The trend for online retailers to establish a “real world” store network continues to gather pace in 2018. Alistair Balderson, IGD's Head of Supply Chain Insight, looks at some recent developments.
Last week the two major Chinese online retailers were in the news. Alibaba announced the expansion of their Hema supermarket chain with 30 new stores to be opened in Beijing during 2018. And JD.com opened their 7Fresh branded store also in Beijing last week, with a range of exciting tech-enabled features.
This follows on from what must have been the biggest global retail story in 2017, Amazon’s acquisition of Whole Foods Market. This was a clear statement that Amazon sees a physical store presence as vital for serious growth in grocery and packaged goods.
Both Alibaba and JD.com are at the forefront of developing new retail features, such as payment by facial recognition, smart shopping carts and personalised services which combine the online and offline offerings. You can find out more in our Retail Analysis service.
What are the supply chain implications of these developments?
Amazon and their Chinese competitors are all creating and rolling out advanced supply chain technology: for example JD.com demonstrated automated warehousing and drone delivery during 2017. So you can guarantee that these store networks are not just about selling.
In my view, a crucial aspect of developing these physical stores is to widen their network of convenient local delivery points. These might be used as customer collection points (one of the first things Amazon did at Whole Foods was to install Amazon Lockers) or as consolidation hubs for home delivery.
This reinforces the idea that for online retail in grocery, the “click and collect” model is likely to become dominant, assuming that it can be made sufficiently convenient for the customer. It avoids some of the negatives of home delivery such as urban congestion, low levels of vehicle fill and failed deliveries.
What about retailers with existing store networks?
Most retailers have a store network already, so their focus is on how to use this space most effectively. It is obviously primarily used for selling, but also to pick and deliver online orders often creating inefficiencies and getting in customers’ way. We have already seen developments such as more shared use of stores (i.e. separating off space as units to let out, or incorporating foodservice offerings), improved click-and-collect facilities, and parcel collection points (eg Asda and Walmart’s recent “parcel vending towers”).
In the future, retailers will need to use their store estate wisely, balancing the selling space with “working” warehouse space. Many stores currently see their warehouse space as low priority: “the back of the shop”, to be minimised. But it could used for a range of different purposes and maybe expanded: a local consolidation centre, partial picking of customer orders, and subletting to third parties as is seen in the main store.
This evolving approach to store space will mean that stores cannot be measured on sales per square metre alone – it will need creative thinking and a different approach to retail metrics.
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