The massive and sudden shift to online shopping, precipitated by the pandemic, is being enabled by thousands of enterprising store associates who have rapidly driven operational changes and worked through constraints to satisfy consumer demand. The challenge, however, is not over. Seven months in, retailers have realized that some of the more significant changes in consumer behaviors and habits may be here permanently. A recent AlixPartners survey showed that 85% of consumers plan to keep shopping online as much or more even after the current holiday season passes (Figure 1).
While the shift to online channels had been underway already, the pandemic significantly accelerated the movement. And while the retail response over the past few months was immediate and impressive, it was in some ways a Band-Aid over a deeper problem. Assuming these consumer shifts are sustained, retailers must now decide what structural and long-lasting changes they need to make to their store backrooms and omni-fulfillment operations to capitalize on this opportunity.
In practical terms, this would mean shifting investments historically earmarked for the sales floor to the backroom. This could be a big mindset change, especially for retailers that were not fully ready to make significant changes to the backroom, an often-forgotten asset of the store’s operations framework. Legacy store formats that prioritize sales floor design have been around for decades, leading to the entrenched thinking that you can’t sell something if the customer can’t see it. This has resulted in most stores having to make do with small backrooms, typically occupying 5-10% of the overall square footage. This can be further complicated by racking and storing that is suboptimal for even legacy use, let alone supporting a two-to-fivefold increase in digital sales that is being seen in some cases. Figure 2 illustrates the broad areas that can be changed:
While the specific changes will vary based on individual needs and situations, there are some basic questions that must be answered before making any decisions:
Does this make sense for your overall business? Determine whether any growth in sales over the past few months was fulfilled from the backroom. Assess the specific store’s bestselling SKU as this would be a key rationale for increasing backroom size and inventory levels. Pilot first. As with any other big change or investment, the prudent way forward is often to test and learn before rolling it out more widely.
How do you choose the right stores? Since this would be a long-term commitment, any stores that are closure candidates over the next two-three years would not be appropriate for this. There should also be no legal or lease-related constraints to backroom space expansion or redesign. Additionally, pick-and-pack order projections must improve overall store profit and loss. Assess if fast or same-day delivery would be a customer service differentiator in the area; stores that are located closer to target customers easily enable this speed. Stores where a high percentage of digital sales are through replenishment, i.e. repeatable volume that helps with backroom return on investment, would be good candidates as well.
How would the culture need to change? Any physical change must be accompanied by a realignment of goals and key performance indicators as store space directly or indirectly affects several internal groups, including merchants, the supply chain, and the stores team. Store associates will also likely require training in new processes and workflows. Do not forget about technology changes, as there will be resulting impacts to order management, inventory systems, and workforce management, among others. While the backroom is the core of the operation, also pay close attention to consumer-facing areas that enable omnichannel fulfillment, including curbside pickup areas, buy-online-pick-up-in-store service areas, etc.
While a few forward-looking retailers, most notably Target, have been ahead in the backroom investment game, many retailers are continuing to treat backrooms as an afterthought. Among the lessons learned from the difficult past few months is that all available resources must be used to their optimal capacity. This is a critical time for retailers to ensure that backrooms are treated as an asset and a crucial piece of the omnichannel fulfillment puzzle.