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Viewpoint: 6 ways retailers reduce overcrowded warehouses

A combination of approaches is needed to address inventory gluts

FedEx courier Andrew Standeven makes last minute deliveries to businesses at the CambridgeSide Galleria mall in Cambridge, Mass., Monday, Dec. 24, 2012. Although fresh data on the holiday shopping season is expected in coming days, early figures point to a ho-hum season for retailers despite last-ditch efforts to lure shoppers over the final weekend before Christmas. And with concerns about the economy and the looming “fiscal cliff” weighing on the minds of already cautious shoppers, analyst say stores will need to offer “once in a lifetime” blowouts to clear out inventory. (AP Photo/Michael Dwyer)

This commentary was written by Nicola Kinsella, senior vice president of global marketing for Fluent Commerce. The views expressed here are solely those of the author and do not necessarily represent the views of Modern Shipper or its affiliates.

Many consumers noticed the early arrival of holiday deals over the past couple of months and the presence of Christmas décor next to Halloween fare. That’s all being blamed on a historic inventory glut and shortage of warehouse space.

Once stalled on cargo ships, containers finally arrived at their destinations, leaving retailers with no place to store their contents. In major cities, warehouse vacancies are as low as 4%, and the price to build new space is 21% higher than it was a year ago, thanks to the shortage in supplies and construction labor.

Some retailers are resorting to locating spaces further away from stores, increasing transportation costs and causing shortages on store shelves.

So, what can retailers do to reduce their stock and avoid building or finding new spaces? Here are six adjustments they can make to prevent the warehouse crunch.

1. Create mini-distribution centers

Some stores are better equipped than others to process orders. Use them as models for other stores to expedite deliveries and empower employees to pick and pack orders efficiently. Once those improvements are made, ramp up their fulfillment capacity and use the stores as mini distribution centers. This is much faster and less expensive than obtaining a new warehouse.

2. Ship from store

Consumer preferences change fast, making forecasting demand more challenging than ever. But with a ship-from-store technique, retailers can fulfill online orders from their entire inventory pool, enabling them to sell at higher margins, deliver faster, and get more value from their in-store inventory.

An order management platform is usually needed to support real-time inventory updates at scale and provide in-store tools for employees to pick and pack orders efficiently. The platform can also help retailers control capacity by choosing which stores to ship to. This approach can limit or cap the total orders per day by store.

3. Get more customers in stores

Many retailers offer customers the option of buying online and picking up their purchases at their nearest store. This is known as buy online, pick up in store (BOPIS). Once customers are at the store to pick up their orders, they will likely also make additional purchases. It also takes the pressure off warehouses.

4. Maximize margins

Retailers can get maximum value from each order by adjusting their sourcing strategies to help reduce markdowns. With this approach, they can ship items from the store or location with the most or oldest inventory, the lowest sell-through rate, or the highest in-store markdowns.

Stores may have markdowns available in their specific areas, but when they fulfill online orders from store stock, they can sell these marked-down products to customers in any location. By fulfilling online orders from strategic locations, they can help maintain higher margins. This strategy works for seasonal markdowns, too.

5. Reduce cancelled orders

Cancelled orders frustrate retailers and their customers as they create uncertainty around inventory. A distributed order management system can help alleviate this problem by tracking all stock across all locations in real time. It can show what’s in stock and what is being processed or ready for pickup or shipment. It can provide buffers for popular items, thus preventing overbuying, overselling, or underselling.

6. Virtual inventory

A virtual approach to managing inventory helps control what is sold in each channel or region. Retailers can create virtual pools of inventory that can be segmented by channel, market, region, or product and include inventory rules such as buffers or exclusions.

They can also isolate portions of their inventory for online orders and reserve the rest for in-store traffic. Or they can aggregate all stock, including store stock, and make it available to sell online to reduce stockouts.

This holiday season will be marked by some of the most unusual conditions ever experienced by retailers. Broken supply chains, inflation and labor shortages, are pushing them to be creative in handling inventory and keeping sales moving. Come this time next year, many will have transformed their models to include these six strategies.

About the author

Nicola Kinsella is senior vice president of global marketing for Fluent Commerce, which offers a cloud-native distributed order management system for omnichannel retailers.

Nicola Kinsella, contributor

Nicola Kinsella is senior vice president of global marketing for Fluent Commerce, which offers a cloud-native distributed order management system for omnichannel retailers.