AT THE height of the COVID-19 pandemic in Australia, we saw physical retail stores, except for those experiencing panic buying, become collateral damage.

As people stayed in their homes, purchases became more digital than ever.

As a result, online retail skyrocketed, with some of our clients reporting a 400% to 600% or more increase in online sales.

Now with Melbourne going back into lockdown, many retailers have had to shut their stores again.

This mass shift to online retail has pushed more retailers to explore ways of repurposing their underperforming stores into online micro fulfilment centres.

The idea is that in this age of immediacy, retail stores’ prime positioning in populated locations could be key to unlocking shorter times in delivery.

A great example to illustrate this development is Kmart and its approach in dealing with the surge in online orders by turning three of their stores into dark stores or online micro fulfilment centres.

However, repurposing a retail store into an online micro fulfilment centre is not simple.

The process requires a complete transformation that must be aligned with a retailer’s whole supply chain strategy, as online retail is an expensive channel to service.

Many retailers in the past have followed a similar process to that of a customer retail store for online fulfilment, which can result in an inefficient and costly operating model.

For those who want to get it right and unlock the opportunities with reduced operating costs and delivery times, they must consider the following: Inventory control It is of utmost importance that online micro fulfilment centres maximise operational alignment with a retailers’ overall supply chain strategy to ensure a competitive cost to serve to their customers.

The ability of the site to sustain a viable number of orders per week and hold an optimal level of inventory is the key to ensuring competitive margins. Internal operations In order to fulfil online orders in a short timeframe, retailers may need to investigate automated solutions that will increase operational efficiencies while reducing operating costs.

The primary advantage to these automated solutions is the high storage density they can deliver within a small footprint, while still achieving the required throughput volumes.

Some fulfilment operations may not adopt automation due to the capital investment required, however even in a manual environment optimal process and layout is critical in fulfilment and keeping costs down.

Packaging

In an era where participating in the circular economy and sustainable packaging practices are no longer a choice for retailers, they must consider how they want their online orders packaged.

As consumer trends push further to short delivery lead times, these orders will be directly delivered and will need to be packaged in either a disposable or reusable bag.

This choice needs to align with the retailer’s sustainability strategy and customer preferences.  

External operations

In addition to optimising internal space, adequate external space, access, parking and operating infrastructure, such as recessed loading docks, may be core elements in ensuring smooth and safe operations when receiving and dispatching products.

The transportation of goods to and from the micro fulfilment centre, particularly in densely populated areas, needs to consider restrictions or curfews for large and small vehicle movements.

This may mean that the operational hours are determined when less foot and vehicle traffic is around the micro fulfilment centre’s perimeter.

Repurposing car parking and in-store spaces In the future, as more retail stores transition into online micro fulfilment centres, shopping centre car parks will be less utilised.

However, converting these into order dispatch areas could facilitate deliveries.

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This could allow retail landlords to draw a direct income from the repurposing of car parking space if the area is allocated directly to a tenant within their centre.

This, in turn, could help protect against the downward pressure on rents from within the retail centre itself.

Large format retailers, who end up converting their stores into co-retail and micro-fulfilment sites, might benefit from a designated in-house showroom space.

These will open opportunities for customers to see, feel and experience products.

The rest of the site could be transformed to cater for order fulfilment, either to a customer in the store, like a live version of a vending machine or for home deliveries.

Employment agreements

When transitioning original retail staff into fulfilment operators, the retailer must closely examine and re-evaluate existing labour agreements such as the awards – minimum pay rates and conditions for employment and recalibrate these to suit and legally comply with the new operations.

COVID-19 has undoubtedly accelerated the growth of online retail in Australia and has further diminished the foot traffic in retail stores.

With a second wave a possibility in Australia, this trend will only continue.

Final thoughts

Despite its complexities and multiple considerations, the increasing push for retailers to re-purpose their retail stores into online micro fulfilment centres presents an exciting and untapped opportunity for streamlining retail operations.

Tom Fitz-Walter, executive director supply chain, TM Insight

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