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Many opt to buy online, pick-up in store in face of supply fears

At the Macy’s department store in Flushing, New York, the desk that lets online shoppers collect their orders rather than wait for them to be delivered is usually busy. It is even more so now, as consumers burnt by late deliveries last holiday season fear that chaos in the country’s supply chains will lead to worse delays this year.

Offering consumers the ability to order online and pick up at a store is not new: the likes of Circuit City and Sears were hailing the integration of “clicks and bricks” 20 years ago. But the surge in online orders and the distribution network bottlenecks sparked by Covid-19 are making it more important to US retailers this year.

Almost one in five online orders was collected from stores in the first half of this year, up from 16.8 per cent a year earlier, said Neil Saunders, managing director of GlobalData. Retailers are planning for “buy online, pick-up in store” — BOPIS in the industry jargon — to play an even larger role in the upcoming peak shopping season.

Office Depot this month announced a service promising store pick-up within 20 minutes of a customer placing an online order. Best Buy’s holiday promotions hail store pick-ups as a “reliable and safe” way for consumers to get their electronic gifts, while every Lowe’s store now offers contactless lockers for collecting goods bought on its website.

Consumers shifted much of their spending online last year because of safety concerns about entering stores before vaccinations reduced coronavirus risks. This year, however, their online shopping is driven more by convenience than health fears according to Morning Consult polling.

After 18 months in which traffic to shops has been far below normal levels, getting consumers to pick their goods up “offers retailers a chance to court consumers back into appreciating experiential shopping,” said Melissa Minkow, the retail industry lead at CI&T, a digital consultancy.

Buy online and pick-up in store is also proving more popular now among shoppers concerned that shortages of trucks, drivers and other critical links in the supply chain will delay delivery of their gifts.

Retailers expect strong demand this holiday, with Deloitte projecting that sales will jump by 7-9 per cent above the 2020 level, to $1.3tn. But supply chains are so strained that both retailers and consumers fear a repeat of the disruptions that led to many orders arriving late last year.

Delays are likely again in 2021, said M Serkan Akturk, a Clemson University assistant professor who has studied the store pick-up phenomenon. The option also offers customers “assurance”, he said, because it lets them inspect goods and return them immediately if they are not satisfied.

For the retailer, he added, it also offers the benefit that customers may buy additional items while they are at the store.

Chains including Walgreens have credited such “omnichannel” offerings with driving their ecommerce sales, too. Rob Garf, general manager of retail at Salesforce, said retailers which offered store pick-up last holiday season reported 63 per cent higher digital sales for the five days before Christmas 2020 than those that did not.

“The physical locations will serve as a critical component of digital strategies this holiday,” he said, noting that the store pick-up model saves retailers shipping costs because it “essentially outsources the last mile to consumers . . . This is critical because home delivery will be more expensive and slower this year — even more so than in 2020.” 

Retailers used to offer free shipping for online orders until a week or 10 days before Christmas, but began limiting it last year on Cyber Monday in late November, said Taylor Schreiner, director of Adobe Digital Insights. He predicted that rising “last mile” distribution costs would prompt retailers to stop their free shipping offers even earlier this year, making store pick-ups more popular.

For retailers which are still without a store pick-up service, however, launching one can be “somewhat costly” and “surprisingly hard to execute” because of labour shortages and the technology systems needed, said Marc Rousset, a partner in Oliver Wyman’s retail practice.

Thomas O’Hern, chief executive of Macerich, a real estate investment trust, echoed that message last month, telling analysts that smaller retailers that had tried to introduce pick-up offerings during the pandemic “were kind of overwhelmed”. 

For bigger chains used to being outgunned by online-only rivals such as Amazon, however, the growth of store pick-up has offered a rare advantage. With warehouse capacity at record lows, bricks-and-mortar retailers are increasingly using their shops as distribution centres.

“Retailers can just pick products from the shelf with this concept as opposed to exclusive online shopping, whereby they distribute from a warehouse,” said David Naumann, who leads Verizon’s marketing strategy for retail.

There are also some products consumers do not want to wait a day or two days for, Adobe’s Schreiner added: “Those are segments you just can’t reach as a pure play online store.” 

Amazon is opening more stores of its own, however, and consultants like Bob Amster, a retail principal at Retail Technology Group, said it was hard to quantify yet how much market share stores offering pick-up services are taking from online-only retailers.

In-store fulfilment and pick-ups are tying online and physical shops more closely together than ever before, said Saunders.

At Macy’s, that may have implications far beyond the pick-up desk in Flushing. Jana Partners, the activist investor, reportedly launched a push last week for Macy’s to follow Saks Fifth Avenue’s example by separating its ecommerce business from its bricks and mortar stores in search of a higher valuation.

The popularity of store pick-up and other “omnichannel” strategies may complicate the activists’ case, Saunders argued: “It makes no sense at all.” 

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