Transforming retail stores into online micro fulfilment centres can create new revenue streams and enhance efficiencies – but success is dependent on seven key factors says TM Insight’s Tom Fitz-Walter.
As shopping centre vacancy rates rise to the highest level in more than two decades, and e-commerce penetration rates hit record highs, retailers are looking to repurpose underperforming stores.
According to fresh research from JLL, the national average shopping centre vacancy rate increased to 5.1 per cent in June 2020, up from 3.8 per cent in December 2019.
Meanwhile, NAB figures show Australia’s e-commerce penetration rates hit 10.3 per cent in May, off the back of 10.4 per cent in April.
Supply chain and property consultancy TM Insight’s clients have reported a 400 to 600 per cent increase in online sales this year.
“In this age of immediacy, retail stores are in prime positions to be transformed into online micro fulfillment centres and unlock shorter delivery times,” says Fitz-Walter, TM Insight’s executive director of supply chain.
He points to Kmart, which has recently responded to a “surge in online orders” by turning three stores into ‘dark stores’ that cater solely for online shopping.
But repurposing retail is not as simple as it first seems, and can result in an inefficient and costly operating model, Fitz-Walter warns.
“Online retail is an expensive channel to service, and the process requires a complete transformation that must be aligned with a retailer’s whole supply chain strategy.”
Fitz-Walter says success is dependent on seven factors:
- Inventory control: Competitive margins require a site that can fulfill a viable number of orders each week and hold an optimal level of inventory.
- Internal operations: Automated solutions can increase operational efficiencies and reduce operating costs by supporting higher storage density in a smaller footprint. “Some fulfilment operations may not adopt automation due to the capital investment required, however optimal process and layout is critical even in a manual environment,” Fitz-Walter explains.
- Packaging: “Orders need to be packaged in disposable or reusable bags. This choice needs to align with the retailer’s sustainability strategy and customer preferences.”
- External operations: Adequate external space, access, parking and operating infrastructure, such as recessed loading docks, ensure smooth and safe operations. “Transportation of goods to and from the micro fulfilment centre, particularly in densely-populated areas, needs to consider restrictions or curfews. This may mean that the operational hours are determined when less foot and vehicle traffic is around the micro fulfilment centre’s perimeter.”
- Repurposing car parking: Converting under-utilised carparks into order dispatch areas could facilitate deliveries and allow retail landlords to draw a direct income from the space, Fitz-Walter suggests.
- In-store spaces: Large format retailers that convert stores into micro-fulfilment sites may benefit from designated in-house showroom spaces. “These can open opportunities for customers to see, feel and experience products. The rest of the site could be transformed to cater for order fulfilment, either to a customer in the store, like a live version of a vending machine or for home deliveries.”
- Employment agreements: When transitioning original retail staff into fulfilment operators, the retailer must closely examine and re-evaluate existing labour agreements, minimum pay rates and conditions for employment.
“Despite the complexities and multiple considerations, repurposing retail stores into online micro fulfilment centres is an exciting and untapped opportunity that can help retailers to streamline their operations and help asset owners uncover new revenue streams,” Fitz-Walter concludes.