Why retailers are turning their stores into fulfillment centers

Demands of the pandemic and changing customer behavior has led retailers to rethink their physical footprints.
27 July 2020

Building the fulfillment centers of tomorrow, today. Source: Shutterstock

  • Retailers are transforming under-performing retail properties into fulfillment centers as the rise of e-commerce continues
  • The pandemic has accelerated the need for retailers to adopt omnichannel solutions and digitalization strategies
  • A survey found 88% of shoppers are willing to pay for same-day or faster delivery

Empty stores and shopping centers are being repurposed for distribution – with footfall on the decline, physical shops can serve as warehouses and fulfilment centers as online shopping continues to skyrocket. 

While this trend has accelerated amid the pandemic – with many retailers unable to open storefronts for long periods amid extensive lockdowns – a study in 2019 by global industrial real estate firm CBRE noted major retailers were choosing to convert under-performing retail properties into e-commerce hubs to bolster ancillary businesses like packaging, transportation, and logistics.

And while this tactic was already being adopted well before the pandemic, it’s likely to gain momentum as store closures and bankruptcies become an all-too common tale, and bricks-and-mortar traffic gradually recovers, if not to pre-crisis levels. 

“Organizations that can quickly reimagine their omnichannel approach to create a distinctive customer experience will recover faster from the pandemic,” a McKinsey study revealed. The global e-commerce market was valued at US$9.09 trillion last year and is estimated to grow at a compound annual growth rate (CAGR) of 14.7% from 2020 to 2027, according to Grand View Research.

Retail titan Amazon has set the standard with industry watchers even coining an eponymous term “Amazon effect”, referring to the impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations, and a new competitive landscape.

One of the most significant effects is Amazon’s constant move towards rapid fulfillment in recent years – the driving force behind exploration into drones, self-driving vehicles, and Prime Air fleet. People want their goods now, tomorrow or as soon as possible. A recent survey found that 88% of shoppers indicated they are willing to pay for same-day or faster delivery. Another study found that close to 80% of logistics companies expect they will be providing same-day delivery by 2023.

Getting goods to consumers as fast as possible has become one of the most important differentiators in retail, and it’s led retailers to think creatively about how they do it, including reimagining the functionality of their physical footprint.

The road to faster, safer fulfillment 

Last year, we saw an Amazon and Kohl’s partnership that offered online customers a hassle-free return solution. Customers were able to return Amazon orders to any physical Kohl’s store, and Kohl’s would then pack, label, and ship the returned goods for them.

This type of partnership offers a glimpse into the evolving functions of physical retail spaces – where locations can be used in streamlining various stops along a supply chain, including reverse logistics. Transforming brick-and-mortar stores into partial distribution centers offer a new range of purposes that boost productivity, including improved inventory management, and meeting on-demand delivery needs, placing products in customer’s hands faster than ever.

Other retail players like Walmart and Target have been converting their retail spaces into mini distribution hubs to shorten the last mile for customers. CEO of Target, Brian Cornell, described the transformation as “placing our stores at the center of modern network design to deliver an unmatched combination of convenient fulfillment options.”

Besides partial or full conversion of physical stores to fulfillment centers, retailers are also looking towards opening “mini warehouses.”

A fraction of the size of conventional fulfillment centers, these mini warehouses are compact enough to fit comfortably into tight urban industrial environments or at the back of brick-and-mortar stores. These compact warehouses tend to be strategically located in major metropolitan areas where demand and consumer population is high, promising to shorten last-mile delivery times.

This transformation of space can help to alleviate some of the strain retailers have faced during the pandemic and can help appeal to the changing expectations of shoppers. But it feeds into a wider picture of transformation in the retail sector, with an increasing number of retailers turning to automation and robotics to increase productivity levels.

TechHQ recently explored how leading fashion brand Superdry integrated robots and automation into their multi-channel fulfillment centers.

“The robots work in unison with manual pickers, automatically selecting and lifting modular pick-walls and transporting them to pick-to-light stations where a predetermined pick-face is presented to the operative,” said a representative.