More Stores Do Double Duty as Distribution Centers for Online Orders

Beauty goods retailer Ulta Beauty Inc., department store chain Macy’s Inc. and apparel seller Tilly’s Inc. are among those expanding their store fulfillment, joining merchants such as Best Buy Co. and Nordstrom Inc. that have used the strategy for years. 

The tactic allows retailers to offer online shoppers access to clothing, electronics and other goods that may be on racks or shelves in stores even when a company’s e-commerce distribution center is out of stock. It’s a seemingly simple calculation, but supply-chain experts caution that shipping from stores can be more challenging than filling orders at fulfillment centers that are set up for the job.

Ulta expanded the number of stores it uses for fulfillment amid the pandemic-driven surge in online shopping. It now packages orders at 116 of its approximately 1,350 stores, said Amiee Bayer-Thomas, the company’s chief supply chain officer.

Ms. Bayer-Thomas said shipping from stores can shave as much as a day off delivery times, and it allows Ulta to tap into inventory across warehouses and stores.

“We recognize the consumer journey is no longer linear,” Ms. Bayer-Thomas said. “Ulta Beauty must provide shopping options that reflect how and where our guests want to engage.”

Retailers are looking for ways to adapt to shifting consumer shopping habits and capture sales coming out of the pandemic as people return to stores, e-commerce growth slows and fulfillment methods such as buy online, pick up in store become more popular.

Companies can miss out on online sales if items are out of stock at the warehouse but in stock at a store. Adding the option to ship from a store allows retailers to avoid the “out of stock” message on websites that can send shoppers to rival retailers. 

Merchants also can speed up delivery by taking advantage of their bricks-and-mortar sites that are typically in population centers, far closer to customers than warehouses on the outskirts of cities. 

Getting closer to customers can lower shipping costs, but the strategy can also lead to duplicate costs, said Vishal Gaur, a logistics professor at Cornell University’s SC Johnson College of Business.

A retailer has “sent the product to the store and incurred the logistics cost of it going to the store,” Mr. Gaur said, and then will pay again for picking and shipping the product from the store. 

Brendan Witcher, principal analyst at research firm Forrester Research Inc., said many retailers are turning to the strategy this year as they look to get more out of their existing stores and employees rather than investing in new distribution centers amid concerns about an economic slowdown.

“Recession fears have caused people to say, ‘We’re not going to spend $12 million on a warehouse. What can we do cheaply?’” he said.

Macy’s plans to use more space at its stores for fulfillment operations. The chain said it has converted areas in 35 stores to serve as semi-automated miniature distribution centers.

The strategy adds “about 1 million square feet of supply chain we didn’t have last year,” said Jeffrey Gennette, chief executive of Macy’s, on a Nov. 17 earnings call. 

Mr. Witcher of Forrester said many companies opt to have a dedicated fulfillment area within their stores rather than having workers grab items off the floor.

“One of the things that retailers often think is, ‘We’ll just pull things off the store floor,’ and that’s all well and good until you actually try to do it in front of a customer who’s trying to grab that last item,” Mr. Witcher said. 

Finding goods in stores where customers may pick up items and then drop them randomly around the aisles is also more challenging than managing inventory in a warehouse. That is one reason department store Nordstrom is pulling back on shipping orders from stores for its discount brand Nordstrom Rack. The company will continue using Nordstrom stores to fulfill online orders for that brand.

Chief Executive Erik Nordstrom said on an earnings call Nov. 22 it was difficult for Rack workers to find products “in a treasure-hunt environment in the stores,” which caused orders to be canceled when items ordered online couldn’t be found.

Irvine, Calif.-based casual apparel retailer Tilly’s added the capability to ship from its stores during the pandemic to allow customers to shop for a wider array of additional inventory. 

The strategy has paid off in that it “clearly helps prevent what would be a much higher rate of item/order cancellations than would otherwise take place,” said Tilly’s finance chief Mike Henry.

Write to Liz Young at [email protected]