Walgreens closing microfulfillment centers to focus on fulfillment from stores

Automation & RoboticsMicro-FulfillmentWarehouse Automation

Nov 19

The retailer has closed an e-commerce warehouse as it focuses instead on having its stores do double duty as fulfillment centers

Walgreens CEO Roz Brewer on automated fulfillment center plans.

Walgreens Boots Alliance is betting its 8,700 bricks-and-mortar stores, and not a network of fulfillment centers, hold the key to speeding up delivery of online consumer orders and increasing sales.

The pharmacy giant recently closed a warehouse in Edwardsville, Ill., dedicated to filling e-commerce orders for household items such as toothpaste and nail polish, signaling that it is going all-in on the idea that its stores will do double duty as both retail outlets and hubs for home deliveries.

Walgreens will have its store employees pick and pack items for same-day delivery through third-party apps such as DoorDash and Uber Technologies’ Eats division.

The strategy, which doesn’t include the company’s pharmacy operations, is meant to make handling of online orders more efficient by having a single system for handling goods rather than managing separate distribution networks for e-commerce and in-store sales. Walgreens says 78% of Americans live within 5 miles of one of its stores.

The Deerfield, Ill.-based company joins other retailers including Target, Walmart and CVS Health that have started fulfilling more online orders out of stores as a way to speed up shipments, streamline inventory and make more use of their physical sites.

“There’s a huge amount of efficiency in leveraging the sunk costs of a retail store as a place for fulfilling online orders for customers,” said Brendan Witcher, principal analyst at research firm Forrester Research. For convenience stores like Walgreens, which rely heavily on stores’ proximity to customers, “why not take advantage of them as more of fulfillment locations?” he said.

Walgreens’ comparable retail sales, those from stores and online channels operating for at least 12 months, and excluding pharmacy, fell 3.3% in the quarter ended Aug. 31 compared with the prior year. The company’s online orders for retail goods rose 14.2% during the quarter. The company didn’t disclose its revenue from online channels.

“It’s that change in consumer behavior that we just absolutely cannot ignore,” said Rajnish Kapur, the company’s chief sourcing and supply chain officer.

Customers shopping on the retailer’s website or app can still opt to have items shipped in two to four days via FedEx. Those orders are sent out from one of the company’s 16 distribution centers that restock its stores, or from what it calls hub stores that operate as small distribution centers.

But Walgreens is steering shoppers toward same-day delivery when items are in stock nearby. While checking out online, customers who have selected no-rush shipping are asked if they’d like items delivered earlier, if possible. If they opt in, their order is fulfilled by a local store’s employees and delivered by DoorDash or Uber Eats.

Customers are charged $5.99 for either shipping or same-day delivery, a fee that is waived for orders of $35 or more.

Shoppers also have the option to place orders at Walgreens through the delivery apps run by DoorDash, Uber Eats, Instacart and Target-owned Shipt. Those orders are picked, packed and delivered by a courier working for that particular service.

Walgreens says its same-day orders are delivered in 50 minutes on average. Kapur said he believes that quick delivery could help Walgreens win over more shoppers and better manage its inventory by allowing the company to keep goods and deliver them closer to where they are purchased.

“If you’re able to fulfill orders that way and work to smooth demand across the network, it will put us in a very good state,” Kapur said.

Walgreens is essentially piggybacking for its delivery on the growth of DoorDash and Uber Eats, which are turning to retailers like Walgreens to expand the kinds of items they can deliver to customers beyond restaurant takeout meals.

Walgreens has also been working to speed up prescription fulfillment and delivery, which operates under a separate logistics network because of the added complexity of handling pharmaceuticals.

Walgreens offers customers same-day prescription delivery through DoorDash and Uber Eats for medications that are ready for pickup.

The company over the past three years has opened 11 highly automated microfulfillment centers to fill online prescription orders. Those centers fill more than 2.3 million prescriptions a week across 29 states, the company said.

Walgreens executives said last month they are pausing expansion of that network to focus on the facilities that have opened so far. Prescriptions that are time-sensitive or are for controlled substances are still filled by pharmacists in stores.

Story by Liz Young at wsj.com (November 15, 2024)