Friday, December 2, 2016

USING RETAIL STORES AS FULFILLMENT CENTERS

Smart or a supply chain disaster in waiting? 


As Web Sales Spike, Retailers Scramble to Ship From Stores

Companies try to keep a balance between online promotions and ability to fulfill orders quickly


Toys ‘R’ Us has prepared nearly its entire chain of 870 stores to help ship web orders during the holidays. A Black Friday shopper at a Toys ‘R’ Us in Fairfax, Va. ENLARGE
Toys ‘R’ Us has prepared nearly its entire chain of 870 stores to help ship web orders during the holidays. A Black Friday shopper at a Toys ‘R’ Us in Fairfax, Va. Photo: PAUL J. RICHARDS/Agence France-Presse/Getty Images
Toys “R” Us Inc. is trying to avoid a repeat of last Christmas, when it had to deploy an unusual step: “sales prevention.”
At that time, online promotions fueled a surge of web orders two times more than the company’s forecast on several days and beyond what its main e-commerce fulfillment centers could handle. Afraid that items wouldn’t arrive by Christmas, management halted some online deals to deter shoppers—a drastic measure during a period that generates half of all annual toy sales.
To address the issue this year, the Wayne, N.J., company has prepared nearly its entire chain of 870 stores to help ship web orders during the holidays. It started cramming its stores with as many goods as possible weeks earlier than last year, and is offering bonuses and better wages to recruit seasonal warehouse workers.
The company, which had $11.8 billion in sales last fiscal year, says it has built in capacity to ship nearly twice as many units from its stores this holiday season, while transporting nearly 25% more from fulfillment centers.

Toys “R” Us Chief Executive David Brandon said Monday that the company’s website, fulfillment centers and stores handled record online traffic in the days surrounding Thanksgiving, “but it is still early in the season.”
ENLARGE

Two decades after Amazon.com Inc. was founded, traditional retailers are still struggling to manage hundreds of brick-and-mortar stores, while trying to maximize online sales. The difficulty is amplified during the holidays because online sales spike up to four times normal volume at peak times, putting retailers’ e-commerce bandwidth to the test.
Shoppers this year are expected to spend more than $650 billion, both online and in stores, during the holidays. Last year, online sales in the fourth quarter were roughly a third higher than the previous three quarters, or about $20 billion, according to the Commerce Department. Growth in online sales outpaced that of stores in the fourth quarter a year ago, but remained a small 7.5% of the total, the data show.
“You build a church for Easter Sunday,” said David DuBose, a director of supply chain solutions at Sedlak Management Consultants Inc.
Across the industry, traditional retailers are taking similar steps. Kohl’s Corp. is hiring workers earlier, raising wages and offering bonuses during peak times to ensure fulfillment-center employees stick around. Target Corp. has more than doubled the number of stores shipping online orders this year to more than 1,000. Wal-Mart Stores Inc. added 50% more inventory dedicated exclusively for web sales for the days surrounding Black Friday.
Target operating chief John Mulligan said enlisting its brick-and-mortar footprint allows inventory in stores to be used for web orders, while freeing up online distribution centers to focus on shipping expanded sizes and colors of products that stores don’t carry.
One thing Target wants to prevent: backtracking on planned online promotions because of a lack of bandwidth in its supply chain. “We’re not going to throttle demand to try to meet the operational needs in the background,” Mr. Mulligan said.
At a Toys “R” Us store in suburban Totowa, N.J., signs of the preparation abounded two weeks before Black Friday. Every aisle was topped with mountains of extra merchandise, from Barbie Dreamhouses to Nerf blasters.
“We’re using every nook and cranny,” said Debbie Lentz, the retailer’s chief supply-chain officer.
The chain started stocking up on inventory in August, weeks earlier than last year. Larger items such as playhouses and gear for its Babies “R” Us business also were shipped to stores earlier to free up its supply chain so it has maximum flexibility during peak times.
Toys “R” Us, which is privately held, hopes it has done enough.
Last year, starting the weekend before Thanksgiving Day through the Black Friday mayhem to Cyber Monday’s web-sales bonanza, Toys “R” Us clocked online sales on some days that were twice as much as its projections.
The company turned to its brick-and-mortar locations to handle the order surge, but that chewed into inventory reserved for its stores. Shorting stores on popular products likely would anger consumers so executives decided to slow online sales. With the clock running out to Christmas, Toys “R” Us scaled back some online marketing, and eliminated other deals entirely.
“They just couldn’t get ahead of it,” Ms. Lentz said. “We were concerned that if this keeps snowballing, we wouldn’t be able to make all deliveries.”
Compounding the problem, some employees didn’t show up for work at the company’s main online fulfillment hub in Groveport, Ohio, a corridor where a number of retailers have based similar operations.
“People will go down the road, and if they can make an extra buck an hour, they will leave,” said Mr. DuBose, whose firm is based in Cleveland.
To fix the labor issue, this year Toys “R” Us raised wages in Groveport—near where Amazon recently opened a warehouse—by about $2 an hour. Starting wages are $13 an hour and can go up to $16, based on the role and shift worked. It also is offering bonuses of about $100 when employees work a certain number of hours or hit performance goals.
The pressure wasn’t a total loss for Toys “R” Us last year. The chain clocked a 2.9% gain at comparable stores for November and December in the U.S.
This year, the National Retail Federation forecasts stronger growth, and Toys “R” has been working to maximize sales. “We’ve spent the year preparing,” Ms. Lentz said. “And now it’s time to execute.”
Write to Paul Ziobro at Paul.Ziobro@wsj.com