Last week, the Wall Street Journal provided yet more of the reality for the new world of online customer and Omni-channel fulfillment in an article focused on Home Depot (paid subscription required).
Supply Chain Matters has featured a number of prior continuous commentaries reflecting on home improvement retailing and specifically Home Depot’s investment in supply chain capabilities that have made a discernable contribution to revenue and profitability growth. Previous Home Depot major investments were related to directly to the retail store experience and included modernized store replenishment centers and online mobile terminals for store associates. The strategy must now focus in a new direction.
The specific WSJ article opens with the following introduction: “Home Depot Inc.’s newest location is 10 times bigger than its average store, stocks three times more items and has no customers. It’s an online distribution center, for a company that seems the unlikeliest of Internet retailers.” It goes on to report that in 2014, Home Depot will open two customer fulfillment centers and just one U.S. store, a stark signal of the retail industry’s drop in retail store traffic in favor of online shopping, including home improvement items.
While online sales accounted for 3.5 percent of Home Depot’s total retail sales in 2013, online sales are growing much faster. There are upwards of 6000 items offered online vs. 35,000 in a typical store. According to the WSJ, in 2014, the home improvement retailer is investing upwards of $1.5 billion for supply chain and technology related investments to link its stores and online fulfillment centers. That includes methods for assisting customers in the pickup or direct delivery of heavy bulk items such as appliances and fixtures, along with re-vamping store space for online order pickup and return centers.
Contrast that to reports from major retailers that invest solely on online web site capabilities without considerations for supply chain needs. Too many retailers still believe that physical brick and mortar and online sales can be supported by two different inventory pools and separate fulfillment processes. That is fast becoming an expensive proposition both in the context of customer service and cost.
The Home Depot report is yet another reminder of the need of traditional retailers to internalize the ongoing implications of a much more information empowered consumer who is now very comfortable with online fulfillment and expects the supply chain to perform in an individual delivery experience.