RBTE 2015: Back-end investment vital to serve modern shopper

With the cost of serving online customers as much as three-times that of store customers, managing channel economics is a serious challenge for multichannel retailers as their online sales grow rapidly.

Speaking at RBTE 2015, John Munnelly, head of operations for the Magna Park Campus at John Lewis, admitted that with 35% of its sales now online the company's management of channels is vital to its profitability.

He cited click & collect as absolutely crucial to this task as it suits the traditional store fulfilment model. It has also proven a life-saver for events such as Black Friday when it took volumes away from a severely stretched fulfilment infrastructure for many retailers.

"The reason I'm still here is because click & collect took all the capacity challenge away from the delivery arm. Without the 60% of online orders going through click & collect then we'd have had the same problems as others in the industry," explained Munnelly.

Such increased volatility is partly why John Lewis has built a flexible distribution centre at Magna Park, which is now viewed as absolutely vital to its multichannel operations. He says there is sufficient space to undertake manual picking and packing during peaks whereas at other times it can be all automated in order to "sweat the capital rich aspect of packaging" at the site.

A key aspect of the distribution centre has been the ability to service online orders through single unit picking. It also enabled the breakdown of goods into smaller packages for stores, thereby enabling them to carry less excess stock and convert store rooms into valuable trading space.

Magna Park has also been built to a modular design that has been crucial to it being possible to easily add capacity – vital as online orders have increased at a rate the company could not have forecast.

"We forecast online sales would be £350 million by 2020. So when we gathered all the data it gave us a future forecast that capacity of 342,000 sq ft [at Magna Park] would last to 2020,” Munnelly said, adding that as it stands the site will extend to 2.1 million sq ft when the most recent fitting out is completed.

Munnelly suggested that the company is "incredibly proud" of its new distribution centre and that being able to comprehend "crazy dynamics is absolutely vital when you are on the lookout for the next [significant] changes" and to be able to deal with it at the back-end.

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