How Chico's became "channel-agnostic"

At women's specialty retailer Chico's FAS Inc., the walls have come a-tumbling down—the walls between brick-and-mortar and e-commerce operations, that is. From the company's perspective, a sale is a sale regardless of how or where it takes place. "The lines between store sales and online sales have become irrevocably blurred," said Dave Dyer, the retailer's CEO, in a recent call with analysts. "We are channel-agnostic at Chico's FAS."

While that kind of thinking may be very much in line with the realities of today's retail environment, it can pose challenges for the back end of the operation, particularly order fulfillment. That's especially true for a company like Chico's that fills both direct-to-consumer and store replenishment orders from a single distribution complex. To pull this off requires a lot of flexibility on the facility's part. Basically, a distribution operation must either be able to handle both kinds of orders at the same time or be able to quickly shift back and forth between the two.

To cope with the challenges of multichannel distribution, Chico's turned to automation. But not just any type of automation. The system Chico's chose is a highly flexible setup featuring a sophisticated, high-capacity sorter that allows it to handle a different type of fulfillment on each side of the track.

CHALLENGED BY SALES GROWTH
Based in Fort Myers, Fla., Chico's recorded $2.6 billion in sales last year. The retailer of women's clothing and fashion accessories has four brands: Chico's, White House/Black Market, Soma Intimates, and Boston Proper, which it acquired two years ago. The company has more than 1,350 women's specialty stores throughout the United States as well as the U.S. Virgin Islands and Puerto Rico. Those four brands are also sold online.

The retailer currently has between 300 and 350 suppliers. A substantial portion of those contractors are based in Asia, although Chico's does have suppliers in the Western Hemiäphere and Europe. For the most part, merchandise is shipped to the United States via ocean, although the retailer occasionally uses air. From the point of entry in the United States, product is trucked to its two distribution facilities, both located in an industrial park in Winder, Ga., northeast of Atlanta.

Originally, the company operated only one distribution center in Winder – a 258,000-square-foot facility that handled both store replenishment and fulfillment of online orders for the Chico's, White House/Black Market, and Soma Intimates brands. However, by 2009, sales volume had reached the point where it was straining the facility's capacity. So when a tenant vacated a nearby warehouse, the company bought the building, according to Kent Kleeberger, the retailer's chief operating officer and executive vice president.

Initially, Chico's moved its entire Soma business to the second distribution center, a 300,000-square-foot facility. Chico's then shifted its direct-to-consumer fulfillment for its other three brands to that second site.

In 2011, while Chico's was still mulling its options for handling the steady increases in online orders and further store expansions, it acquired Boston Proper, a company that sold its merchandise—women's apparel and accessories—only through catalogs or its website. (In 2013, Boston Proper finally opened a brick-and-mortar store.)

Chico's concluded that its legacy systems and processes would not be able to support the company's growth plans, especially since it planned to open 120 stores annually over the next five years. At the same time, it wanted to avoid the cost of expanding the buildings. Ultimately, Chico's decided to automate its second distribution center, which the company calls "DC-2," to handle multichannel distribution. The first DC would continue to do "purchase-order push" shipments, in which goods from an inbound shipment are pre-allocated for store delivery. Kleeberger says that generally, Chico's pushes out somewhere between 70 and 85 percent of inbound shipments to the stores.

CROSS-BELT SORTER SOLUTION
To prepare for the challenge of handling both retail replenishment and online order fulfillment, Chico's first reconfigured and modified its warehouse management system for DC-2. The WMS, supplied by Manhattan Associates, provides picking directions for workers selecting items from both reserve replenishment inventory and the active pick modules at the site, which uses a wave picking process.

But the key here—unique to its solution for handling multichannel distribution—was the deployment of an 840-foot cross-belt sorter loop, furnished by Beumer Corp. The sorter occupies a central space between the product storage area and outgoing shipping area. It features 362 chutes, each with four compartments. Two compartments are used for the active sorting of orders by operators handling the packing for either specific stores or online merchandise; the other two compartments act as buffers for them. The system can handle 17,000 items an hour.

The sorter loop provides flexibility for multichannel distribution because each side can be assigned to a different business. "The whole process is really fluid," says Kleeberger. "Through each wave, we can change the configuration."

As one side of the oval track is being used for store orders—say, replenishment shipments for a Soma boutique—the other side might handle online orders for Boston Proper. "We can literally process one business down one side of the oval track and another business on the other side," says Kleeberger.

At each end of the cross-belt sorter loop, warehouse workers place product onto one of five induction lines. The induction line transfers the product onto a cell in the cross belt. A camera scanner located downstream from the induction area reads the product's bar code and sends information to the Beumer control system. That system determines the optimum chute assignment. When the product reaches the destination chute, the cross-belt cell moves the product onto the chute.

When the chutes are full, a light signals a person to clear items in the compartment, and an LCD display indicates the order type - for example, retail. At that point, depending on destination, the items can be placed in a carton for conveyance to a dock door or be deposited into a tote to be delivered to a pack-out station, where the items are packaged for consumer delivery.

EFFICIENCY, FLEXIBILITY, AND COST AVOIDANCE
As for how the new system has worked out, by all accounts, it's proved to be a winner. In fact, the cross-belt sorter solution allowed Chico's to keep up with increased order volume during the last (2012) holiday season. The company was able to handle a 35-percent increase in direct-to-consumer orders during that period.

Kleeberger says the benefits of the cross-belt sorter loop solution for multichannel distribution include efficiency, flexibility, and cost avoidance from not having to expand its two buildings. Furthermore, he notes, the investment in automation helped the company control the labor costs associated with multichannel distribution. "You spend more money on automation with the intent to get a positive ROI," he says, "and part of that ROI is cost avoidance on increased labor to [accommodate] growth."