Few businesses have been affected quite so profoundly by the dawning of the new digital age as those operating in the retail sector.
Scarcely a week passes without headlines detailing the struggles facing those operating traditional high street shops.
And as an ever-increasing number of us migrate to online shopping, our expectations from this 鈥渘ext generation鈥 of retailers constantly increases.
Indeed, while the high street 鈥渂loodbath鈥 continues to evolve, a wholesale 鈥渂lood letting鈥 could feasibly occur among those online retailers that don鈥檛 provide delivery that鈥檚 鈥渇ast, free and flexible鈥.
This was among the key findings from a major new report produced by 海角视频 law firm TLT.
Entitled 鈥淔ull Speed Ahead - Meeting the Delivery Challenge in 海角视频 Retail鈥, the report鈥檚 authors spoke to the 海角视频鈥檚 top 100 retailers and discovered that retailers have reached a 鈥渢ipping point鈥.
In short, they鈥檙e facing unprecedented pressures to adapt their warehousing and logistics to meet changing demands from consumers.
Perran Jervis, head of retail and consumer goods at TLT, explained: 鈥淭he ubiquity of online and the growing number of retail channels 鈥 including the growth of social media and voice assistants 鈥 is having a profound and lasting effect on the consumer psyche and their shopping habits, not least their expectations around delivery.
鈥淐onsumers want delivery that is fast, free and flexible, and this can make the difference between making a sale or an abandoned shopping cart.
鈥淩etailers plan to invest more in logistics over the coming years to improve delivery times, improve the customer experience, minimise returns and manage risks.
鈥淭hese risks include increased regulation from trading online and uncertainty around imports and additional Brexit costs.
鈥淲arehouse management systems and data analytics will play a significant role, retailers will need to collaborate more with other retailers and non-retail businesses, real estate needs will change, and urban warehousing - including new uses for existing stores - will gather momentum.鈥
Fast delivery - first and foremost...
The report found that rapid delivery remains the deciding factor for consumers.
And this simple fact is why many retailers intend to increase their speed of delivery.
While consumer motivations are 鈥渕any and varied鈥, around three quarters (74%) of retailers say expectations around rapid delivery are driving investment in logistics which is second only to the overall trend towards online shopping (86%).
The report鈥檚 authors believe that speed of delivery is now a 鈥渄eciding factor鈥 for consumers when making a buying decision 鈥 quite apart from having the right product to sell at the right price.
Dan Sweeney, a real estate partner based in TLT鈥檚 Manchester office who specialises in leisure and retail, added: 鈥淭his is a major challenge for retailers.
鈥淭he speed at which you can deliver a product depends on various factors, many of which are beyond your control or difficult to change quickly unlike 鈥 for example - the commercial decision around delivery charges.
鈥淩etailers are rising to the challenge, with many planning to improve delivery times 鈥 although some will still be capable of delivering goods faster than others.鈥
The report found that 62% of all retailers currently offer next day delivery - or faster - although competition in this area is expected to increase significantly, with 83% saying they will offer this in the future.
Currently, just 19% of retailers offer same day delivery - or faster - but this is also expected to increase by around 50% in the coming years to just under a third (29%) of retailers.
Interestingly, only 7% of the top 100 believe that 10-minute deliveries 鈥 which some retailers have mooted - will be possible.
Sweeney added: 鈥淩apid delivery, however, comes at a cost 鈥 but not necessarily for consumers.
鈥淭o speed up delivery times without increasing prices retailers will need to make efficiencies elsewhere in the business, including through the use of shared journeys and resources.
鈥淭hree quarters (73%) of retailers believe more companies will offer free delivery in the future to compete for sales.
鈥淎t the same time, the average amount retailers spend on logistics is expected to rise from 9% of total annual revenue to 12% over the next five years.
鈥淎 third (33%) of retailers admit that free delivery is becoming increasingly difficult for them to offer, emphasising the scale of the challenge to balance these commercials.
鈥淩etailers that don鈥檛 charge for delivery will need to find efficiencies elsewhere, while those that do will need to offer consumers value in a different way. This might be through branding, quality of product, value for money, customisation, lifestyle choices or another mechanism that adds sufficient value to the overall experience.鈥
Accurate advertising - and other legal implications...
According to Duncan Reed, regulatory partner at TLT, as shoppers demand faster delivery times, it鈥檚 essential that retailers don鈥檛 make promises they can鈥檛 fulfil.
He explained: 鈥淲e鈥檙e likely to see a growing battle between marketing and logistics as consumers demand faster delivery times.
鈥淩etailers are feeling exposed because if they have a compelling delivery proposition then they want to promote it, but at the same time those promises can be difficult to guarantee.
鈥淲e are working with retailers to reduce this risk by ensuring their advertising accurately reflects their delivery offering.鈥
Other legal issues that retailers are particularly concerned about in relation to logistics include changes in import and export regulations (69%).
Regardless of the Brexit outcome, the 海角视频鈥檚 changing relationship with the EU will have cost, compliance and customer service implications for retailers and other businesses in the retail supply chain.
Regulatory issues arising from Brexit will impact packaging and labelling, product checks and testing and product availability.
Another major legal concern is data privacy and protection (62%).
Following the introduction of GDPR on May 25, 2018, retailers must ensure their use of personal data 鈥 including data sharing with technology and third party logistics companies 鈥 complies with their obligations under the new law.
Reed continued: 鈥淲ith retailers under pressure to use customer data more to adapt to changing customer needs and offer a more tailored service, transparency and privacy by design will become increasingly important to protect customers and their brand.鈥
Handling returns - and emerging tech...
The inexorable increase in online shopping has also led to an increase in returns.
This 鈥 discovered the report鈥檚 authors - is the third biggest driver of investment in fulfilment and logistics (67%).
Dan Read, technology partner at TLT, explained: 鈥淩etailers must find a way to reduce and manage this, whether that鈥檚 through better information on the site, sizing detail, 360 degree photos or technology like augmented reality to illustrate what the product would look like in the home.
鈥淭he majority (56%) of the top 100 admit that effective management of returns is key to the profitability of online sales.
鈥淭he average proportion of returns for 海角视频 retailers has reached a significant 27%, climbing to 58% for some while for others it can be as low as 2%.鈥
The report highlights these examples of innovation and success in minimising returns:
- ASOS 鈥 using virtual fitting solutions - including images, video and information - to help consumers decide if a product is right for them.
- Amazon 鈥 offering a voucher instead of a return, for when a product isn鈥檛 quite right but the customer is happy to keep it on this basis.
- House of Fraser 鈥 allowing customers to input measurements to get an automated recommendation on what size clothing to buy.
When it comes to technology, the research discovered that there鈥檚 confusion regarding 鈥渨here to make improvements first鈥.
More than half of 海角视频 retailers identify the biggest barriers to investment in technology to improve fulfilment and logistics as uncertainty in the market (66%), challenges integrating new technology with legacy systems (58%) and not knowing where to invest (53%). A third (32%) of retailers also report difficulty in finding the right technology partners.
The research provides some useful insights into where technology investments are being made.
While only 21% of retailers are currently investing in warehouse management systems and robotics, 44% plan to invest in this in the future 鈥 the biggest reported increase.
The use of newer technologies like drones, warehouse robotics and autonomous vehicles is also expected to increase, albeit from a very low base.
This is likely to remain something that is trialled on a smaller basis, but could grow as the market matures.
Read added: 鈥淎rtificial intelligence (AI) is also still relatively low on the investment list, with 14% of retailers currently investing or planning to invest in AI to improve logistics.
鈥淭his may be symptomatic of the disconnect between the hype around AI and retailers not knowing where to invest to realise sufficient return on investment.
鈥淭he most popular model for tech and digital investment in fulfilment and logistics is proprietary development (52%) 鈥 double the proportion of retailers entering into business partnerships with tech and digital vendors (26%) and more than double the proportion buying technology off-the-shelf (24%).
鈥淐hoosing what technology to invest in is always a significant challenge as the tech moves so quickly 鈥 often far quicker than most large businesses can implement with confidence.
鈥淚n conclusion, while market uncertainty prevails, retailers can be sure that the trend towards online shopping and the need to compete on delivery times will continue.
鈥淭hose retailers that can meet these expectations will be well positioned to compete as 鈥榞eneration now鈥 increases its spending power and new technologies and agile business models intensify the battle for faster and more flexible delivery options.
鈥淭hat won鈥檛 be easy 鈥 it requires significant changes to infrastructure and technology and brand new ways of thinking, not least a willingness to embrace opportunities to partner with other businesses to deliver the rapid gains in efficiency that will deliver real change.鈥
