Freight News

All change in distribution as retail becomes e-tail

[ April 23, 2013   //   ]

Birmingham, UK, 23rd April – We will be doing 60% of our shopping online by 2020, compared with 30% today. But visitors to the Multimodal exhibition at the Birmingham NEC heard in a highly informative seminar today that there is no single successful business model as traditional bricks-and-mortar retail evolves into e-tail.

The Chartered Institute of Logistics and Transport (CILT) helped set up the first day of seminars in association with the exhibition organisers. Steve Agg, CILT Chief Executive, said: “The UK is the largest per-capita logistics market in the world. It accounts for 7.2% GDP, and as an industry in its own right it would be the country’s fifth biggest.”

The UK’s efficient delivery infrastructure, competitive retail market and high internet penetration were the reasons for the logistics revolution, which will bring a fundamental rethink in how distribution centres operate.

Joel Ray, Head of Consultancy at supply chain analyst Transport Intelligence, said market researchers had focused most attention on the growth of the market and the complexities of last-mile delivery rather than the underpinning logistics. “The market is enduring a number of growing pains,” he said. In contrast to companies that had custom-built their systems from scratch, such as Amazon, legacy retailers had found that meeting the needs of online customers “has not been an easy switch”.

E-fulfillment is more labour-intensive than managing a traditional store-based business and will probably result in a shift away from historic distribution hubs in the Midlands. Cheaper areas of the UK, with greater availability of land, higher unemployment and thus more affordable labour, could offer a more practical solution, Ray suggested.

Siting new distribution locations closer to suppliers could reduce inbound logistics costs as well as attracting incentives from local authorities, he said.

Interestingly, retailers and third-party logistics providers (3PLs) see the future rather differently. While 3PLs envisage existing physical store networks remaining in place, and acting as “click and collect” points, a larger proportion of retailers responding to a recent survey believe centralised, direct delivery will become the dominant e-fulfillment model.

Eighteen of the UK’s top 20 top e-tailers are operating their e-fulfillment logistics in-house, Ray said, even where different back-office systems were needed. It was too soon to say whether this core business function would be outsourced to small specialist solution providers, though these would definitely have a role in supporting smaller e-tailers with multi-user systems.

Agg observed that the customer’s expectations were not lower because of the added behind-the-scenes complexity – in fact the opposite. “We want all the choice we’ve ever had, 24 hours a day,” he said.

Mark Catley, Head of e-Commerce development at Norbert Dentressangle, told the Multimodal audience that the e-tailer’s main task was to create certainty in the customer’s mind, as they would have many unspoken questions. Is the item I have selected and paid for in stock? Is it mine, and on its way? Will the right item be picked, packed and shipped? Will it come in the time frame I chose? Will it be delivered to the place I specified? Will it be well packaged and undamaged? Have my gifting requirements been interpreted correctly and well presented? How easy and efficient is the returns process? Will my credit on returns be processed quickly?

Quoting a YouGov survey, Catley said half of respondents believed the quality of packaging and presentation was important in their online purchasing decision. Some 69% of the whole sample – and 80% of Twitter users – wanted other people’s feedback before making a decision.

Most crucially, no fewer than 25% of those surveyed said they would not give a retailer who incorrectly fulfilled their online order and sent the wrong product a second chance.

All the speakers agreed that home delivery will come with a price tag in future, whether for environmental or simple business efficiency reasons. Neil Weightman, Sales Director of iForce Group, foresaw a bigger role for parcel shops and other collection points, for customers to pick up their goods and to handle reverse flow.

“The expectation of a delivery down a leafy lane in the middle of nowhere for 50p is unsustainable,” he said.

Catley commented that consumers were driving the trend towards click-and-collect, which had seen unexpected growth. “We have to look at this and try to get the most environmentally friendly solution out of it.”

Parcel firms were now considering tiered cost structures, with surcharge for home delivery, Ray said. Free deliveries to private addresses were coming to end, but in city centres, business customers could demand 90-minute delivery. “It isn’t green, but some companies want it and the industry has to find the best solutions,” Ray summarised.

No matter how the supply chain evolves, one well-worn adage remains true: what the customer wants (and is prepared to pay for), the customer gets.

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