when she arrives,” he said.
Still, retailers have to try.
“Starting from scratch can be quite capital intensive and building a new online fulfillment center comes with an entry price of at least $100 million,” said Debbie Fortnum, senior vice president of supply chain at Belk Inc., which fulfills online orders from 50 of its 300 department stores. “The longer you can defer expenses and make sure to leverage existing assets like stores, the better.”
Macy’s, which has been fulfilling online orders from its stores since 2012, realized early on that its sales staff would be too busy helping store customers to scout and pack items in time for a 4 p.m. UPS pickup. Its answer was to make filling online orders the responsibility of the merchandise team that keeps its store displays stocked and to give them the run of the store before it opens.
Even those experts can have trouble finding items. Erica Canales spent 10 minutes hunting for a men’s black Armani Jeans T-shirt on a recent morning at the Macy’s store at The Mall at Short Hills in New Jersey. She knew the shirt was supposed to be in a department geared to young men, but it wasn’t in the first pile she searched, or on a nearby rack. She eventually found it on another rack in the department.
“You have to think out of the box when you can’t find something,” Ms. Canales said. “If it’s a women’s hat, maybe it was accidentally placed with men’s hats. Or maybe a customer left it in the dressing room.”
Spending the extra time hunting for a T-shirt isn’t a big problem on a typical day, when the Short Hills store might fulfill 60 online orders. But during the peak holiday shopping season, when daily orders surge to 800, Ms. Canales said it can dent productivity.
Macy’s has replaced all of its 40,000 cash registers over the past five years with Internet compatible terminals that allow employees to search for a size or color across all of Macy’s 840 stores and two dozen fulfillment centers.
At Short Hills, the company also had to rejigger the store’s infrastructure to facilitate in-store pickups. Managers realized they would need a secure storeroom near the customer pickup area where orders could be kept. They picked a stock room off the ladies coats section—valuable real estate in the store.
“It was a big deal for them to give us this stock room,” said Diane MacNeill, the vice president of store operations and logistics, “because it’s prime space.”