It's a store—and a de facto logistics hub

Retailers are forced to find ways to accommodate shop-online, pick-up-in-store boom

By Brigid-Sweeney | Nov 17, 2017

Nordstrom shoppers accustomed to meticulous merchandising may do a double-take this holiday season upon seeing utilitarian metal racks stuffed with shopping bags popping up in the middle of the once-sacred selling floor.

In the Shops at North Bridge, the black metal shelves have taken over a high-traffic chunk of the third floor. Filled with the department store's familiar silver bags, they house online orders customers have opted to pick up in-store (they can also collect them curbside)—and recently have been joined by pieces associated with a newer option: reserve online, try in store. Because more and more customers are coming in to test out their web choices in real life, Nordstrom erected a large modular fitting room next to the racks, in the center aisle of the store.

Shoppers are in for plenty of surprises this holiday season as retailers race to solve returns, aka the last big headache of e-commerce. Everyone from department stores to boutiques is setting up systems for the shop-online, pick-up-in-store experience shoppers are demanding. This requires rethinking brick-and-mortar space and turning physical stores into de facto logistics hubs.

In an email, a Nordstrom spokeswoman says the reserve-online, try-in-store service that launched in six West Coast stores a year ago has proven so popular that it's now in more than 50 Nordstrom locations. "We are continually testing and rolling out new ways to make (shoppers') experiences between online and in-store as seamless as possible," she writes.

Macy's, too, is carving out space for an omnichannel hub. Shoppers at the State Street store can pick up online orders in a corner of the first floor called the At Your Service ​ station. Despite the name, many customers won't interact with a store associate at all. Instead, they use a QR code on their emailed receipt to open a red-and-white locker and retrieve their purchase. Macy's has installed the stations at 50 stores.

After spending years—and plenty of capital—improving their websites, retail's old guard is now sprinting after Amazon's obsession with logistics, convenience and automation. (The online giant pioneered the idea of lockers for pickups and returns—and has spent the last year striking deals with apartment landlords to put them in lobbies, as well as in 7-Elevens, Whole Foods stores and, more recently, its own stand-alone sites.)

Now that everyone from middle-schoolers to great-grandmas comfortably shops online, "delivery and returns are the new sticking point because of the cost and the hassle," says Neil Stern, a retail consultant at McMillan Doolittle. Department stores "are scrambling to grow this business of online pickups and designated return points at the same time that sales are down and they're trying to cut costs."

The result is a work in progress. Online pickups still represent only a single-digit percentage of retailers' sales but are growing at 30 to 40 percent a year, Stern says—meaning they're following a similar lightning-fast trajectory that online sales as a whole charted five years ago. If done correctly, physical pickups and returns can keep shoppers happy while saving retailers tons of cash. The cost of processing and shipping both directions can in many cases account for 20 to 65 percent of the cost of goods sold by an online merchant, according to UPS.

This creates big opportunities for services like Los Angeles-based Happy Returns. Led by two former leaders of Haute Look—an early e-tailer now owned by Nordstrom—the service has raised nearly $6 million in venture capital to put return stations in stores. "If you give shoppers the choice, they overwhelmingly prefer to return in person," co-founder David Sobie says. "This is the last frontier of e-commerce."

Monica Tracey, a frequent shopper at online retailer Everlane, is a convert. She recently brought an Everlane blazer she ordered ("gorgeous but too big") to the Happy Returns kiosk at the Shops at North Bridge downtown. "To be able to walk up, hand it over to a real person, not have to worry about getting the packaging right, know it was done and have my credit card refunded two days later? I was so pleasantly surprised," she says.

Happy Returns makes money by charging e-commerce companies a per-item fee. That cost, according to Sobie, is much lower than the $7 or more a customer's return shipping can cost a retailer, because Happy Returns consolidates many returns, each labeled with its own bar code, into a single shipment.

'OPPORTUNITY FOR CROSSOVER'

Beyond Everlane, Happy Returns works with online brands including plus-size label Eloquii, Lululemon competitor Carbon 38, consignment site Tradesy and Chubbies, a menswear line. In the past year, the company reached deals with mall landlords including Macerich and Westfield to put kiosks in 46 locations across the country, such as Water Tower Place. It's also in independent boutiques, like Neighborly, a home goods store in Ravenswood. The sell is fairly easy, says Sobie, because the kiosks drive foot traffic—which is dwindling at an alarming rate for many shops.

"I saw an opportunity for crossover between Everlane's customers and Neighborly's," writes Neighborly owner Jenny Beorkrem in an email, noting that both are dedicated to sustainably sourced items. The five-year-old boutique has noticed a spike in sales since becoming a Happy Returns drop-off site earlier this year, she says.

Manager Audrey Planck says 75 percent of Neighborly's Happy Returns drop-offs come from people who have not previously been in the store, and 25 percent of them buy something. Though her days are busier, with up to a dozen returns to handle on top of her regular duties, Planck says Happy Returns' system is easy, the single daily UPS pickup is manageable and the new customers have been great.

"As a small business, it's easier for us to 'pay' for this exposure with our time rather than our pocketbook," says Beorkrem. What's more, "it's organic—people don't feel they've been 'advertised to' because we're providing them a service, even though we're also introducing them to our shop."

The union of online and physical shopping, then, may just enjoy many happy returns, indeed.

Write to Brigid-Sweeney at editor@chicagobusiness.com

Article was originally published here.