Best Buy Jumping On The Ship-From-Store Bandwagon

Best Buy (NYSE:BBY) has become the latest chain to embrace the idea of viewing its stores as lots of mini-warehouses. CFO Sharon McCollam sees the ability to use its 1,000 stores this way as a key to transforming its supply chain, just as Macy's (NYSE:M), Walmart (NYSE:WMT), ToysRUs, Target (NYSE:TGT) and other chains have done.

Best Buy is already shipping merchandise housed in 50 stores to fill online orders, reported the Minneapolis Star-Tribune, and will move chainwide in six to 12 months. The problem being addressed is a very familiar one: the site showing out-of-stock messages even though plenty of that SKU sits on store shelves. "We've got 1,000 stores sitting with inventory and we have just gotten done telling a customer they can't have what they want," McCollam recently told investors at the Goldman Sachs dotCommerce conference.

McCollam said she hopes to eventually boost Best Buy's supply to the tune of a $350 million annual savings in the cost of goods sold. Thus far, the chain has realized about $30 million in such savings. In addition, McCollam also wants stores to sell discounted returned merchandise to online and bricks-and-mortar shoppers. Best Buy estimates it loses $400 million a year because it sends returned goods to third-party resellers instead of allocating space for the products on its own shelves. The company plans to create special "clearance zones" within select stores and allow customers to purchase such merchandise on the website, the newspaper said.

Although this problem and approach is hardly new, the CFO cited new internal figures to put Best Buy's version of this problem into context. She said that 2 to 4 percent of customers each month didn't buy something because the website said it ran out of the product, but in 80 percent of those cases, the products in question were sitting on a shelf or the backroom of a store.

Best Buy is making some of the right moves, but one of the slippery parts of the ship-from-store equation is moving everything quickly enough so that products don't degrade too much. Macy's has that problem with apparel and especially shoes, where styles change so quickly that a few trips around the supply chain (especially when dealing with returns) means that products must be discounted and sometimes severely discounted. Best Buy's electronics suffer from a different twist on the same issue. Cutting edge tech morphs into obsolete almost as fast as today's hot shoes become collector's items.

McCollam's idea of those special clearance zones is a good one, but those discounts can eat away at margins quickly. Nowhere is the cliche "time is money" more applicable than when moving returned items from point to point.

For more:
- See the Star-Tribune story

Related stories:

Walmart Embracing Ship From Store
ToysRUs Backing Ship From Store
Target Trialing Ship From Store
Macy's Store-To-Door Gets Smarter And Prepares To Take On Amazon
Macy's Ship-From-Store Discounting Headaches