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Comment: How e-tail growth is impacting logistics portfolios


By James Attfield, Director at international real estate firm CB Richard Ellis -

Consumer shopping habits are evolving and increasingly, people are making their purchases online or via mobile sites using smartphone technology.

Whilst high street sales remain largely flat, household names such as Next and Debenhams are reporting massive growth in their e-commerce businesses (Next recently recorded a 15.1 per cent rise in trading in its Next Directory business, compared to the same six-month period one year ago, whilst, earlier this summer, Debenhams announced a 77 per cent growth in online and mobile sales over the past year).

As a result, the industry’s trailblazers are now reconsidering their warehouse distribution portfolios to accommodate changing consumer needs and enabling them to anticipate future trends with the confidence that they will be able to service market demand.

Whilst we don’t yet know what the next innovation in mobile shopping will be, we can be certain that it will involve increased flexibility and choice for the shopper, and further pressures to deliver at a lower cost for the retailer, in the face of rapidly expanding competition.

In today’s uncertain economy, retailers face pressure to cut costs and drive efficiencies from every angle, and to succeed in attracting the next generations of technology savvy shoppers their business model needs to be lean and flexible; management of their logistics portfolio is no different.

Tesco, the UK’s largest retailer, and a pioneer in anticipating consumer habits, continues to acquire large logistics footprints around the UK, exclusively catering for its online custom. Tesco’s success provides a market barometer, and other retailers are already following suit.

The conventional retail logistics model is not designed to accommodate a national and international customer base. Products are stored in local warehouse accommodation until a selection of items is delivered to stores for sale and customer collection.

In the UK we have grown accustomed to fast and efficient service, with next day delivery on most items now offered as standard. However, the need for high street retailers to compete with the likes of and Amazon for custom in the online market place puts significant pressure on the supply chain. In order to fulfil delivery requirements, retailers are having to employ, and pay for, third party services to match demand.

For example, it would not be unusual for a customer to order a television, a bed and a pair of shoes from one online shop at the same time, in the hope of receiving them the following day.

Tesco's new DC in Enfield will only service e-tail orders once completed
Tesco's new DC in Enfield will only service e-tail orders once completed

Store-centric logistics storage would force the vendor to pay for three separate deliveries to meet its promise, whilst the customer pays only a flat cost. However, a new centralised e-commerce model allows all three items to be picked and packed at a single site, allowing the retailer to continue to pass on delivery cost savings to the customer.

A centralised campus of warehousing allows all manner of product to be stored, before being distributed, and therefore dramatically reduces the costs associated with a widely dispersed logistics portfolio.

Returns of stock are a further consideration for companies involved in e-commerce. Statistics show that up to 40 per cent of items bought online are returned immediately. Accounting for space to receive these items places further pressure on storage capabilities, and ever shifting requirement is difficult to plan for when selecting a warehouse.

Staffing issues also need to be carefully managed. A more sophisticated approach to distribution is required, and the factors which affect where retailers locate their logistics space are changing.

The regional high street model requires an average of one member of staff per 1,000 sq ft; this rises to 1.5 people per 1,000 sq ft to service products bought online. The new labour hungry model deals with extremely fast moving products, which require constant picking and packing, and therefore raises labour requirements by an astonishing 50 per cent.

As a result, at CB Richard Ellis we have noticed that our retail clients are increasingly less concerned about being close to their stores, but now prepared to consider secondary locations in favour of a readily available workforce and a more efficient building.

Despite rapid advances in online and mobile retail, customers still lean on brands and names they feel they can trust. Maintaining a high street presence is helpful in times of economic turmoil, and face to face customer service helps build brand loyalty.

Retailers who are able to adjust their property strategy to service stores and homes alike will triumph in the battle to maintain market share in the years to come.

Note: The views expressed here are those of James Attfield and do not necessarily represent the views of Retail Gazette.

Published on Monday 15 August by Editorial Assistant

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