Is Scaling of E-Commerce Fulfillment and Curbside/Doorstep Delivery Sustainable?

The migration of retail purchasing towards digital channels has been widely reported as the industry conforms to the safety necessities of COVID-19. Now, after rapidly pivoting to scale ship-to-home, curbside pickup, and final-mile delivery to preserve as much pre-pandemic revenue as possible, the sustainability of these fulfillment and delivery services is reaching an inflection point.

As stores gradually open their physical doors, retail executives will begin evaluating order fulfillment strategies and whether they enable profitable customer service on a sustainable basis. North Highland has identified four operational trends to expect over the next six months to 12 months as store openings ramp up.

1. Contactless curbside pickup will continue to be table stakes for non-mall-based retailers.

The relatively small capital investment in digital tools and store/lot signage to facilitate curbside pickup has been made already. In addition, the store payroll impacts for this service are minimal as most retailers have redirected sales and customer service associates to perform the curbside pickup function. Expect minor enhancements/investments in this space over the next six months.

2. Doorstep/white-glove delivery services will expand in the near term.

North Highland expects retailers to expand partnerships with third-party delivery services, enabling increased operational flexibility and faster scaling with a low upfront capital investment. As the long-term last-mile delivery demand picture becomes clearer, the largest retail players may take the leap and invest in an owned/dedicated fleet to establish a competitive advantage.

3. Urban warehouses for same-day fulfillment will become more prevalent.

North Highland expects two flavors of urban warehouse strategies to expand in major U.S. cities.

First, expect to see pilots of micro e-commerce fulfillment centers pop up in top five U.S. markets. These facilities will help rapidly increase the fulfillment speed for key items while reducing capacity constraints on existing, centralized e-commerce fulfillment centers. We also expect grocers and general merchants with a high proportion of home deliveries to pilot this model in the near term.

Second, expect more retailers to reposition select storefronts as customer pickup/curbside delivery locations and final-mile delivery origin points. By removing the traditional retail shopping experience from select locations, the “stores” can be reconfigured to hold significantly more inventory and fulfill online orders more efficiently. As part of this transition and to make the concept scale, technology investments may be necessary to integrate the point-of-sale (POS) system with a retailer’s warehouse management system (WMS). However, the conversion costs will likely be outweighed by the benefits of opening and operating a warehouse in an urban environment. Expect retailers to investigate and identify the right storefronts to efficiently deploy this strategy in the next year.

4. Partnerships in locker pickup/returns processing will continue to expand.

Retailers looking to leverage each other’s labor, retail footprints and logistics networks are likely to double-down on locker pickup and returns processing. As organizations look to conform to financial and demand pressures, retail partnerships may occur to leverage synergies across each organization’s supply chain and store networks.

The current environment is shifting rapidly. Fundamental changes will occur over the next year in how retailers and supply chain organizations execute their fulfillment strategies. Consumers will continue rewarding retailers that provide flexible fulfillment options, and that will drive operations leaders to deploy strategies that meet this demand while enabling a return to profitable growth. Retailers will evaluate how to pivot towards safety and convenience, repurposing existing real estate assets and adding alternative nodes that improve and reshape the fulfillment network.

Andrew Billings is a principal in the retail supply chain practice at North Highland, a global consulting firm.