A Surprising Solution to the Warehouse Labor Crisis

This Friday I will be speaking at SELF18, a conference on the future of retail, put on by SDI Systems. I will be addressing the role of technology in retail logistics.

While doing background research for the talk, I discovered this amazing statistic in the Wall Street Journal: “Target said Tuesday that 70% of its digital orders in November and December were filled in stores—either through in-store pickup or by shipping directly to customers.” Now, we don’t know what fraction of those digital orders were for in-store pickup and what fraction were for e-commerce, but this is still a startling statistic. And apparently Target’s strategy contributed to a successful holiday season: “The big-box retailer on Tuesday reported a 3.4% increase in comparable holiday sales, sending shares up 3% to $69.22, the highest level in a year.”

I decided to make a visit to my local Target to find out how filling orders from a store really works. At our local Target in Louisville, it is typical to find one to four workers roaming aisles to pick e-commerce orders. These workers would escape the notice of most shoppers, although they do use different carts than do normal customers. The manager said that during the holiday peak, workers came in at night to fill orders while the store was closed to shoppers. “It was crazy.”

Target-Cart
An order picking cart at Target.

Orders are gathered from two places: if the item is in stock in the back storeroom, the system instructs the picker to pick there first; if not, the system directs the worker to the item’s ordinary stock location. Once the orders have been picked, the worker returns to the back room, where a worker at a makeshift packing station packs and labels the order for shipping that night. In the case of my Target store, the packing station was just a portable table near the entrance to the back room. See this nice video:

As I left the store, I was wondering why Target would choose to pick so many items from stores, when each item picked from the store is essentially “double-picked.” Think of it: an item picked at a store to fill an e-commerce order was first picked (perhaps at the case level) at the distribution center, then sent to the store, where it was unpacked and placed meticulously on a retail display shelf. From there it was picked for final shipment. The double-handling just made me cringe!

But then it hit me: [insert Seinfeld imitation here] Wait a minute…! Sure, ship from store means the item can ship from a location closer to the customer, which potentially reduces shipping cost and delivery time. But here’s the best part: Target has “outsourced” its order picking labor problem to its store associates, essentially tapping a reserve labor pool hitherto unrecognized (at least by your humble author). And even more interestingly, store associates are order pickers who don’t recognize they’re order pickers. I dare say, some of them would never “work in a warehouse.” Beautiful!

So there you have it, an elegant solution to the problem of finding, attracting, and retaining warehouse workers: turn your store associates into warehouse workers in disguise. Of course, doing so requires a sophisticated order management system, but Target at least seems to have solved that problem.

But what about the double handling problem? Picking e-commerce orders from the store taps a new source of labor, but it’s still more expensive than picking and shipping from a warehouse. The key to this problem seems to be the back room. As I mentioned above, some of Target’s orders are picked from the back room, before items have been handled and placed on shelves. To reduce costs of picking in stores, the retailer would like to pick as many orders as possible from the back room, which means potentially (gasp) increasing the size of the back room. Could it be that the big box retail store of the future is, say, 30 or even 50 percent back room by area, enabling low cost order picking for e-commerce shipping and in-store pickup?

Time will tell, but I do see the potential for a new breed of retail outlets designed from the ground up to fill e-commerce and in-store pickup orders. Very exciting stuff.

This story will be updated….

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