How retailers can generate liquidity now: ‘Ship from Store’ in six practical steps – and what often goes wrong in the process
Not just since the Corona pandemic, fashion retailing in particular has been pretty dysfunctional: stores are stocked with more goods than they can sell. At the same time, in the fewest cases they are connected to the online distribution channels of the retailers, who are supplied exclusively by central warehouses. That’s why forward-thinking retailers are increasingly turning to the “ship from store” concept – the direct sale of stationary goods via online channels. Felix Finger and Andreas Lücker from the business and transaction consultancy Brook Valley explain how retailers can now implement this concept quickly and pragmatically and which mistakes they should certainly avoid.
“20% of the goods are often stored centrally, the other 80% is distributed across the stores,” says Felix Finger, founder and CEO of Brook Valley. “However, when these goods are offered in online sales channels, they are on the balance sheet as tied-up working capital until they are sold in store. ‘Ship from Store’ focuses on reducing that working capital quickly and generating new liquidity for retailers with faster sales across multiple channels in a matter of days to weeks.” To do this, retailers need to take a few steps. “In general, any retailer, regardless of size, can implement the concept,” says Felix Finger.
1. don’t strategize too much – start!
Most common mistake: Too much strategic discussion, too little pragmatic action.
The use of technology, new processes, costs not previously considered – there are a lot of issues that still prevent many retailers from implementing a ship-from-store concept. Felix Finger says, “A little more overcasual manner is called for. Actually a strength of German retailers.” That doesn’t mean there aren’t relevant issues to consider, as this article also points out – and that mistakes are being made. “For ‘ship from store,’ there is no one patent solution. Retailers need to try it out and learn quickly from their mistakes,” Finger says. “To do that, they need to get started. Retailers have already made the biggest investments for the business model anyway – the stores, the staff, the unused working capital in the form of goods. And finally: No one needs complex new software to get started. An Excel sheet works just as well to manage the process.”
2. record and consolidate inventories
Most common mistake: buffer is forgotten – and suddenly the goods ordered online have already been sold offline before.
To make the breadth and depth of the ranges in the stores usable, they first have to be recorded and consolidated. “Retailers need a precise overview of how many goods they currently have in stock at which location,” says Andreas Lücker, consultant at Brook Valley. The data must then be manually compiled in a file – to prepare a kind of navigation cockpit, for later shipment. Lücker: “A mistake that is often made in this process: The whole assortment is later also offered online, so that suddenly on and offline customers are competing for the same goods in the sales case and one party will be dissatisfied. That’s why we recommend planning at least a buffer for simultaneous sales via both channels, consolidated online across all stores, and implementing a platform for real-time inventory in the long term. Today, it makes sense to obtain this as a service in the form of ‘Software as a Service’ (SaaS), for example, rather than developing it yourself or initiating a complex implementation.”
3. calculate costs, determine contribution margin per item – and define platform strategy on this basis
Most common mistake: treating the entire product range the same – and offering it on all sales platforms regardless of margin.
The costs of the ship-from-store concept are roughly summarized as internal process costs (finding and packing the goods), shipping (outward and return), and possible commissions for sales platforms such as Zalando. The lower the price, the lower the total margin per delivery, Felix Finger says: “In order to be able to avoid the commission then, for example, and thus not give up the margin completely, parts of the range could be sold exclusively via stationary sales or in the company’s own online store up to a specific price or margin, as higher shopping baskets and receipts better bear the costs here. Above this price or margin limit, however, it can also make sense to advertise on commission-based sales platforms. With the greater reach, the more expensive products can still be sold at a satisfactory margin. We recommend that every retailer define these metrics and play with them, especially in the beginning, to get a feel for which sales channel works best for which product. Wrong decisions can be changed quickly and without major losses.“
4. understand speed as the most important differentiating factor – in case of doubt, it is better to cancel too quickly than too late.
Most common mistake: items are searched for too long and not reported as ‘missing’ – too late internal cancellation leads to late delivery or cancellation at the customer’s site.
If an order for a product is triggered, the handling of finding, packing and shipping must be distributed in an internal process of a store – this can be viewed via the coordinator of the process, for example in the Excel file mentioned above. If the item is not found in the ordered store, it must be reported back immediately as missing, so that the next store can be instructed instantly, or a possible cancellation is received by the customer in time for the order. “Nothing is more frustrating for customers than ordering something, waiting – and then receiving a cancellation,” says Andreas Lücker. “This means the sender immediately suffers a loss of trust and will no longer be considered for orders in the future. It’s annoying enough when an online information doesn’t match reality. But to keep the customer weighed, he should at least find out as soon as possible.” A mistake that the Brook Valley consultant often observes among retailers: Thoroughness takes precedence over accuracy here. Lücker: “Big search activities are started for the one product – and often it is not found afterwards. This results in process costs, and time is lost. I recommend canceling quickly rather than making customers wait too long and then immediately revising the product range list so that this kind of mistake doesn’t happen again.“
5. optimize shipping processes – don’t lose sight of costs
Most frequent mistake: customer is supplied by more packages than necessary, the costs rise thereby clearly.
If the customer orders via the online store or a marketplace, a so-called split order may result. For example, a customer can be supplied with two items from the central warehouse, one item from one store and another item from the other store – because this is a possible route according to current availability in the system. “This, of course, gives me all the relevant costs several times over,” says Felix Finger. “The order becomes much less attractive. Where speed counts in the non-discoverability step described above, here it’s a matter of taking a step back and defining: Which ways of shipping make the most sense? How can shipments be better consolidated to reduce costs?” Perhaps with one delivery from a store, or at least two deliveries, the order can be placed more efficiently. The key here is to use some common sense to build a set of rules, and especially at the beginning of the implementation of ‘ship from store’ to look very individually at complex orders to structure them in a way that makes sense.
6. plan the customer experience at home – pack professionally
Most common mistake: goods are packed unkindly, unlike in an on-site purchase – the customer perceives the received goods as less valuable.
“It’s curious that some employees in stores don’t seem to find it so easy to pack the packages for their customers in a way that is appealing,” says Andreas Lücker. “Yet they often know the goods much better than their colleagues who work in warehouses. And they’re also used to assembling and packaging products in an appealing way for customers who buy in-store – especially in the more upscale segments.” Those who opt for ‘ship from store’ should therefore train and educate local staff sufficiently to package goods in a way that appeals to customers at home. Lücker says: “The shopping experience at home begins with the feel of the cardboard box and the packaging of the product. Those who have ordered something high-end in particular will expect a consistent experience. Those who put more effort into packaging therefore have lower return rates.”
“Precisely because the challenges are so individual, we can only provide an exemplary insight here into the possible structure of a ship-from-store concept,” says Felix Finger. “Thinking further about the concept to reduce working capital, the next step would be a concept for ‘ship from customer’ – where returned goods are shipped directly from one customer to the next. This would not only reduce costs, but would also be an ecological next step. So far, there are no functioning projects in this field – but I’m sure that in the long term, retail must and will develop in this direction.”