7-Eleven Expands Locker Space, Hoping to Cash In on E-Commerce Wave

Customers in U.S., Canada, can pick up packages at more locations

7-Eleven Inc. is making space for more lockers at a number of its North American stores, in a bet that growing e-commerce volumes will help drive Slurpee sales.

The company has added lockers where customers can pick up packages from FedExCorp. and United Parcel Service Inc. over the last year, and announced in October that it would install Wal-Mart lockers in six locations in Toronto as well. The additions mark a significant expansion in scope of a program first piloted with Amazon.com Inc. in 2011. Now, any retailer that ships via UPS or FedEx has the lockers as a delivery option.

Customers in the U.S. and Canada who don’t want packages left on their doorsteps can arrange to have online orders from retailers delivered to lockers at 200 locations so far, which they open by scanning bar codes sent over email to their smartphones. The scan automatically opens the locker containing their purchase.

For retailers, locker solutions offer a potential salve for the logistical headaches that have come with surging online sales, including overtaxed distribution networks and escalating shipping costs. Wal-Mart, for example, can save on extra home delivery costs by dropping packages off directly at lockers using its own truck fleet. 7-Eleven has felt less of this pressure because much of its business comes from impulse purchases made in person. But executives say they had to find a way to stay relevant as an increasing number of consumers shop for groceries, personal grooming products and other convenience store staples online.

But it is a risky move for 7-Eleven, a subsidiary of Tokyo-based Seven & i Holdings Co. Each locker unit takes up about the same amount of space as one large shelf, holding dozens of lockers, which by some estimates could represent thousands of dollars in lost sales each year.

To 7-Eleven, the lockers are part of a larger strategy to keep customers coming to its stores as more commerce moves online. Fees from the lockers and the additional foot traffic they bring could also help the chain carve out a small slice of e-commerce business, even if 7-Eleven is largely a brick-and-mortar business, said Raja Doddala, vice president of new ventures and “omni-channel,” an industry term for retail through many different channels, including e-commerce.

ENLARGE

7-Eleven officials didn’t disclose the fees that its partners are charged for the lockers, nor how franchise owners are compensated. They said the locker program is still in the testing stages, and it is too early to tell if the added fees and customer traffic will make up for the sacrificed space.

It is also too soon to know if competitors like Amazon and Wal-Mart will be willing to share store space with each other if the program expands. But 7-Eleven hopes that by staying nonexclusive and opening the effort up to a variety of retailers, it can eventually make a good profit from the lockers. “We want to be the Switzerland of multi-channel commerce,” Mr. Doddala said.

Other companies are experimenting with similar pickup services in their stores, with mixed results. Walgreens Boots Alliance Inc. and Rite Aid Corp. currently host lockers, but Staples Inc. and RadioShack Corp. removed storage units in 2013 as competition with Amazon heated up.

Peter Haglich, a 54-year-old data scientist from Virginia Beach, Va., said the lockers have come in handy when he’s traveling. He recently ordered a technical book, in print, from Amazon on a business trip to Washington, D.C., that he picked up at a 7-Eleven close to his hotel.

“I didn’t want to have to cope with the hotel desk getting the item and getting it to me,” he said. “I knew [7-Elevens] were always open.”

But it will take many customers like Mr. Haglich to make the lockers worthwhile to 7-Eleven, retail analysts said. Convenience stores tend to be compact, carrying small quantities of many different items, meaning they must maximize profits from every available inch of space. Each square foot generates an average of about $600 in sales annually at a typical convenience store, according to Tim Barrett, analyst at Euromonitor International.

“I don’t have data for what revenue comes from this to us, about how much [these customers coming in] are buying,” said Mohammed Uddin, who manages a 7-Eleven in Toronto where a rack of 2-liter sodas had to be removed to accommodate the new Wal-Mart lockers. Meanwhile, the only 2-liter sodas the store has now “are in the cooler…if [customers] don’t see it, sometimes they don’t ask for it and we lose the sale,” he said.

The math is clearer for e-commerce retailers. Online sales are driving revenue growth but fierce competition and rising shipping costs are shrinking profits. With UPS and FedEx pushing through rate increases as they cope with surging volumes of online orders, many shippers are scrambling to find alternatives to home delivery.

Wal-Mart is waiving its usual $5 shipping fee for orders under $50 for customers who opt to have their items shipped to a locker, said Simon Rodrigue, senior vice president of e-commerce for Wal-Mart Canada, adding that consumers who live far from Wal-Mart stores may enjoy the extra shipping option. Analysts say the upside for 7-Eleven will come if locker pickups, which are gaining popularity in Europe and Asia, become popular among consumers in North America as well. As less of a direct threat to potential partners like Amazon and Wal-Mart, and with greater share of its stores are open 24 hours, 7-Eleven has an edge over other types of chains competing in the business, they said. This would give 7-Eleven strong negotiating power to charge more for the locker space.

“7-Eleven is by far the most obvious choice for these lockers,” said Graham Hotchkiss,analyst for consulting firm RetailNet Group. “How consumers use these lockers is still something that’s very up in the air.”

Source: WSJ