From Merchandising to Micro-Fulfillment: How Traditional Stores Can Use Fulfillment Centers to Boost Sales

Executive Summary:

• Amazon launched Prime in early 2015, changing customer expectations of e-commerce forever.
• That challenged supply chain managers at larger retailers to keep up in new and innovative ways. The result? Micro-fulfillment.
• The advantages of this decentralized approach are myriad: faster and cheaper shipping to customers’ homes, fewer accidents, and increased availability of alternative delivery methods like in-store and curbside pickup.
• Micro-fulfillment has since become a critical part of the growing trend of omnichannel fulfillment.
• No strategy is without challenges — which is where Pregis comes in, helping brick and mortar retailers with micro-fulfillment strategy.

In early February of 2005, just in time for their 20th-anniversary celebration, Amazon launched Prime and changed customer expectations of e-commerce forever. Suddenly, consumers were no longer happy waiting a week or two for products to arrive or paying exorbitant rates for faster shipping. Then, when two-day shipping wasn’t fast enough for some, Amazon introduced one-day delivery. Then same-day delivery.

However, it didn’t take long for supply chain managers at the larger retailers to crack the code, too. They didn’t have the distribution center reach of Amazon, but they had another equally powerful secret weapon: an established network of physical retail locations with ample storage space and large back-of-house areas — and that’s when micro-fulfillment was born.

The Big Deal With Micro-Fulfillment

Micro-fulfillment is a relatively simple concept: Instead of conducting fulfillment out of large, centralized distribution centers, some or all of a product’s journey from brand to consumer would take place inside a smaller, decentralized space. For most companies, this means handling last-mile delivery from inside an existing store — there are still distribution centers, but e-commerce items aren’t shipped out from there. Rather, they’re taken on daily delivery trucks to a retail location closest to the customer and then shipped (or otherwise delivered) from there.

The advantages of this decentralized approach are myriad: faster and cheaper shipping to customers’ homes, fewer accidents, and increased availability of alternative delivery methods like in-store and curbside pickup. Micro-fulfillment became a critical part of the growing trend of omnichannel fulfillment.

Small Spaces, Big Challenges

No strategy is without challenges, no matter how game-changing. Micro-fulfillment is no different. When Pregis helped a major US retailer implement its micro-fulfillment strategy, these challenges required creative solutions. The result was part technology and part supply chain gymnastics. Smaller spaces required compact packing machines — such as Pregis Mini Pak’r® and Easypack® Quantum™void fill machines for boxed items, and the Sharp SX bagger — which allowed for more efficient use of space and better layout.

These machines were also easier to set up and maintain with a repair-by-replacement model: instead of handling service on-site, broken machines would be sent by next-day air to Pregis, while a replacement machine was sent out the same way. They were easier to use and train on, allowing retail employees to be quickly cross-trained to handle fulfillment. Thanks to this quick replacement strategy, there was almost no downtime between machines. 

This approach of more modular on-demand machines and layouts allowed large retailers to scale up and down quickly to deal with changing demand. They also allow small businesses and regional retailers, even single-store operations, to build out e-commerce fulfillment operations for as little as a couple thousand dollars for a MINI PAK’R machine and some tables and shelves.

A Big Future With Micro-Fulfillment

Amazon isn’t going away, and consumers’ appetite for instant gratification is only going to increase. The COVID-19 pandemic has only ratcheted things up, with the growth in grocery deliveries and shipping of perishable goods. And that’s without even talking about Amazon’s drone delivery service, which promises to get products to customers in select markets in under an hour (assuming technical and legal challenges can be worked out).

Micro-fulfillment may not make every retailer immediately competitive with the e-commerce giants, but it definitely helps. Adding just a single MINI PAK’R machine to 90% of their store allowed a major retail chain to process over 2,000 orders per day with a minimal investment —  which adds up quickly when spread across over 1,500 stores.

And for small mom-and-pops and local retailers, 2,000 orders per day might effectively cover their entire business needs for far less than the cost of using a third-party logistics provider. And that can be the difference between success and failure in a post-pandemic retail environment.