Why These Brands & Retailers are Moving to Micro-Fulfillment

Micro-fulfillment: just a few years ago, no one had even heard of it. Then, micro-fulfillment centers were largely relegated to the grocery sector. But times are changing fast. If micro-fulfillment isn’t on your radar now, it will be soon. Why? It’s quickly becoming the standard across all categories for brands and retailers that need to provide amazing online customer experiences and future-proof their supply chains.

Brands have long relied on a few regional, centralized fulfillment centers that were built for the supply chain needs of yesteryear. Massive in size and remotely located, these airport-hangar-like operations leveraged the economies of scale and sufficed for standard shipping windows of 3-5 business days and purchase volumes that were growing at a steady clip of 11% year over year.

But Amazon has changed the game, continually ratcheting up consumer expectations for faster and faster deliveries – free two-day shipping is now table stakes and free next-day and even same-day delivery is right around the corner as the new consumer standard. What’s more, the pandemic marked the great acceleration of e-commerce, with volumes dramatically increasing and brands and retailers struggling to keep up with consumer demand.

Traditional 3PLs and other classic centralized fulfillment networks are all currently at capacity and take years to scale. This makes it impossible for brands to even get online orders out the door, let alone achieve the fast delivery speeds that consumers demand!

That’s why more and more brands are moving towards micro-fulfillment, which flips the traditional fulfillment paradigm on its head by positioning inventory close to where consumers live in a distributed network of smaller fulfillment centers. Micro-fulfillment centers that are automated also leverage robotic technology to make the operations as efficient and profitable as possible.

Target reduces shipping costs & overcomes carrier constraints

In 2020, Target got considerable buzz for using existing stores as fulfillment centers, which in large part helped them edge in on Amazon’s strong hold on the e-commerce sector. However, stores-as-fulfillment-centers isn’t a viable long-term model, especially as Targets are again becoming populated with shoppers. Target decided 2022 was the year to get serious about micro-fulfillment. Target has opened two micro-fulfillment “sortation centers” and plans to build five more in 2022.

Micro-fulfillment helps Target provide the speedy deliveries that consumers expect, reaching those elusive Amazonian shipping speeds. It also allows them to work with on-demand services like DoorDash and Uber to circumvent rising shipping costs, capacity limits, and cut-off dates associated with FedEx and UPS. Micro-fulfillment will also massively reduce shipping costs for Target – their #1 priority – by getting their products closer to end-customers. This will help their e-commerce platform be more profitable overall.

Chill expands its D2C e-commerce fulfillment operations

First to launch in Fabric’s Dallas MFC is Chill Brands. Chill is a lifestyle brand ready to take advantage of Fabric’s local distribution hubs, innovative robotics and intelligent inventory to deliver exceptional customer experiences. Fabric also supports Chill’s ambitious e-commerce expansion plans, and we’re excited to see Chill reach their full potential.

All of the wholesale retail and direct-to-consumer orders made via will be picked and fulfilled at automated robotic pick stations within the Fabric MFC. Fabric will then leverage geographical and logistical data to identify the needs and locations of Chill customers, providing for future integration into additional MFCs throughout the US. This model will provide Chill Brands with enhanced business intelligence to optimize delivery times, sustainably.

Starbucks rethinks store replenishment

For millions of Americans stuck inside In 2020, “work from home” didn’t translate to brew coffee at home. In fact, the demand for take-out coffee grew so much that Starbucks has seen a whopping 80% increase in mobile orders since the early days of Covid. Initially, Starbucks planned to redesign some of its stores into smaller venues focused more on fulfillment and less on the cafe experience.

However, smaller stores mean less space for inventory, making meeting demand an uphill battle. In a traditional fulfillment paradigm, stores receive bulk orders from large warehouses, but smaller cafes don’t have the capacity to store massive quantities of coffee beans and related ingredients.

Starbucks found a workaround in micro-fulfillment. They began placing smaller distribution centers in key markets, focusing on densely populated metropolitan areas. Stores can place orders, receive unit product deliveries, and prepare orders for customers to keep up with on-demand fulfillment.

Nordstrom stores the right items in the right places at the right times

Nordstrom’s bread and butter was once their department stores, but in-person sales are shrinking. While this might paint a bleak picture for the fashion staple’s future, stay calm, Nordstrom fans – online sales have been growing steady since around 2018. By 2021, roughly 50% of Nordstrom’s sales came from e-commerce. However, Nordstrom isn’t quite ready to let their brick-and-mortar presence bite the dust, and micro-fulfillment helps them continue to appeal to in-store customers.

In 2019, Nordstrom launched an automated MFC for its beauty products to connect inventory across their stores and facilities. This gave customers access to a larger selection of products faster and reduced out of stocks, making returns more efficient and expedited. Automation and robotics are largely what allowed Nordstrom to get closer to end-customers, as they can tuck MFCs – which take up 90% less space than alternatives – into tighter spaces in target markets.

More interesting, however, is the inventory insights Nordstrom gleaned from micro-fulfillment. When they see customers loading up on one item, they often realize a related item will be in-demand soon. This helps them store products more strategically, keeping the right items at the right places at the right times.

E-commerce delivery

Walgreens replaces manual labor with automation

Pharmacies have been hit hard by the pandemic; a combination of increasing prescription rates, staffing shortages, and the addition of Covid testing and vaccinations mean pharmacists have their hands full. It’s never been more important to ensure efficiency and reduce human error when it comes to prescription drugs, and Walgreens is turning to micro-fulfillment for help.

Walgreens has already opened micro-fulfillment centers in Phoenix and Dallas – and they’re poised to open a total of 11 more centers by the end of 2022. These facilities support the automation of prescription fulfillment, normally done via manual labor. This frees up massive amounts of time for already overtaxed pharmacists, who can spend more time on valuable services such as diagnostics and testing.

The bottom line: Micro-fulfillment is the future of retail

The evidence really speaks for itself here. We’re now seeing major brands and retailers turning to MFCs to mitigate issues caused by a traditional supply chain paradigm, to lower shipping costs, and to scale quickly into the markets most strategic for them. Once something of a niche interest in the logistics sphere, micro-fulfillment is now being leveraged by major industry players.

Brands who rely on traditional, centralized fulfillment are butting heads with an old paradigm that’s at capacity and takes far too long to scale. Getting local coverage now with a distributed network of MFCs gives you a considerable competitive advantage as you’ll get immediate access to key markets while supporting consumer demand for fast, free shipping.

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