As merchants look to implement omnichannel commerce to serve the heightened expectations of anytime/anywhere customers, virtual inventory is one way to meet this demand in a cost-effective manner.
In a nutshell, virtual inventory allows retailers to tap the vast merchandise resources of distributors and manufacturers to fulfill orders, thus reducing the overhead costs and risks of maintaining massive inventories at distribution and fulfillment centers.
While this practice has historically been known as drop shipping, virtual inventory capabilities have advanced beyond just having an item sent from the manufacturer to the customer. Systems not only optimize fulfillment by locating an item that is closest to the customer, but use automated least-cost routing to determine the most economical delivery method.
“We provide inventory throughout the country in the fastest, shortest and cheapest way to get there, often in 1-2 days at reduced rates,” said Frank Poore, CEO of virtual inventory provider CommerceHub, whose clients include Kohl’s, Belk, Staples, Panasonic and GE. “We help retailers compete on selection and fulfillment speed.”
Poore said CommerceHub has access to 8,300 suppliers, and handled $7.3 billion in gross merchandise value through its inventory sources in 2013.
As in other aspects of omnichannel commerce, Poore said virtual inventory lets retailers and brands compete against the likes of online giants Amazon, eBay and Google and others who continue to push the same-day/next-day model, by enabling them to offer fast and cheap fulfillment.
“Amazon can’t deliver everything the same day, so there’s going to be certain products, in certain markets and at certain price points where the model breaks down and it costs more than they get paid for,” Poore said. “So the race is on, but it’s not a sustainable model unless you’re in New York and can make bike deliveries. But in Iowa, it’s going to be tough to do profitably.”
Ivy Chin, senior vice president of ecommerce and omnichannel for Belk, said virtual inventory offers many benefits for the department store chain.
“Sales continue to grow as we expand our online assortments,” Chin said. “Supplier direct fulfillment represented nearly 2.5% of our sales this spring, and virtual inventory offers us a relatively inexpensive way to test new vendors and validate that assortments resonate with our customers. It also allows us to grow our capacity of SKUs without increasing counts within our fulfillment centers, saving capital investment.”
Virtual inventory has become a key aspect of Belk’s omnichannel strategy, she said.
“The expanded assortments we can offer using these tools allow us to better service our customers with extended size and color offerings,” Chin said. “It also enables us to test new products and new business categories online before we expand to our stores. As we increasingly integrate our online assortment with our in-store environment, virtual inventory will benefit our full customer base.”