The New Wave of Distribution and Fulfillment: Customer Demands Drive Operational Changes in Retail

Amazon.com dominates the e-commerce arena with a market share of nearly 40 percent. However, despite its ever-strengthening grip on the digital world of retail, the e-commerce giant has made efforts to build a brick-and-mortar presence in the past few years — uncharacteristic of other retailers. Amazon has made highly publicized efforts to establish physical stores in high-traffic retail areas through its acquisition of Whole Foods as well as its launch of Amazon physical stores such as Amazon Go, Amazon Books, Amazon 4-Star general stores, and Amazon Fresh Pickup grocery locations. But why? If digital is the future of retail, why would a company that's already leading the pack in e-commerce sales backpedal toward physical stores?

As convenient as Amazon’s now industry-standard two-day deliveries are, same-day purchase of some items (such as groceries or workplace equipment) is a priority in where consumers decide to shop. Urgency matters, and Amazon recognizes this, which is why it's making efforts to provide same-day convenience to its customers through a physical retail presence.

The next logical step for Amazon would be enabling in-warehouse pickup for customers to go to an Amazon distribution facility and pick up their items directly at their convenience. Amazon already offers locker pickups, but in-warehouse pickup would negate shipping costs for Amazon if the ordered product is already in the nearest warehouse. The company’s moves over the past decade to place warehouses in major metroplexes, and achievement of same-day shipping for some online orders, have already positioned it as a major threat to big-box marts like Target, Best Buy, and Walmart if they begin to offer same-day pickup for online orders.

That said, while in-warehouse or in-store pickup would negate shipping costs for Amazon if the ordered product is already at the warehouse, retail competitors like Target, Best Buy, or Walmart would simply counter by promoting their own fulfillment services at current store locations — which are even more conveniently placed for consumers than Amazon’s warehouses. Therefore, if an urgently needed item isn't available for pickup in Amazon’s warehouses, competing retailers can provide the option for in-store pickup or deliver the item as quickly as they can obtain it, furthering the so-called “last mile” of the customer experience by achieving same-day closure one way or another. These efforts to improve the last mile of the customer experience through same-day order pickup and/or delivery will inevitably turn existing networks of warehouses into distribution centers, and will in turn change brick-and-mortar retail locations into what are essentially e-commerce fulfillment centers.

The true benefits of distribution and fulfillment center transformations will come in terms of the returns process and reverse logistics. Today, Amazon leverages its relationship with Kohl’s for in-person returns. Imagine expanding that return policy to Amazon’s vast network of warehouses and Whole Foods stores. The returns process will become so streamlined that inventory is instantly updated, meaning that nondefective items could potentially be returned, re-entered into the system, re-sold, and re-shipped in the same day to other customers.

Call me crazy, but … all this could (read: will) happen!

Frank Kenney is the director of market strategy at Cleo, an integration platform that powers seamless end-to-end integration flows with your ecosystem of trading partners, customers, and suppliers.