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Stores as Distribution Centers

Multichannel retailers develop ways to improve their business

May 20, 2014

Multichannel retailers have long complained about the unfair advantages held by Amazon.com and other pure play ecommerce companies. In some ways, they were right about the uphill battle they faced. Pure plays didn’t have to deal with legacy real estate costs, and they didn’t have to charge sales tax in many situations. Logistically, it just seemed that a company like Amazon had a built-in edge.

As multichannel retailers become more sophisticated, however, they’re beginning to turn their physical footprints into trump cards rather than handicaps. Stores have transformed from being pure sales channels to being brand experiences, so much so that ecommerce companies such as Bonobos and Warby Parker have invested in storefronts as physical embodiments of their brands. They haven’t opened stores as sales channels—they’ve opened them to define the brand experience for customers.

But the real advantage may be for the larger retailers that can use their stores as fulfillment centers. By nature of its scale, Amazon can deliver to any address quickly from dozens of distributions centers—huge warehouses situated across the US and globe. With the help of sophisticated inventory and fulfillment systems, retailers such as Macy’s have been able to turn their stores into fulfillment centers. For local Macy’s customers, it gives them the option to buy online and pick up in-store. For more distant customers, the diffuse store network can reduce shipping costs and speed up delivery times. Instead of shipping across the US from a central warehouse and paying for delivery across five zones, Macy’s can find a store within a few hundred miles and pay one or two zones.

By giving multichannel retailers the ability to “zone skip,” this network of stores as fulfillment centers gives companies such as Macy’s the ammunition to compete with Amazon’s impressive logistical prowess. In doing so, these veteran retailers can lead in introducing the next wave of delivery options, such as same-day delivery, rather than figure out how to match Amazon after the nimble ecommerce giant changes the game once again.

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