Order online and pick up at the drive-through; Kmart and its US rivals are starting to experiment with hybrid shopping outlets

Order online and pick up at the drive-through; Kmart and its US rivals are starting to experiment with hybrid shopping outlets, writes Jonathan Birchall
By Jonathan Birchall in New York

1007 words

28 January 2009

Financial Times
London Ed1
14
English
(c) 2009 The Financial Times Limited. All rights reserved

The residents of Joliet, a small city on the outskirts of Chicago, already have a drive-through McDonald's, a drive-through bank and a drive-through Starbucks. Later this year they should have a drive-through Kmart store as well, as the third-largest US discount retailer begins a radical experiment in serving its online shoppers.

Kmart, part of Sears Holdings, istransforming its old 85,000 sq ft store in Joliet into a drive-through location - under the name My Gofer - with four-fifths of the store area devoted to warehousing space. Sears told the city council that the new store would be a "marriage between online shopping and bricks and mortar", allowing online shoppers to pick up merchandise without leaving their cars.

Meanwhile, Wal-Mart, the largest US retailer, is working on its own new generation of e-commerce enabled stores. Eduardo Castro Wright, head of Wal-Mart USA, said last year that the smaller, "high-efficiency" stores the retailer is developing will include a "very large" commitment to its pick-up service and is expected to include a drive-through area for online orders.
Both retailers are building on the broadly positive response from US shoppers to existing site-to-store pick-up services, which leading retailers have introduced for both online-only and in-store items. Those who can overcome the logistical challenges of the service can expect a receptive market.

Denis Baldwin, a shopper in Tampa, Florida, enthusiastically described a visit to Sears in his MyTampa blog earlier this month. "Placed the order at 9.18 this morning, thinking I could pick it up in a couple of weeks. At 10.23, I get a note saying: 'Your order is ready to pick up.' That fast? Really? Wow."

At the local Sears, Mr Baldwin parked in an area set aside for pick-up customers, walked in to a service desk and scanned his e-mail receipt and credit card at a computer terminal, waiting briefly before receiving his purchase, a drill. "Total transaction time from the time I put my credit card in until the box was in my hand was only 19 seconds," he wrote.
Yet there are considerable difficulties for retailers in setting up an in-store pick-up system, particularly if they try to mimic Best Buy and the late Circuit City in guaranteeing same-day availability.

Even if a retailer's website is able to check the inventory of a store, same-day customers can be left disappointed if records are inaccurate or if the item in question cannot be found or turns out to be damaged. Even shipping to store requires a workable system for verifying orders, payments and cancellations, and keeping track of ordered merchandise.

Staff also need to be more responsive than the average check-out clerk, since pick-up customers generally have higher service expectations.

Most retailers do not provide separate figures for pick-up operations, but Circuit City, the now-defunct consumer electronics retailer, reported last year that almost 55 per cent of its online sales were being picked up in-store. Raul Vazquez, chief executive of Wal-Mart.com, said in November that its site-to-store service was seeing "very, very healthy" growth rates, without giving details.

But along with their new store formats, Wal-Mart and Kmart are also looking at expanding their services to lower-cost everyday items and food. Such a move could lead to increased demand for services and present a new challenge to competitors.

In most parts of the US - unlike in western Europe - fresh food and groceries cannot be ordered online for home delivery, reflecting the difficulties of running profitable services given low population densities and other factors.

Together with its pilot store format, Kmart is testing a new web service, MyGofer.com, that will allow customers to order a wider range of items for in-store pick-up than are currently available on its regular website, including milk, eggs, fresh food basics, and low-cost items such as detergent, mascara and toothpaste. Orders placed before noon can be picked up at a local store on the same day, allowing shoppers to collect goods on their way home from work.

Wal-Mart focuses its site-to-store service on merchandise that is only available online. But last year its website started listing, but not selling, packaged and perishable groceries and health and beauty items, with a "find in store" search linked to local store inventories, as a possible step towards an expanded store pick-up service.

Mr Castro Wright's comments suggest that Wal-Mart's new high efficiency outlets will still feel like stores, even with a big online presence. Kmart's pilot, however, seems closer to the warehouse showrooms of Service Merchandise, a US retailer that folded in the late 1990s, or to Britain's Argos chain.

The concept continues to gain supporters including, in the past year, leading US retailers Coach, Nordstrom and Container Store. In Britain, Tesco is also testing online pick-up and storage areas in some of its new Homeplus stores.

Lauren Freedman, whose Etailing consultancy monitors retail e-commerce initiatives, notes that the service remains comparatively new, with only 24 out of 60 leading US retail sites offering in-store pick-up.

In many cases, she says, they still deliver a less than satisfactory experience, as retailers struggle not just with the logistical and IT challenges of creating a system that works but also with what it feels like for the customers.

"Sometimes you have to drive down an alley behind the store and there's nowhere to park . . . and then the guy runs off to search for your camera on a shelf somewhere," she says. "The question is, are you visiting a store or are you visiting a warehouse?"