November 9, 2016

Accustomed to the service of the online giants, today’s shoppers increasingly expect more of their online experiences—more product options; faster, more convenient and more accurate websites; more speed of delivery and low-cost or free shipping.

For traditional retailers trying to run a successful online arm in addition to their bricks-and-mortar stores, it’s a big challenge to create seamless, but also cost-effective strategies for projecting a strong and consistent brand image for both the in-store and online customer experiences.

And yet the rewards are high for those that get it right: Customers who find that their online experience with a brand matches their in-store experience are more likely to remain brand loyal.

“One of the hurdles for traditional retailers is that their operations—from their network of distribution centers to their inventory and warehouse management systems and their IT infrastructure—were originally built around brick-and-mortar stores,” says Aaron Ahlburn, Managing Director, Industrial Research for JLL. “Incorporating a complementary system that is equally optimized for the transportation, delivery and logistical requirements associated with running a large e-commerce operation is a critical long-term undertaking.”

Striking the right balance will likely only add to the complex business requirements for traditional retailers over the next few years.

Competing with the online retailers

In addition, the online giants are consistently raising their game.

“Historically brick-and-mortar retailers may not have supply chain networks as nimble or elastic as that of their online-only counterparts, but they can leverage their stores to close that gap,” says Matt Powers, Executive Vice President for Retail/e-Commerce Distribution, JLL Americas. Indeed, what some traditional retailers overlook is that their bricks-and-mortar stores can actually provide a leg up on online competition, especially for those with strong brand names. In addition to boosting their logistics networks, traditional retailers potentially can use their physical stores to create convenience and competitive advantage.

Home Depot’s brick-and-mortar stores managed approximately 42 percent of online orders and 90 percent of online returns in the second quarter of 2016, proving that omni-channel integration can be successfully executed. A recent JLL survey found 44 percent of retailers offer an “order online/pick up in store” option, and 48 percent offer free shipping from the store. Having the option of ordering online, then stopping by the store for a quick pick-up, provides both speed and convenience.

“Retailers need to wake up: stores are a huge advantage in the fight for the best last-mile delivery strategy,” says Powers. “Larger retailers with scale and a system of stores can use a retail location’s storage backroom as a mini-distribution center. In this way, they can offer customers the option of ship-from-store or store fulfillment.”

For some retailers, that advantage will only last so long, however. A number of other formerly pure-play e-tailers have opened physical stores or showrooms, including Warby Parker, Bonobos, Blue Nile, ModCloth and others.

Major retailers invest in e-commerce

To build or to buy is the critical decision for e-commerce and retailers alike when it comes to building the integrated delivery strategy. Walmart, for instance, recently announced that is has officially acquired, a fast-growing online retailer. The combination gives Walmart access to new customers and a high-speed delivery network that will help it compete against online giants, while Jet gains access to Walmart’s sourcing power and distribution footprint, among other benefits. Previously, Walmart began testing delivery partnerships with Uber and Lyft in selected cities to expedite deliveries.

Earlier in the summer, Nordstrom purchased a minority stake in DS Co., a supply-chain software firm, to help the luxury retailer fulfill a growing volume of online orders without sacrificing profits—or customer satisfaction. It provides a cloud-based “drop shipping” service, routing online orders directly to the supplier—instead of to the retailer—to be shipped to the consumer. Drop shipping means Nordstrom can reduce costs by holding less inventory, and serve online shoppers more quickly.

Meanwhile, department store Macy’s is charting its own course. It recently announced it would be closing 100 of its stores and use the money saved to invest more heavily in its e-commerce operations.

Building loyalty

With competition more fierce than ever before in the retail arena, even the most successful retailer with a loyal fan base can’t afford to deliver anything other than a great customer experience every time.

“Retailers need to tailor the logistics footprint according to the types of products they sell and where the customers are coming from,” says Powers. “Improving product availability and delivery no matter where the customer is shopping is critical.”

Creating harmony between retail operations and the online experience is also key to maintaining a strong brand image. “Retailers who invest technology, develop their distribution network and last-mile strategies, and continually work to innovate, will be best positioned to capture a greater share of consumers’ wallets in both the physical and digital worlds,” concludes Ahlburn.


Aaron Ahlburn

Director, JLL Industrial Research

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