Usage of micro-fulfillment centers, dark stores and pop-up distribution centers to double over the next two to three years as retailers shift to customer-centric fulfillment

SCOTTSDALE, Ariz. – Jan. 12, 2021 – New research from Blue Yonder®, conducted by Researchscape International, has identified the most pressing e-commerce fulfillment priorities and investments of today’s retail executives amid the COVID-19 pandemic. The second installment of Blue Yonder’s Future of Fulfillment Research Report reveals that within the next 12 months, 50% more retailers — as compared to those who are currently fully automated — plan to fully automate their fulfillment locations to be best positioned to address consumer needs. Additionally, usage of pop-up distribution centers (DCs), dark stores, and micro-fulfillment centers will double as retailers pivot to customer-driven commerce.

Conducted in October 2020, the report analyzed responses from 300 senior executives across retail and e-commerce with responsibility for logistics and fulfillment operations in the U.S. Part one was released in December 2020.

Customer-Driven Commerce Automation and Modern Fulfillment Options Will Grow

Retail executives are turning to automation to enhance their retail supply chains and give them more control over their online shopping experience. Further, retail executives recognize that pop-up DCs, micro-fulfillment centers, and dark stores can help them keep online inventory as close as possible to consumers, allowing them to fulfill orders rapidly and profitably.

  • As e-commerce grows, so will the automation of fulfillment networks, with 14% of retailers having automation across their fulfillment locations today and 21% expecting full automation in the next 12 months – representing a 50% growth. Almost a quarter (23%) of retail executives expect to have most of their fulfillment locations automated in the same timeframe.
  • 17% of drug store/health & beauty retailers currently have all fulfillment locations automated – more than any other vertical.
  • Over the next 2-3 years, retailers’ usage of pop-up DCs will double, rising from 12% of networks today to an expected 26%; dark stores will double from a small base, growing from 6% of networks today to 12%; and micro-fulfillment centers will nearly double, rising from 15% of networks today to 27%.
  • 64% of retailers currently provide buy online, pick up in store (BOPIS) services and contactless shopping experience, but usage of this will decrease by roughly 8% over the next 2-3 years. With COVID-19 vaccine deployment, consumers are anticipated to return to the stores, which could account for the anticipated decrease.

“Retailers are expanding their fulfilment network and footprints in part to address last-mile delivery while meeting the surge in e-commerce orders in the short-term,” said Ed Wong, senior vice president, Global Retail Sector, Blue Yonder. “Equally important, they understand that accurately predicting demand is critical for sustaining revenue growth and advanced, omni-fulfillment capabilities and locations embedded with automation are the key to quick and efficient fulfillment. Having the right supply chain solution to gain that end-to-end visibility will be a key to retailers’ success.”

Retailers Repositioning Fulfillment Assets and Labor to Align with Customer Expectations

To meet the demand of customer-driven commerce and increase fulfillment, retail executives will need to expand capacity and improve labor productivity. To do this, retailers will need to improve their picking processes and warehouse costs, which aligns with their plans to invest in local fulfillment hubs, or dark stores, which is a more cost-efficient warehouse option that enables faster and more efficient picking processes.

  • Over the next 12 months:
    • The majority of retail executives want to prioritize increasing existing capacity (43%) and improving labor productivity (42%).
      • Roughly half of grocery retailers (49%) and pet care retailers (49%) cited expanding existing capacity as an area they would like to improve – more than any other vertical.
      • Over half of drug store/health & beauty retailers (52%) and pet care retailers (52%) selected improving labor productivity as an area they would like to prioritize – more than any other vertical.
    • Almost 40% of retail executives want to improve picking processes (39%) and reduce warehouse/DC costs (38%).

Embedded Supply Chain Intelligence and Visibility Key To Customer Experience

Along with brand, product and price, retailers need to include fulfillment as part of their overall commerce strategy to keep up with the realities of today’s world. As COVID-19 continues to dramatically affect how employees work, it is no surprise inventory accuracy and real-time visibility are on the list of areas retail executive would like to improve to ensure they are meeting customer demands. Also high on the list was workforce management.

  • Over the next 12 months:
    • Almost half (48%) of retail executives want to improve pricing and promotion to ensure profitability from market launch through markdown.
    • Almost two-fifths (38%) of retail executives want to improve workforce management, including associate retention, employee engagement, and productivity.
  • Improving real-time inventory visibility and orchestration (36%) and assortment management (36%) to drive higher sales and margins across channels with localized customer insights, were listed as other top priorities.
    • This aligns with a key finding in part one of the report which found more than half (51%) of retailers cited out-of-stocks as their biggest fulfillment challenge.

“The pandemic has hyper-accelerated the digitization of retail.  Retailers can no longer rely on brand, product and price alone. Fulfillment is now an integral part of a successful end-to-end retail strategy. With uncertainty still looming as we enter 2021, retail executives are needing to quickly re-orient customer-centric strategies to deliver speed and convenience, resulting in a comprehensive review and streamlining of the end-to-end supply chain from planning, inventory placement, fulfillment and routes to market,” said Omar Akilah, vice president – Commerce, Blue Yonder. “Retailers who reorient towards a customer-centric supply chain powering commerce will be better equipped to adapt to any environment, respond to spikes and future challenges, while ultimately delivering the right product, at the right price, in the most optimal manner in accordance with customers preferences and needs.”

Blue Yonder will be showcasing the Future of Fulfillment Report findings at its virtual booth at NRF 2021. Stop by to see the latest product innovations and demos from Blue Yonder or join Blue Yonder’s  ‘Retail Live’ sessions on LinkedIn from January 11-22 to hear from retail experts, Blue Yonder customers and partners.

Research Methodology

The Future of Fulfillment Research Report was fielded by Researchscape International from October 6 to 13, 2020. The online survey collected responses from 300 senior executives in omni-channel retail and e-commerce firms with responsibility for logistics and fulfillment in the U.S.

Additional Resources:

  • Schedule a 1:1 meeting with Blue Yonder and be prepared for your next pivot. You’ll be entered to win tickets to our exclusive NFL Conference Championship watch party.
  • Attend our mainstage speaking session on Tuesday, January 12 at 12:00pm EST
  • Visit our virtual booth to see the latest product innovations, collateral and customer videos from Blue Yonder. You can also play our NFL Pick’Ems for Hall of Fame Prizes.
  • Join a ‘Retail Live’ session on LinkedIn from January 11-22 to hear from retail experts, Blue Yonder Customers and partners.

About Blue Yonder

Blue Yonder is the world leader in digital supply chain and omni-channel commerce fulfillment. Our intelligent, end-to-end platform enables retailers, manufacturers and logistics providers to seamlessly predict, pivot and fulfill customer demand. With Blue Yonder, you can make more automated, profitable business decisions that deliver greater growth and re-imagined customer experiences. Blue Yonder — Fulfill your PotentialTM  blueyonder.com

“Blue Yonder” is a trademark or registered trademark of Blue Yonder Group, Inc. Any trade, product or service name referenced in this document using the name “Blue Yonder” is a trademark and/or property of Blue Yonder Group, Inc.

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