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The Strategy Behind Turning Department Stores into Warehouses

Updated: Aug 26, 2020

Retail Dive | August 19, 2020

Fulfillment for e-commerce requires three times the warehousing space of traditional brick-and-mortar store inventory, given the greater variety of SKUs and space-intensive shipping and parcel operations. With e-commerce growing in the pandemic, supply chain players are scooping up space where they can find it, especially if it's close to areas with high population density.

Experts see multiple reasons for e-tailers such as Amazon to make this move, from cost savings to an enhancement of the omnichannel experience for consumers. "You’ve got this deeply discounted floor space in urban areas with huge parking facilities and customer density all around," said John Impellizzeri, professor of professional practice in supply chain management at Rutgers Business School. "It could turn out to be a really brilliant play here, if they can get it at the right price."

Creating fulfillment centers all over the U.S. gives Amazon a way to compete with Target and Walmart, both of which have used stores during the pandemic to execute omnichannel strategies, such as ship from store and curbside pickup. Amazon can’t offer curbside pickup if there’s no curb to pick up from.

In a way, this move could turn department store spaces back towards their original functions. The J.C. Penney and Sears catalog model "allowed consumers to purchase goods over the phone and then pick them up at the local retail of their choice, which in most rural communities was essentially just a front counter and a back room storing the products," Johnathan Foster, principal consultant at Proxima Group wrote in an email. "If these box-retailers are consumed by Amazon ... the e-commerce giant is refreshing the model created by J.C. Penney and Sears 30 or 40 years ago."

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