Retailing expert Cor Molenaar expects physical shops to become much smaller in the future. Stocks will no longer be located in the shops themselves, but in city hubs on the outskirts of the city. Anyone buying something in a shop can wait for the product to be delivered to the shop from a city hub or have it delivered directly to their home. That delivery will then be done with the help of drones, predicts Molenaar in Supply Chain Magazine.
Is Molenaar right? It is true that many retailers are already reducing stock in their shops. For example, they only put shirts in the most requested colours and sizes on the shop shelf. The rest - the longtail - they leave in the central distribution centre. That occasional time when a consumer does want that different colour, the shop employee creates an internet order and the shirt is delivered to the shop or home the next day.
It is also true that many large cities already have city distribution hubs that supply shops and also see a role for themselves in delivering orders placed online. For now, this model seems particularly interesting for local medium-sized retailers who can offer their local clientele extra service in this way. For nationwide retailers, it makes little sense to deliver an online order processed at the central distribution centre via a city distribution centre.
Current retailers' distribution structures unsustainable in the long run
In addition, I like to believe that retailers' current distribution structures are not sustainable in the long run, especially if developments towards ever shorter delivery times from online shops continue. Delivering an item within an hour from a central distribution centre is impossible even in the compact Netherlands. Ship-from-store may be a solution, but shops are not equipped to prepare large numbers of shipments. Moreover, it is questionable how many items those shops still have in stock, if Molenaar is to be believed.
Perhaps retailers could learn something from other sectors, think of automotive materials distributors such as Brezan. This company has not only a central distribution centre in Ede and 127 outlets in most large and medium-sized cities, but also eight depots spread across the country. With an extensive project, Brezan managed to increase the service level at its outlets from 79 to 84 per cent. This may seem low, but the overall service level is around 98 per cent. The number of orders that can be delivered via a point of sale or depot within three hours is 93 per cent.
In addition to a central DC and 127 outlets, Brezan has eight depots.
Partly because of this, almost all orders can be delivered within three hours.
Layered distribution structure
Could such a layered distribution structure work for retailers? It allows them to keep shops in expensive city centre locations small. Only the fast-movers need to be stocked there. With a network of regional depots - perhaps a bit more than eight - retailers are able to deliver most of the remaining items within a few hours anyway. Sure, an extra link in the chain means more costs, but who knows, that will pay off through higher sales and more efficient logistics than ship-from-store. Or am I making big thinking mistakes now?
Marcel te Lindert - journalist logistics & supply chain management
