The Urban Challenge

With their population density and high-spending consumers, inner-city areas have once again become magnets for everything from convenience stores to warehouse clubs. But the transition from suburban sprawl to urban small can be beset by even relatively simple processes like accepting delivery and unloading a truck on city streets.

Solutions to such logistics inefficiencies are imperative as the retail gold rush continues. As research from the Boston-based Initiative for a Competitive Inner City (ICIC) points out, a grocery store in the suburbs of New York needs to bring customers in from a 20-mile radius to match what it can get from a 10-block radius in the city.

“Some of the retailers we’ve talked to view the inner-city as an entirely new market because of the challenges they have to face,” says Mark Bickenbach, a principal with Boston Consulting Group, Chicago. “The ones that have been successful are those that made a commitment to adapting formats to specific sites and product selection that can be dramatically different than suburban stores.”

Among the most successful is Urban Outfitters, which is constantly evaluating supply chain procedures to inner-city stores in places like New York, Los Angeles and London. “We’re always trying ways to get merchandise to the stores — not necessarily faster, but in a more timely way that will, for example, enable all stores to present new floor sets at roughly the same time,” says Mike Sparks, director of supply chain systems.

Security and scheduling issues
Dave Marcotte, a senior consultant with Kantar Retail, has experience running urban stores. “The first challenge is straightforward security,” he says. “Things are closer together, there are more places for people to hide and the loading docks are in parts of the city where security problems are likely to occur.

“I ran stores in Philadelphia, Baltimore and [Washington] D.C. in the 1980s and when you went to the loading dock it was always with two people because it was dangerous,” he says. “It’s not as dangerous now but you can’t leave a trailer sitting around too long — and certainly not overnight as you might do elsewhere.”

This leads to another logistics issue — scheduling. “No one runs an inner-city DC of any size, so you have to get the trucks in and out,” Marcotte says. “The size of the truck is less of an issue than getting it to the store through traffic and everything else. You have to contend with residential issues you wouldn’t normally think about.

“Some retailers think they can get their trucks in at 3 a.m.” he says. “But in many areas you’re not allowed to run trucks that time of the morning.”

Everything depends on store formats. “Smaller retailers like drug stores that have a regular delivery schedule can use Federal Express or UPS or negotiate on price to get direct shipments from manufacturers,” Marcotte says. “It’s sometimes a lot easier to have goods come to the front door. But in larger stores you’re stuck with a truck.”

Additionally, retailers have to focus more on inventory levels and ordering. “You can establish an overstock center in the stores,” he says. “This gives you the flexibility of having space that can double as inventory and sales space.”

Retailers looking to stock urban locations “need to think about how to work with suppliers and other trade partners to consolidate shipments or do better scheduling into those locations,” says John Bayliss, a principal for Boston Consulting Group in Toronto. “In an urban setting you’re often dealing with partial trucks and if you don’t get the scheduling and routing right it can really affect the economics of the store.”

Solving issues with logistics
With approximately 150 stores in the U.S., Canada and Europe, Urban Outfitters believes attention to logistics, sometimes on a store-by-store basis, is one of the keys to its success.
“It’s a matter of scheduling deliveries and dealing with real estate prices that can be so high in urban areas that you have to maximize selling space,” says Sparks. “But what you sacrifice is off-the-sales floor storage.”

Whenever possible, Urban Outfitters prefers to schedule night deliveries. “It helps from a personnel standpoint,” Sparks says. “If a delivery is delayed at night you only have to hold back one employee to wait for a truck and the boxes are ready for staffers when they show up in the morning.”

Traffic is always the wild card when it comes to scheduling, and the problem is worse in Europe. “The streets are old and narrow and some of our stores are near tourist areas,” he says, “so you almost have to set [delivery] strategies for individual stores.”

Sparks credits third-party carriers for keeping London-area deliveries on track. “We allow carriers to run their own scheduling software, and they are very good at avoiding traffic traps and advising us about delivery times in specific neighborhoods.”

Meanwhile, it’s almost become standard for some smaller stores to get two deliveries a day with the potential for a third depending on critical needs, according to Sparks. In London, this is done through a DC located just outside the city where Urban Outfitters has separate inventory in an extended backroom specifically for stores in London. “We know their backrooms are just too small to handle the sales volume they get,” he says.

Urban Outfitters is also studying U.S. operations that are currently serviced by DCs in Reno, Nev., and Gap, Pa.

“We have a limited number of areas where DCs can service stores multiple times daily,” Sparks says. “We’re looking at the potential for placing small centers in crowded downtown areas.”