Worldwide retail e-commerce sales was expected to reach $1.915tr in 2016, roughly 8.7 percent of total retail spending. By 2020, that number will increase to $4.058tr, accounting for 14.6 percent of all retail sales. As e-commerce growth continues to expand its share of retail sales, companies will need to increase capacity and equip their distribution centers and stores to efficiently handle more labor-intensive order profiles, whether for direct-to-consumer orders or store replenishment.

But wage pressures and lack of available labor to meet fulfillment needs continues to vex retailers. As technology matures and costs come down, automation solutions take on new importance as a way to reduce dependence on a large labor pool and efficiently handle orders of one.

Profitable fulfillment of e-commerce orders will be enabled by automation and undergirded by more sophisticated software solutions. Systems will need to make on-the-fly adjustments as real-time data about orders, inventory, labor and equipment resource availability, and service requirements direct the intelligent fulfillment of orders through the warehouse and stores within the network.

Networks will need to be reevaluated — not only for the speed and capacity e-commerce demands — but for the flexibility to adjust as the future comes into focus. Inventory deployment takes on more strategic importance. Multi-echelon networks consisting of a mix of import hubs, forward DCs, omnichannel DCs, stores and even suppliers will be needed to support and balance flows. Companies must continue to innovate and rapidly test ideas in order to develop and enhance capabilities that customers value.

Preparing for 2020 requires a new view of the role of the store and the role of the DC. Some stores may look more like showrooms, serving as a guide model for sizing and color selection. Dark stores may emerge as fulfillment centers. And others will continue to serve customers’ desire for the instant gratification of traditional shopping. Subscription services will make demand for a portion of the SKU mix more predictable, while retailers will need to rely more on big data and predictive analytics to profitably deploy the remaining SKUs across the network.

Capital investments will need to be balanced to leverage existing assets, maximize customer experience and service, and avoid over-investing in certain areas. The key will be knowing the tipping point at which you need to make investments and/or different decisions.

The Outlook

In 2020, expect there to be smaller but more highly automated DCs as part of multi-echelon networks, where stores play a key role as fulfillment centers in so far as they can be profitable doing so. Subscription services will make it easy and convenient to replenish consumables, leaving the store of the future to take on new roles as a place of social connection or entertainment destination. Distribution centers will see sophisticated software drive greater efficiency as robots and automation work in conjunction with human workers to fulfill the growing number of e-commerce orders and support omnichannel flows.