Apple ship-from-store strategy ends total reliance on centralized distribution

Apple Inc.’s (NASDAQ:AAPL) unprecedented move to ship upcoming iPhone 12 orders from its stores may be a one-shot deal prompted by the unusual economic conditions of 2020. Or it may be the start of a sustainable trend for a company whose centralized distribution strategy is as old as Apple itself.

In any case, Apple’s immense influence could compel other businesses that may be on the ship-from-store pool deck to dive in. John Richardson,vice president of supply chain analytics for Transportation Insight LLC., a transport consultancy in Hickory, North Carolina, said whenever Apple does anything new and different to provide customers with value-added options, millions of firms stand up and take notice. Somewhat overshadowed by its marketing and design brilliance is the fact that Apple is considered by many professionals to have one of the best-performing supply chains in the world.

Citing people familiar with the matter, Bloomberg reported late Friday that Apple would ship its new iPhone 12 to consumers from a network of nearly 300 retail stores in the U.S. and Canada. Products will be shipped via ground by FedEx Corp. (NYSE:FDX) in the U.S. and UPS Inc. (NYSE:UPS) in Canada, according to the article. The program will serve customers living within 100 miles of an Apple store, according to Bloomberg. The shift will mean faster deliveries for customers who live closer to stores than to distribution centers, the article said.

Apple has 271 retail stores in the U.S. and 28 in Canada. According to website “9to5 Mac, 35 U.S. stores have been “re-closed” and one shuttered due to recent civil disturbances. All 28 stores in Canada are open, according to the site.

Traditionally, the Cupertino, California-based giant ships devices from distribution centers or directly from manufacturing sites in China. In years past, particularly during the peak holiday period, Apple would soak up massive amounts of charter lift, leaving little supply for others and driving up rates on the remaining capacity.

Apple is expected to ship about 50 million iPhone12 units, a number that has been throttled back since last year when 100 million ship units was the number being bandied about. The phone, Apple’s first with 5G capabilities, will be unveiled at a much-anticipated event Tuesday in Cupertino. Pre-orders are expected to start on Friday, though that will be confirmed at the event. Some of the phones should be on store shelves by the end of next week, according to various reports.

While new for Apple, the idea of positioning stores as distribution centers is not a new trend, nor is it any longer on the fringe of supply chain strategies, said Kirsten Newbold-Knipp, chief growth officer at Convey, a last-mile technology vendor based in Austin, Texas. “It’s a smart move on Apple’s part, and not a huge surprise in today’s `mask economy’ where physical stores are shifting from creating a quality in-person shopping experience — something that Apple is known for — to a more functional focus on simply getting products into consumers’ hands conveniently and safely.”

Apple’s move may be part of a larger trend of shippers expanding their delivery options as FedEx, UPS and the U.S. Postal Service impose peak-season surcharges and struggle with on-time performance as strong e-commerce demand has outstripped their capacity, Newbold-Knipp said. According to data extracted from Convey’s customer base, on-time performance levels by the so-called “Big Three” have declined steadily from 79% in June to 70% in September. Their percentage of on-time deliveries is way down from 2019, which was a relatively normal year for demand compared to 2020. The issue for a company like Apple, which functions as a shipper and retailer, is that nearly one in five consumers blames the retailer for a late delivery, according to Convey data.

Given the year’s unique challenges, retailers have broadened the different ways to get parcels into customers’ hands, ranging from the increasingly popular “buy online-pick up in store” (BOPIS) formula to a greater use of regional carriers, Newbold-Knipp said.   

“Since ship-from-store, by definition, puts inventory closer to consumers, shippers can use lower-cost, more available regional shipping partners to create flexibility and capacity,” she said. “When consumers want their next iPhone, being limited by carriers is not how retailers like Apple want to go to market.”