As I'm typing this story, I'm wearing Essie’s "Merino Cool" nail polish that I bought at one of Ulta's brick-and-mortar locations. I liked the color very much, but if I didn’t, I had a lot of options: I could have returned it and bought another color in store; I could have returned it and bought another color online — and then if I didn’t like the color I bought online, I could have shipped it back or returned it back to the same location of that brick-and-mortar store.
This ability to buy, try on and return any way customers like is how beauty retailers with brick-and-mortar stores are trying to distinguish themselves from digital retailers.
"From the beauty chain standpoint, it’s a market that’s gotten really disrupted as more folks enter the market from a purely digital standpoint," John Bruno, vice president of product management at Elastic Path and former Forrester B2B commerce analyst, told sister publication Supply Chain Dive in an interview. "It’s very much an industry where trying on is crucial to the experience."
The retailers with store fronts must have the right operational processes in place to ensure they can execute the try on, return and buy again model successfully.
Fast fulfillment leverages retail locations
Brick-and-mortar retailers are using "fast fulfillment centers" to give customers the same kind of nearly instant gratification experience to e-commerce orders as purchases made in store.
In March, Ulta announced it was converting its Chicago-area distribution center into the company’s first fast fulfillment center to open this summer. It will fulfill up to 30,000 e-commerce orders per day during peak times, the company said in its Q4 2018 earnings call. Ulta also plans to open a second such center in Jacksonville, Florida, by summer 2020. Both are part of the company’s goal of offering two-day e-commerce shipping by 2021.
"It’s very much an industry where trying on is crucial to the experience."
Vice President of Product Management, Elastic Path
"I can use [retail stores] as independent fulfillment centers, but I need to stock them quickly, so I need to have that fast fulfillment center," Dan Neiweem, co-founder and principal at Avionos, told Supply Chain Dive in an interview.
Fast fulfillment centers also speed up reverse logistics, which is almost a requirement for beauty chains that have generous return policies. Sephora and Ulta, which are known for these policies, declined to comment for this story.
"How do I take all the customers’ products returns and push them back into the supply chain?" Neiweem said. "One of the things [beauty retailers] are doing is managing supply chain in order to get to the true final point of how do I use my retailer locations as warehouses."
60 types of lipstick, millions of SKUs to manage
One reason fast fulfillment centers for e-commerce orders work for beauty chains is because of how many products — and SKUs — they handle.
One lipstick may come in regular and travel sizes, and in those two sizes, comes in 30 different colors. "You’re talking about hundreds of thousands, even millions" of SKUs, said Bruno. "That places a burden on retailers in managing that in-store experience. You can’t make your product catalog available to all customers in the retail experience," he said, but retailers can do that online. Fast fulfillment centers make sure the customer can get and return all of those products as quickly as possible.
He said stores selling home appliances face the same challenge because those items, like refrigerators and washers and dryers, are large. "It’s physical space limitations on a different scale," Bruno said.
Treating a retail location as a distribution center allows customers to still order online and return in store, but also redistributes that item to where it needs to be quickly.
Fast fulfillment, reverse logistics build customer loyalty
Giving customers options to get items quickly through fast fulfillment centers is a way to create and maintain a relationship with customers, making it easier for them to return those items if they don’t work, and for their refunds also to be processed quickly.
"Your customers shouldn’t have to decide where the return goes. You should be able to go to any of our locations and be able to return that particular product and we will figure out how to get it back to the right locations for stocking and redistribution," said Neiweem.
"One of the things [beauty retailers] are doing is managing supply chain in order to get to the true final point of how do I use my retailer locations as warehouses."
Co-founder and Principal, Avionos
That includes keeping customers informed of their return and getting their money back to them as quickly as possible. "Instant gratification goes two ways," said Bruno.
Even if a customer in Massachusetts ordered a nail polish that came from a distribution center in California, it might make more sense for it to go back to one in New Jersey, which speeds up the return process and getting money back. "For me I want the same kind of instant gratification with the return policy," Bruno said. "I don’t want to see seven to 10 business days."
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