Growing urban markets provide healthy prospects for omnichannel retailing. With limited household storage capacity, parking for vehicles, or shopping time, newer city dwellers are prime candidates for rapid omnichannel fulfillment.
CSCMP’s Supply Chain Quarterly is reporting about the challenges of fulfilling small volume, high frequency, rapid-velocity omnichannel orders in a highly congested urban setting: “Rising real estate costs make it impractical to establish high-capacity urban fulfillment centers that can provide efficient access to a wide inventory assortment. Vehicle parking challenges and proposed restrictions on delivery times in urban core areas can limit the ability to support consistent, same-day delivery. And, serving customers in high-rise offices and limited-access residential buildings adds to delivery complexity, time, and cost. So, despite the perceived potential, fulfilling urban omnichannel demand profitably poses quite a challenge”.
“Speed and convenience will be critical to winning over urban e-shoppers. Right now, retailers are relying on their existing supply chain footprint through store fulfillment and distribution centers. However, as urban demand continues to ramp up, successful retailers will be the ones that can build and develop new urban fulfillment capabilities to meet customer requirements and do it profitably”, according to the authors.
In urban areas, smaller store footprints with limited storage space make inventory availability more challenging, while minimal parking, heavy traffic congestion, and growing restriction of delivery vehicle size, stop times, and schedules make it hard to ensure fast delivery. These infrastructure concerns are less of a factor for suburban and rural areas.
The store-based fulfillment options are very popular with US retailers, with a slight preference for the deliver-from-store option. Fulfillment by retailer-operated regional distribution centers is also very popular. Fulfillment from non-retailer distribution centers, however, is not as widely used. Less than half of the US retailers surveyed by SRSC rely on vendors for fulfillment and only one out of four use logistics service providers’ facilities for urban fulfillment.
In addition to these more established solutions, retailers test innovative omnichannel fulfillment solutions. Three emerging options are “dark store” fulfillment, multi-tenant facilities, and pop-up fulfillment centers. Each solution holds promise for retailers.
Dark stores: More popular in Europe than in the United States, dark stores are retail outlets with no walk-in customer traffic. They execute fulfillment of e-commerce orders and sometimes provide emergency inventory replenishment for local stores. Completed orders are packed for final delivery to customers’ homes, lockers, or offices. The main challenges of dark stores include the real estate investment and ongoing operating costs. Retailers need consistent order volume to ensure that the facility can be profitable.
Multi-tenant fulfillment: These fulfillment centers allow retailers to access capacity in urban markets that have limited industrial vacancy rates. These shared e-commerce facilities, run by specialized logistics service providers, offer space flexibility, market proximity, and variable cost of operations for retailers. This strategy is garnering real estate developer investment.
Pop-ups: Pop-up fulfillment centers are a short-term approach to urban fulfillment. These temporary operations are generally located in empty malls or unused warehouses and are used to help retailers maintain service quality during peak and holiday seasons. When the pop-up facility is effectively planned and staffed, it can alleviate the strain placed on primary urban fulfillment operations when order volumes spike.
Read the full article with valuable suggestions on how organize urban fulfillment on the CSCMP’s Supply Chain Quarterly website.