DSW, the footwear and accessories retailer, shared its experience with omni-channel retailing on a call with analysts yesterday. Discussing fourth-quarter earnings, Mike MacDonald, president and CEO, reported revenue of $640.2 million in the fourth-quarter, $100 million of which was from omni-channel. According to MacDonald, about half of those omni-channel sales are fulfilled from in-store stock. “It costs us more to ship from store than it does to ship from our fulfillment center,” said MacDonald.
Fulfilling from stores is nothing new, but it gained popularity in the last year as retailers leveraged store-deployed inventory to reduce last-mile distances. However, shipping consumers inventory from store shelves does come with added costs. Not only is the retailer paying employees to stock the shelves, they are paying employees to take that product off the shelves and repack it for shipment to its final destination. The handling charges alone add up quickly; as a result, apparel and accessories retailers, like DSW and Nordstrom, are shifting their store fulfillment models to reduce costs. For instance, DSW will optimize store fulfillment to ship consumers’ orders from stores where those items are not moving quickly. This effectively maximizes product revenue, selling items at full price that would have been otherwise marked down.
As the food industry begins to more fully implement omni-channel and online shopping, it can learn from retailers like DSW and Nordstrom, who have trail-blazed. The low-margin nature of grocery items makes it harder to justify the fulfill from store model in the traditional sense, not to mention perishable product is much harder to move around than apparel. While these solutions make sense for some of the retail sector, it can be hard to make the case for grocery. Some grocers are attaching so-called “dark stores” to their traditional storefronts, creating more of a warehouse environment to fulfill grocery orders. This lessons handling and still confers the benefits from shortened last-mile delivery. The tech industry has also turned its attention to grocery, rolling out apps like fresh.io and Instacart, designed to make the shopping experience more seamless, for the retailer and the consumer. Instacart’s model goes as far to eliminate the fulfillment challenge for the retailer.
The pace of change has been constantly increasing and doesn’t appear to be slowing down anytime soon. The market is wide open, and is prime time for retailers to experiment, participating in the “space race” for online grocery.
E-commerce boost has DSW on firm footing
Fourth-quarter earnings beat Wall Street expectations
DSW has jumped into e-commerce with both feet and is grabbing sales as it breaks into a run.
The Columbus-based footwear and accessories retailer reports that it did almost $100 million worth of so-called omni-sales. This involves filling a customer’s order not only from fulfillment centers but also from stores, said Mike MacDonald, president and CEO, during a conference call with analysts yesterday.
There’s a downside to that approach, however. “It costs us more to ship from store than it does to ship from our fulfillment center,” MacDonald said. “And about half of those omni-sales are being shipped from our 430-some stores. So it does come with a cost.”
Partly in an attempt to mitigate those costs, DSW is changing how it decides which stores will fulfill the “omni-sales” orders. At the moment, if a product isn’t available at a fulfillment center, the order is filled from a nearby store. Later this year, he said, that will change to a store where the product isn’t selling quickly.
“I think that can have some pretty significant (profit) margin impacts,” MacDonald said.
The news was part of a fourth-quarter earnings report that exceeded Wall Street expectations.
Comparable store sales, a key indicator of a retailer’s health, increased 7.6 percent for the quarter, better than analyst predictions of a 2 percent rise.
“DSW has developed itself as a brand,” said Sterne Agee analyst Sam Poser in a note to investors. “Its customers recognize that they can get current-season, branded, fashionable shoes at a great value. We believe the evolution of the value proposition, coupled with improving fashion trends, will reignite DSW’s position in the marketplace and growth opportunities.”
Looking ahead, DSW expects to open 35 new stores, including eight to 10 small-format stores, this year. Full-year earnings are expected to range between $1.80 per share and $1.90 per share.
The company’s shares closed at $38.33, up $1.48 or 4 percent.