Best Buy & Nordstrom Winning With Store Fulfillment

Both Best Buy and Nordstrom have expanded their store fulfillment strategies in recent months as digital sales increase for the retailers.

Best Buy is “pleased” with the progress of 250 ship-from-store hub locations it piloted in September, CEO Corie Barry said on the retailer’s recent earnings call. So pleased that Best Buy is adding around 90 more ship-from-store hub locations for the holiday period.

“All our stores will continue to ship online orders, but these locations are positioned to ship out significantly more volume and utilize dedicated labor aimed at fulfilling orders originating online,” Barry explained. “These locations required minimal capital investment as we had the technology in place and were chosen due to their available warehouse space and proximity to carrier partners.”

Best Buy expects these 340 locations will ship more than 70% of its ship-from-store units during its fourth quarter. The hub model allows Best Buy to extend the online order cut-off to 8 p.m. for next day delivery.

Barry noted that Best Buy is also testing new store formats to assess its hypothesis of using stores more as primary fulfillment hubs. In four Minneapolis stores, Best Buy reduced the shoppable square footage to approximately 15,000 square feet down from around 27,000. The product assortment on the sales floor is still the same as before the test remodel, but the merchandised SKU count is reduced, focusing on the most popular items.

“The remodels will result in incremental space for staging product for in-store pickup and to support ship-from-store transactions as well as provide the ability to stage inventory for items that may not be on the sales floor,” Barry said. “In one of the four locations, we are utilizing some of the available space to increase the previous allocation to our Geek Squad business. Normally, we would not remodel any stores this close to the holiday season, but we feel it’s imperative to move quickly to gain the learnings about how the store format may complement our omnichannel strategy within a particular market. In another store pilot, we are testing the financial return of reorienting the location of the store warehouse to be adjacent to a new covered drive-up curbside experience and lockers.”

Best Buy’s domestic online revenue of $3.82 billion increased 173% on a comparable basis, and as a percentage of total domestic revenue, online revenue increased to approximately 35% versus 15% last year, it reported for its Q3 FY21.

Meanwhile, department store retailer Nordstrom has tipped over to being a majority online business. In 2019, digital made up 33% of sales, which accelerated to 54% this year.

Digital sales of $1.6 billion represented 54% of total sales in its third quarter of 2020, a 37% spike. Excluding its Anniversary Sale event shift impact, digital sales increased in the mid-teens percent range in the third quarter, consistent with trends in the first half of the year.

The shift to digital is important not only because of the flexibility it gives the retailer, but because of the efficiency it gives the company, CEO Erik Nordstrom noted on the recent earnings call.

“Our digital business is profitable, as shown by our third quarter results,” he said. “So that gives us a lot of flexibility and a lot of strength there.”

In response to the growing popularity of curbside pickup and in-store pickup, the retailer has been expanding its store fulfillment capabilities, reaching one quarter of online orders being fulfilled at stores.

For more than 10 years, Nordstrom’s full-price business has been able to use all sources of inventory across stores and fulfillment centers by having a single view of inventory. In October, the company further integrated its store and online inventory, which resulted in 30,000 customer choices added to online merchandise selection, more than 10% of online orders picked up at Nordstrom Rack stores and approximately 25% of online orders fulfilled at stores. During Nordstrom's Anniversary Sale, which drove record sell-through rates that contributed to profitability, digital sales represented 60% of the event with approximately one-third of Nordstrom.com units were fulfilled from stores to enable faster delivery.

As Nordstrom sees what is calls a “fundamental shift in shopping behavior” to digital commerce, Erik Nordstrom said the company knows “we must translate the heritage of service that defines us more effectively in this digitally connected world. This means delivering personalization at scale by creating greater linkages between the digital and the physical experience.”