Getting retail logistics right is no easy task. Simon Heath, European Sales Manager with Precision Software, attended the recent Multimodal expo in Birmingham. Here he shares some insights into the evolving world of e-commerce and retail logistics.
Last week I attended the Multimodal shipping expo in Birmingham and it was quite an eye opener — everything from forklifts to ships and AI robots to cardboard cartons.
However the main take away was a talk titled, ‘Logistics is the New Retail’ by John Munnelly, Head of Operations at John Lewis and Andrew Starkey, MD of Spiral 4. Both provided an insightful talk on the state of e-commerce, retail logistics and its challenges.
Munnelly shared that “JLP have not been very good at forecasting e-commerce growth.” When they started home delivery in 2002, it had a turnover of £21m. They forecast that by 2017 online sales would increase to £300m. They were wrong…. By year end 2017 online sales had rocketed to £1,915m – a growth of more than 600 percent of their original forecast. Furthermore, online sales now represent 40 percent of their total sales.
JLP has a state of the art distribution centre at Magna Park in the Midlands that stocks 250,000 SKUs. This was intended as a huge storage and bulk distribution centre. However, it is now a fast delivery, picking, packing and shipping hub. As a result of this, Mr Munelly predicts “traditional warehouses will be a thing of the past and become operations hubs for order fulfillment.”
Retailers Must Prepare for an Unpredictable Future
This unpredictable growth has become very challenging to manage, fuelled by huge spikes in demand caused by events like Black Friday and Christmas. JLP has relied upon flexible workers from the EU to fill the gaps in labour during these periods. However, there is concern in the UK over the availability of this labour supply after Brexit. Then there is the ever-demanding requirements of consumers who want an increasing range of delivery options. Furthermore, in some product sectors consumers want to ‘try before they buy’ fuelling large volumes of returns for processing and resale. These returns can be high risk with 30 percent of clothing returns never resold and ending up in landfill.
JLP has managed to combat some of this complexity by encouraging customers to use its stores as click and collect service. As a result half of orders are fulfilled this way. This also allow for an easier returns to store service. Items can be checked and processed on return, meaning customers get refunds faster. This also avoids charges and administration for the delivery and returns transport. There is another added benefit for the retailer – this increases in-store footfall and creates up-sell opportunities.
Online sales growth is forecast at around 20 percent per annum. This acceleration is driven by the big players such as Amazon and ASOS, but also by an increasing number of omni-channel retailers. E-commerce will continue to cause disruption for traditional ‘bricks and mortar’ retailers. But it also creates massive opportunities for those who figure it out. The market is fast-changing. Retailers will need to adapt to a different pace of life if they are to avoid becoming the next retail tragedy like Toys R Us.
Delivery Options vs Delivery Knowledge
Delivery options are important, but they are not the only issue consumers care about. Andrew Starkey of Spiral 4 noted that: “Delivery does drive retail.” Delivery is becoming a point of differentiation. Retailers who offer a range of delivery and collection options have a competitive advantage.
He added: “We are finding retailers offering next-day delivery when their consumers aren’t asking for it. They do it for a competitive edge, but what consumers really want is knowledge – they want to know where their goods are and when they will arrive.”
Most carriers only provide a handful of alerts. However, consumers increasingly want real time tracking of their deliveries. Missed deliveries are a constant headache, both for retailers and consumers.
In March last year, 6 percent of all attempted deliveries failed. However, over the past 12 months, that has risen to 13 percent. Mr Starkey blamed this increase on the big shift towards providing next-day deliveries – although he noted that bad weather had also played its part.
“My main concern though, is that this shift towards next day is not sustainable; 45 percent of consumers abandon the check-out process if they are not happy with the delivery options,” he added.
“And 50 percent are influenced by reviews of delivery services left on social media, so rather than offering services consumers don’t want, [retailers] need to ask them what they want.”
Many Consumers are happy to “Click and Collect”
John Lewis’s John Munnelly said that in the past decade, distribution had gone from being a “necessary evil” to “lifeblood” of the retailer’s business. He also agreed that the advent of same-day and next-day delivery was something of a trend.
“It’s something you need to be seen to be offering if you wish to stay fashionable, but we are seeing a big growth in click and collect,” he said.
“Around 50 percent of our e-commerce is click and collect, with 70 percent going through Waitrose stores and 30 percent through John Lewis. But we have also seen a surge in next-day deliveries,” he added.
Approximately 70 percent of John Lewis e-commerce not delivered by click and collect goes next-day, compared with some 20 percent a decade ago.“But technology can be used here, and it can improve productivity,” he added.
Consumers will pay for Premium Services
I agree with Andrew Starkey and John Munnelly. Amazon made us believe that is all about speed and next day delivery. But as e-commerce matures, consumer demands are changing. Firstly, we know that consumers prefer not to pay for delivery. Furthermore, they dislike long delivery windows for home deliveries. However, while many retailers were playing catch-up, Amazon has driven change by listening to the needs of the customer for convenience. They use this to find new ways of serving them that ‘hide’ delivery as an obstacle. Examples include Prime, a pilot scheme delivering orders to your car boot, and drone delivery. These are all seen as premium services, which makes them chargeable.
E-Commerce is Evolving – Retailers Need To Keep Pace
One thing is clear – further store closures are inevitable. That is not because of the economy, but is down to the market moving on. Driving this change is the customer. Far too many retailers simply set up transactional websites and then breathe a huge sigh of relief. But an online store is not the be-all of keeping up with the changes – it’s only the first step. E-commerce growth is just at chapter one, and the pace of technological developments in the sector is accelerating.
Mobile and social media have both changed online shopping. Mobile is a major development and one I predict will have massive repercussions for retailers. But it is not the only one. Another is the mass of data that retailers now have at their disposal. The challenge for the retailer is being able to leverage insights from this information. Many retailers simply don’t have the time or resources. This is where specialists like Precision Software can help. Our solutions apply tools that analyse the data to provide optimal delivery, trade management and transportation services. This way retailers can ensure that they control delivery costs, but still offer optimal delivery options along with the delivery tracking knowledge consumers want.