Trend of Combining Retail Stores and Warehouses Could Change Industry

August 7, 2018 – People going in and coming out of a Walmart store on a sunny day

As online shopping surges in the pandemic, Walmart is launching test stores to try new ways technology and physical enhancements might speed customer service. First up is the combined store and warehouse.

The plan is one that fast-food giants such as McDonald’s have incorporated for decades but with a twist relevant to retailers’ real estate: Use stores for real-time experimentation that incorporates elements of physical shopping destinations and online fulfillment centers, becoming barometers for the rest of the fleet.

With more than 4,700 stores across the United States, Walmart’s pioneering strategy is expected to be closely watched by other retailers as it looks to reimagine its massive real estate assets — a big leg up on e-commerce-only retailers such as Amazon — to better address fast-changing consumer demands and shopping preferences that include new online fulfillment pressures.

When you “start to turn the back of [stores] into micro fulfillment centers — then you’re really on to something,” said Lee Peterson, senior vice president of thought leadership and marketing for retail research group WD Partners.

As the world’s largest retailer, Walmart influences the entire industry, and its experiment can redefine how retailers refashion their real estate needs. That’s especially true as COVID-19 concerns fast-track the quick-growing online shopping behaviors such as curbside pickup or the buy online, pick up in store that’s known in the industry as BOPIS.

That said, there’s no guarantee this will work. Retail customers say they want something special when they go into a store, and turning a big chunk of that space into a warehouse may not address that need. And Walmart has made other bets that have not panned out.

John Crecelius, senior vice president of Walmart’s U.S. stores, acknowleges the challenge in a blog post, saying “this year has ushered in a new era of retail, and customers are asking for retailers to show up differently.” He added that “we’re moving quickly to use our physical retail stores to not only serve in-store shoppers, but to flex to meet the needs of online shoppers, too.”

Crecelius said Walmart is embedding product and tech teams into stores to “prototype, test and iterate solutions in real time, scaling what works and scrapping what doesn’t, creating a true rapid prototype environment.”

Changing Store Properties

That said, Walmart already has two stores in the works and another two planned, though it did not identify them. A goal is to continuously rotate new technology, digital tools and physical enhancements in and out of the stores to speed up gathering products for delivery and curbside pickup orders.

A new app being tested uses augmented reality to scan multiple boxes at once, reducing the time it takes to get them on the sales floor. Added signs and handheld devices are expected to help associates navigate stores quicker.

At the same time, Walmart wants to solve the inventory gap between what’s available in stores compared to its online product lineup. By moving, say, most of the in-store apparel assortment online, the company hopes to improve what’s called the omnichannel shopping experience.

Polishing that experience as COVID-19 concerns continue to diminish in-store traffic has shot up to No. 1 on all retailers’ to-do lists. Online shopping with curbside pickup or BOPIS were gaining momentum ahead of the pandemic; now it’s full steam ahead.

“We’ve known for years that BOPIS was huge to the consumer — bigger to consumers than it was to retailers,” Peterson said, adding that delivery, curbside pickup and BOPIS are never going to go away even after the world gets back to some kind of post-pandemic “normal.”

A recent WD Partners survey underscored how demanding consumers have become, wanting all sorts of purchasing choices but still insisting the in-store experience be special. When asked whether they would trek to stores as much once they all reopened, 52% said no way. That would indicate more than half of the market is ready for what WD Partners calls “fast-fill commerce.”

Here’s the but: Some 48% said they would still visit stores as much as they did before quarantines. Peterson said that means e-commerce and BOPIS “have a possible ‘majority of shopping’ future, belying those who tout the 80% physical retail hyperbole as the past two years.”

That supports the emerging practice of using the back of the stores as fulfillment centers, he said. And training workers to respond as quickly and easily to curbside pickup or BOPIS orders as they would in-store purchases will be paramount to success.

Challenges remain, however. Don’t forget the magic of the in-store experience, Peterson said. Nearly 50% of consumers said they when they go into stores, they expect to be wowed. “They’re saying most of the time from now on I’m going to have my purchases delivered or picked up, but if I go to a store it better be really nice,” Peterson said. “If you’re a retailer, you have to have it all.”

The Bentonville, Arkansas-based giant has shown in recent years it’s not afraid to pull tests that are not performing as well as executives expect. In May, it announced it was doing away with, its $3 billion acquisition made to compete against Amazon. The company found that its own site was more cost efficient.

And just this week, Walmart said it will no longer use in-store roving robots to track stock positions, a technology it hoped would reduce labor costs while keeping inventory intact. Its lesson here was that humans were more proficient than the tech.

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