The retail industry has not been under this much pressure since The Great Depression. A recent government report showed retail sales in April fell by 16.4%. This is higher than the 12.3% sales decline estimated by economists.
Retail executives at retailers like Kohl’s, Nordstrom, Neiman Marcus, and JC Penney, have no choice but to face the fact that their companies may go out of business sooner than they expect.
Retailers that are doing well like Walmart, Kohl’s (barely), Target and most of the large national grocery retailers, can’t sit back and do nothing. Their CEOs understand that in a future where COVID-19 may become a seasonal disease, and Amazon becomes even stronger, the status quo must change.
The Effect of COVID-19 on Retail
Retail consists of grocery, specialty, department stores, home improvement, and big box retailers. None of the retailers are immune from the impact of the pandemic.
Retail CEOs are increasingly concerned that at any time, state governors can order their stores closed for weeks (or months) if the Coronavirus returns in the Fall and other times during the year. A ripple effect from closing stores is that customers become even more afraid at the thought of shopping in enclosed spaces like malls and stores, reducing traffic and sales.
JC Penney, Neiman Marcus, and other retailers have declared bankruptcy, and each company blamed the shutting down of their stores as the reason. On top of that, economists expect more retail bankruptcies throughout 2020 and 2021.
In an environment where retailers may see their stores closed, and customers resist returning to their prior shopping habits, retailers need to rethink and change their business models. But change them to what?
The Updated Retail Business Model
In retail, there is no easier business model to understand than the vending machine. Any consumer can enter a dollar, select an item, and watch the purchased item fall to the bottom of the machine for retrieval. Simple and effective. It is also the business model that has the most potential to save retailers.
The Next Innovation in Retail
If copying vending machines will save retailers, the question that must be answered is this: How can retailers turn their stores into large vending machines? This is the answer: Install micro-fulfillment centers inside their stores.
At a high-level, micro-fulfillment centers (MFC) are mini-distribution centers that can be installed inside retail stores or in a back room of a store to automate the picking of online orders. MFCs can also be used to fulfill Buy Online Pick-up In Store (BOPIS) orders.
AutoStore is an example of a cube-based MFC that utilizes robots, a grid, bins, a controller, and workstations. When assembled, the AutoStore can hold 90% of the products grocery retailers sell online, leaving only 10% of the products to be manually picked out the system. AutoStore has been operating since 1996, and their solution has a proven uptime of 99.8%, the highest of any MFC on the market.
MFCs can also be shuttle-based but these solutions lack the capabilities of cube-based solutions. Most shuttle-based MFC vendors have only been in business since 2016, raising concerns of quality and longevity.
Figure 1 Example of an AutoStore micro-fulfillment center (MFC) installed inside a sporting goods retailer. AutoStore MFCs can be installed inside grocery stores, malls, and department stores. Photo courtesy of AutoStore.
Retailers can install MFCs inside their stores, giving them the ability to operate their stores 24/7, 365-days per year. Because less labor is needed to operate the stores, retailers can retain a limited number of associates to loading inventory inside the MFC.
Customers can place orders online and the retailer’s platform will identify the store closest to the customer that has the desired product. An MFC will process the order and dispense the ordered product into a Pick-Up Window when the customer arrives. Customers will also have the option of having a 3rd party company deliver their purchases.
Stores that don’t generate revenue or profits, will kill the ability for retailers to stay in business (just ask JC Penney). With thousands of retail stores located across the U.S., retailers have no choice but to pivot from their current state models of hoping customers will visit their stores.
Installing MFCs is a better solution than attempting to pivot to an ‘online only’ or Omni-channel model, as retailers can turn their stores into mini-distribution centers capable of meeting customer demand closer to the customer with less costs.
A retail store that has installed an MFC can easily operate of the store is full of customers or with no customers. Cube-based MFCs like AutoStore were designed to be aesthetically pleasing to the eye and whisper quiet when they operate.
MFCs also provide retailers with year-round savings in labor. As Brittan puts it, “Installing MFCs inside stores allows retailers to do more with less”.