How Fulfillment Hubs Show Us the Future
What happens behind the scenes in retail may be destiny
Earlier this week, Best Buy made waves when it announced that the retailer would be converting a quarter of its stores into fulfillment centers. The development came not from a place of panic, but rather one of strength; the company logged its highest growth in two years during the last quarter and saw its online sales grow 242%(!) in the United States.
To be sure, the move to remodel 250 of its 1000 stories is a dramatic one. But it’s also emblematic of how companies are betting that emerging trends in the pandemic era will become permanent ones as more shoppers move online. It’s also a critical signal to other businesses that the battle for consumer hearts and wallets may be won behind the scenes in warehouses and fulfillment centers where speed and volume are valued over customer experience. And that’s not even considering the busy holiday season ahead.
Why the Store Matters Less
In the time of COVID, a functional supply chain has become a bigger determinant of success than even the most knowledgeable retail workforce. As more Americans grow attuned to both online purchasing habits, stores will continue fading from the equation.
The reason why Best Buy is sacrificing its retail stores is because they aren’t really designed to handle both crowds and a high volume of outgoing packages. “Done right, consumers simply see a box arrive at their door in the specified timeframe,” Whitebox CEO Marcus Startzel told us earlier this week. “Behind the scenes however, there is an entire, complex system in place managing the order and delivery of necessities like toilet paper and hand sanitizer, and other non-essential items such as home decor and clothing.”
The design of a retail store isn’t logical per se, it’s the product of an effort to encourage higher spending by customers rather than the orderly processing of online purchases. After all, have you ever seen an Instacart shopper calmly scanning the shelves of a supermarket? Us either.) So the choice to prioritize permanent fulfillment centers is a symbolic one that reflects how a major retailer sees the long-term future of consumer behavior.
Best Buy’s news comes on the heels of a report that Amazon is, um, more than gently suggesting its third-party sellers to conform to the company’s two-day shipping schedule. In many ways, this is reflective of the tightening of consumer expectations around short-window deliveries.
Amazon is also working its logistical magic to tighten its delivery apparatus as the company sees unprecedented growth. Earlier this month, the retailer floated turning vacant Sears and J.C. Penney stores into company fulfillment centers. As the Wall Street Journal reported, “For Amazon, a deal with Simon [Property Group] would be consistent with its efforts to add more distribution hubs near residential areas to speed up the crucial last mile of delivery.”
With delivery stalwarts like UPS, FedEx, and DHL, not to mention the postal service itself, struggling with the sharp increase in volume from eCommerce, the pressure to create a logistical ecosystem that thrives on proximity will only grow more intense.
For businesses that aren’t yet logging Best Buy-level retail numbers, there’s an important subtext thrumming beneath the arrival of these fulfillment centers. Customer service is important, but your ground game is what may make all the difference.