Shoe retailer Schuh ranked top in the Operations & Logistics category in InternetRetailing’s Top 500 listing of UK retailers. Emma Herrod spoke to Rob Bridle, the company’s Head of Logistics, about its logistics operations and how he manages the choice and delivery promised by its ecommerce and retail stores.
Schuh offers the full gamut of delivery options, from free standard delivery – which takes 2-3 days – through reserve or click and collect in store, to 90-minute delivery using Shutl. In a market with so many competitors, including the brands it stocks selling direct to customers, Schuh uses delivery as a way to differentiate itself.
So customers opting for free standard delivery usually find their package arrives next day. Order cut-off for next-day delivery is 10pm and deliveries can be made on a Saturday or a Sunday. In fact, orders placed up to 5pm on a Saturday can be delivered on the Sunday, either to a store or the customer’s home. The firm currently “takes the hit” on Sundays with free delivery to store since it’s likely that the stock wasn’t available in that particular shop on Saturday, explains Rob Bridle, Head of Logistics at Schuh. The deadline for this service will be extended “in time for summer” enabling customers to order up to 10pm for next-day delivery, 7 days a week.
Schuh is able to guarantee its next-day promise by having a total view of stock across its supply chain, whether in store, in one of its 3 distribution centres or in transit. “We are punching well above our weight” in terms of omnichannel capabilities, claims Bridle.
The company was early to omnichannel retailing having achieved a single view of stock 10 years ago. It opened its first store in Edinburgh in 1981 and now operates 107 shops, as well as UK and European websites. In 2011, it was bought by the US retailer Genesco, whose investment has helped it to expand faster than it could otherwise have done. This has led to the need for new warehouse space. Schuh’s turnover last year was $364.7m, with an operating income of $3.1m and an operating margin of 0.8%.
The firm operates 3 warehouses, a setup which, Bridle says, “works really well”. It opened the 245,000 sq ft DC in Bathgate, Scotland, in September 2014, and this is its main goods-in facility, storing 12 weeks’ worth of stock for ecommerce fulfilment and store replenishment. Although the company has outgrown its original 50,000 sq ft DC at its head office in Livingston, it continues to use this for returns processing. This means that all stock at Bathgate is new.
Because of the distance between the Bathgate DC and many of its customers, Schuh operates a small 5,000sq ft DC behind its West Bromwich store from 5pm until 11pm. It is here that online orders placed later in the day are picked and packed for next-day delivery. Orders can also be fulfilled from across the store estate. “Orders are fulfilled from DCs first and then from stores when there is no central stock,” explains Bridle. He adds that the company uses an algorithm to select the store that is selling the item at the slowest rate as the ideal fulfilment location.
“We have a single stock pool, but some of the stock in the DCs is effectively ‘protected’ by a set of dynamic rules which are designed to maintain a central buffer stock of all core lines which are not allocated to stores when they reach a minimum quantity,” he says. “It is desirable to have some stock held in the DCs, as we have fixed collection times from our carriers through to 11pm, which is later than we can achieve from stores and enables us to offer next-day delivery on these lines with full confidence they will be collected and delivered on time.” Store collection times are more variable.
“When the central ecommerce buffer stock is too low, relative to online sales volumes, items are requested back from stores which are selling them at a slower rate,” explains Bridle. Ecommerce currently accounts for 20% of the company’s sales.
Skus can be sold online right down to the last 4 pairs in the business since there is a 10% chance of them not being of good enough quality for an online customer.
RUNNING ON IT
At the core of the company’s omnichannel logistics operation is what gives Schuh “its competitive advantage”: its in-house IT system, Shark. This gives the whole business a view of every item of stock and its location. This information is available to store staff and customers via point-of-sale terminals, kiosks and an app, as well as to staff at the headquarters and contact centre. By ensuring that this is accurate and operates in real time, the company can list items for sale online very quickly and ask for slower-selling stock to be returned from stores to the main DC to keep a set amount ring-fenced for internet orders while ensuring that it can also meet its delivery guarantees. Shark also gives the business a clear view of past stock and sales as well as stock on order.
“For current stock we have some dynamic web stock population rules that ensure that stock only shows as available up until the point that it sells down to a minimum quantity,” say Bridle. Similarly, the web stock population rules change, in real time, to reflect stock that is either available for shoppers to buy for next-day delivery – that is, it is available in the DCs – or items that are available only with standard delivery. The ecommerce team is working towards being able to show customers stock filtered by only what’s available for next-day delivery or available for delivery by Shutl.
“One of the biggest challenges, once the right IT is in place, has been keeping our inventory records clean and accurate enough to sell down to the last few pairs across multiple locations when selling through multiple sales channels,” says Bridle.
Omnichannel retailing has also produced other challenges for the business: getting the web stock population rules responsive enough to allow sales down to the minimum safe quantity that will avoid the risk of selling a potentially out of stock order on a very dynamic line or a line where the only stock might not be in perfect condition if it has been on display or tried on a few times in a store. Customers in a shop are generally happy to buy a pair of shoes that someone else has tried on or those that have a price sticker on the sole, Bridle explains, while web customers are more demanding and expect their footwear to be in a pristine condition when they arrive.
Making this easier is the fact that the majority of stock in its Bathgate warehouse is new stock which has arrived direct from suppliers. Apart from spot-check quality control at goods-in, footwear doesn’t need checking again before being sent to customers. Stock returned from stores goes to Livingston first before being moved down the road to Bathgate.
The majority of suppliers label each shoe box with Schuh’s barcodes so they can be scanned at goods-in and put straight in the pick locations. Each pick location is scanned at the time so sku and pick location can be matched for later picking. Once an item is in the pick location, it can be allocated for sale by the merchandisers.
Some 40% of new stock is ‘cross-docked’ (despatched to stores the same day), so it is moved directly onto the sorter, explains Bridle. The remainder goes to a pick location on the floor, shelving for small items and children’s footwear or racking for goods that won’t be needed for 2 weeks or more. Around 145,000 pairs of footwear are brought in during an average week.
If goods-in receives new stock that hasn’t been on sale yet, it is sent to the in-house studio to be photographed and could be ready to go on sale that day.
Shark knows the exact location of the footwear, from the initial scan at goods-in till a customer is happy with their purchase. If the stock is replenishment of existing lines, it can be put on sale as soon as it is put in the pick location.Staff use wireless scanners for picking. Shoe boxes are placed on a rolling cage and moved between pick locations as directed. When convenient, staff transfer the boxes from the cage onto one of three conveyors belts leading to a Vanderlande Industries’ sorter. This sorter was the single biggest purchase in the new warehouse (at around £2.5m, it cost the same as all the DC’s lighting and sprinkler systems). It can handle up to 10,000 units per hour and gives Schuh the scope to introduce other product categories since it can handle hats and accessories as well as mail.
At this point, staff don’t know whether they are picking to replenish store stock or if the item is a click and collect or direct order, since this is all handled automatically by the IT system and sorter. A pack location is available for every store with cartons located at the end of each chute for staff to load orders into throughout the day. “A store will receive 20 cartons on a typical day,” says Bridle.
On the opposite side of the sorter are 10 packing locations for online orders. At these, a member of staff first scans the barcode on the box and this processes the order, taking the oldest order for the sku first. This generates the customer invoice and carrier label, and processes payment, notifies the customer via email that their order has been despatched and updates Shark to move the item from ‘transit’ to ‘sale’. A fraud check on the credit card will have already taken place.
Operating at peak
The amount of processing required at this point became a sticking point for the company on Black Friday. The warehouse and operations were able to cope with the “huge” increase in orders that day. In fact, more orders were processed on Black Friday than the whole of the previous week. Orders were quiet following this peak, so “it won’t be the best Christmas ever but it was ok,” says Bridle. However, he reveals that Schuh will need increased server capacity next year, a business decision which will cost the company close to £1m.
The new warehouse, personnel and carrier were able to manage the peak; senior managers from ParcelForce, its main carrier, were even helping to pack orders at Schuh that day, Bridle says, since “we are by far their biggest customer in Scotland”. As to the situation with carriers at Christmas, Bridle comments that they prioritised next-day delivery orders and some of the standard delivery orders were delivered in 48 hours instead of next day. Some 97% were still delivered next day though. In fact, looking at the customer order log for the week before my visit, 99.7% of orders were delivered on time. Some 99.8% of standard delivery orders were delivered on time with 54 missed. “99% of the time it’s courier related,” says Bridle.
With premium services, 47 were missed and 98.2% delivered on time. These are generally missed collection point from store. Schuh is proactive with its customer service so, in each case, a member of the customer services team will track the order and phone the customer direct, giving them free delivery or a refund if necessary. “We try not to let anyone down,” says Bridle. “We can see where the order is right down to the customer’s door.”
Black Friday was also very busy for Schuh’s shops. Rather than having customers queuing out of the door, though, it has introduced hand-held devices from which staff can process payments as well as kiosks at which staff and customers can check out.
The vast majority of Schuh’s online orders are delivered via ParcelForce, while UPS handles international orders and store replenishment. A small number of online orders are delivered by Yodel and a small proportion of customers choose Collect+ or UPS access points for collection. Of course, the cheapest fulfilment option from the company’s point of view is click and collect, since it can send 15 shoe boxes in one carton to a store for the same price as an individual single pick online order. Just 10% are multiple picks.
Staff in the warehouse are cross-trained for goods in, pick and pack.
MORE THAN IT
So, if joined-up IT and accurate inventory records are key to fulfilling the promises Schuh makes to customers, what else contributes to it “punching above its weight”? Bridle cites fast and efficient order fulfilment processes, single view of the customer order, reliable delivery partners, a dedicated customer service team focused on the right KPIs, and good internal relationships between retail operations, ecommerce, merchandising and logistics functions.
Efficiency and space also seem to come into the equation when comparing its old and new warehouses. Whereas everything in the old DC had to be moved quickly because of space restraints, everything in the new DC is moved and processed on the day it comes into the business so it is available for sale as swiftly as possible: goods in, online orders, store replenishment (which is updated overnight and again in the afternoon). Merchandisers can top up or second guess stock that’s needed for individual stores and they can also request stock back from stores for the DC to cover the online order buffer or to go to other stores at which the sku is selling better. This is all brought back via Livingston before being despatched again. “This helps with visibility,” says Bridle. Everything is cleared by the end of the day ready for the next trading day, which starts at 6am in the warehouse.
The new Bathgate DC opened two years after the company realised it was running out of room in Livingston. There was no need to ramp up operations at Bathgate because, as Bridle explains: “If things go wrong at a DC it’s generally IT and ours was already tested.” The warehouse switch took place over a weekend. He says: “It was literally close one warehouse on Friday and open the new one on Monday. Orders that needed to be fulfilled over the weekend were handled by the stores.”
Before it made the decision to build the new DC, Bridle says it used a temporary second warehouse for a while to see if it could run with 2 warehouses. During this time, the company was sold to Genesco and the subsequent injection of cash brought forward its expansion of the store network by 10-15 a year “so we knew we’d need to find a new site,” he adds. “We’d have struggled at peak if not for Bathgate.”
Schuh has factored 5 – 10 years of growth into the new warehouse so it doesn’t appear to be holding much stock. But Bridle reveals that it currently holds around 700,000 pairs of footwear – enough for 12 weeks of business. By 2017, this is predicted to increase to 1.5 million pairs. Stock is lower at the moment anyway, he explains, because it is between seasons.
One issue with the new warehouse is its location. While it is good from a cost point of view – it is far cheaper to purchase land here than the equivalent in the West Midlands and the unused space is not rateable in Scotland – it does make late cut-off for next-day delivery a challenge. This is what led to the decision to run the third, much smaller DC at the Schuh shop in West Bromwich.
The next steps for the Bathgate DC are the introduction of big screens and gamification programming for the in-house IT team to keep warehouse staff informed of pick numbers and to bring a “bit more interest” to the job.
The original Livingston warehouse still processes returns (7-8% of online orders are returned with a similar percentage being returned to stores), end of lines and stock which needs to be cleared via eBay or the company’s own clearance site (“some brands don’t like you using eBay for clearance of their brand,” explains Bridle). He says that with all the moving around of stock from DC to store, store to DC, customers and returns, footwear does go missing so a database is kept of odd shoes so they can be matched back up in pairs.
From March, the Bathgate warehouse will also be running store replenishment to Germany, where the company will be opening its first international store, in Oberhausen. It plans to have 6 shops up and running in Germany and Holland by the end of the year, and it will be keeping a close watch on the halo effect on online orders before the ecommerce team makes any decisions to localise websites for these countries. They abandoned an earlier entry into France a couple of years ago.
Schuh is also taking a wait and see approach to logistics in Germany. Stores will have stock replenished from the UK and online orders will continue to be handled via the UK – but with free delivery in order to be competitive. With Germany’s higher rate of returns from online orders – around 42% is anticipated – Schuh is setting up a processing facility in the country. Bridle expects this to be incorporated into one of the stores since this mix of retail and warehouse “works well in West Bromwich”.
In the longer term the challenge will be to locate a DC in mainland Europe. New stores are also planned for the UK.
Rob Bridle treats every part of the business as a customer for his team. “The ecommerce and retail operations teams are two of our most important customers,” he says. The other key ones are ‘Direct’ customers and the buying and merchandising teams. “So, pretty much everything we do in logistics is focused on meeting their needs and providing the best service that we can. For all customers there’s a common need for speed, flexibility and reliability and that drives everything we try and do. For Direct customers the focus is on providing a convenient range of delivery options at the lowest possible cost and getting their order to them where and when they want it; for the stores it’s fast, frequent and accurate replenishment; for the ecommerce team it’s fast order fulfilment, fast returns and having reliable delivery partners.”
From a logistics point of view, Schuh is well set up for everything in its five-year plan. The sorting system can handle other product categories, the warehouse can easily be raised another sorting level, “if not two”, and because the firm uses its own in-house Shark IT system, it can quickly and easily be configured to incorporate new carriers or changes to final-mile operations. And it is this joined-up IT capability and in-house IT team that gives Schuh its competitive advantage.
SCHUH & THE IRUK 500
Schuh’s avant-garde logistics performance rocketed it up in the Operations and Logistics Dimension of the IRUK 500 research, taking the lead with a 79% index value (average 28%). The study, which awarded points to retailers based on their capability in the areas of Delivery, Returns, and Collect, assessed 100 of the largest UK retailers. The data demonstrates that while Schuh isn’t alone in developing the systems and processes necessary to be an elite retailer, most of its peers are struggling to keep up with its rapid rate of innovative change.