As More Shoppers Go Online, Retailers Cut Back On In-Store Inventory

When you envision a Home Depot store, you probably picture rows of huge shelves packed to the rafters with boxes and pallets of products waiting to be unpacked. But with more shoppers buying things online, these shelves could start looking a lot different as the Depot and others rethink how much stuff they need to keep on hand.

With the growth of e-commerce, retailers across the country are cutting back on in-store inventory and instead depending on distribution centers to ship products to fulfill online orders, the Wall Street Journal reports.

Among the companies making the changes is Home Depot, where CEO Tom Shortt recently told stores to get comfortable with days of inventory, not weeks.

The goal for Home Depot, which aims to increase sale by nearly 15% by 2018, is to keep inventory levels flat or slightly down.

In order to make the shift, the home improvement retailer has instituted “Project Sync,” a series of changes that aim to create a streamlined flow of deliveries from suppliers to distribution centers.

For example, under the plan, stores will receive two trucks five days a week rather than the current level of five trucks twice per week, essentially spreading out the inventory deliveries.

By staggering the deliveries, the company will no longer have to store products on upper shelves which need ladders or machines to reach. Instead, the items will be stored directly on lower shelves.

Inventory is typically one of retailers’ highest costs, the WSJ points out, noting that by reducing the number of boxes waiting in the backroom, companies are able to use those funds on other initiatives, like improving their e-commerce channels.

Executives at Home Depot say they’ll use the savings to have more workers on the floor fulfilling online orders for customers to pick up in store.

Scott Fenwick, director for Manhattan Associates, a supply chain software company, tells the WSJ that online shopping “has forced the industry to rethink not only the math and science behind the inventory pool, but also the strategy.”

Home Depot certainly isn’t alone in its mission to cut back on inventory supplies, Walmart and Target previously dropped inventory levels for certain products like diapers, boxes of cereal, and other items.

“Ideally, you put less inventory in the stores, but replenish more frequently,” Brian Gibson, a supply chain professor at Auburn University, tells the WSJ. “You’d rather fulfill based on demand than based on a forecast.”

Retailers Rethink Inventory Strategies [The Wall Street Journal]

by Ashlee Kieler via Consumerist