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 “next generation” of retailers constantly increases.
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Indeed, while the high street “bloodbath” continues to evolve, a wholesale “blood letting” could feasibly occur among those online retailers that don’t provide delivery that’s “fast, free and flexible”.
This was among the key findings from a major new report produced by 海角视频 law firm TLT.
Entitled “Full Speed Ahead - Meeting the Delivery Challenge in 海角视频 Retail”, the report’s authors spoke to the 海角视频’s top 100 retailers and discovered that retailers have reached a “tipping point”.
In short, they’re 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: “The ubiquity of online and the growing number of retail channels – including the growth of social media and voice assistants – is having a profound and lasting effect on the consumer psyche and their shopping habits, not least their expectations around delivery.
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“Consumers want delivery that is fast, free and flexible, and this can make the difference between making a sale or an abandoned shopping cart.
“Retailers plan to invest more in logistics over the coming years to improve delivery times, improve the customer experience, minimise returns and manage risks.
“These risks include increased regulation from trading online and uncertainty around imports and additional Brexit costs.
“Warehouse 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.”
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 “many and varied”, 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%).
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The report’s authors believe that speed of delivery is now a “deciding factor” for consumers when making a buying decision – quite apart from having the right product to sell at the right price.
Dan Sweeney, a real estate partner based in TLT’s Manchester office who specialises in leisure and retail, added: “This is a major challenge for retailers.
“The 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 – for example - the commercial decision around delivery charges.
“Retailers are rising to the challenge, with many planning to improve delivery times – although some will still be capable of delivering goods faster than others.”
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 – which some retailers have mooted - will be possible.
Sweeney added: “Rapid delivery, however, comes at a cost – but not necessarily for consumers.
“To 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.
“Three quarters (73%) of retailers believe more companies will offer free delivery in the future to compete for sales.
“At 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.
“A 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.
“Retailers that don’t 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.”
Accurate advertising - and other legal implications...
According to Duncan Reed, regulatory partner at TLT, as shoppers demand faster delivery times, it’s essential that retailers don’t make promises they can’t fulfil.
He explained: “We’re likely to see a growing battle between marketing and logistics as consumers demand faster delivery times.
“Retailers 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.
“We are working with retailers to reduce this risk by ensuring their advertising accurately reflects their delivery offering.”
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’s 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 – including data sharing with technology and third party logistics companies – complies with their obligations under the new law.
Reed continued: “With 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.”
Handling returns - and emerging tech...
The inexorable increase in online shopping has also led to an increase in returns.
This – discovered the report’s authors - is the third biggest driver of investment in fulfilment and logistics (67%).
Dan Read, technology partner at TLT, explained: “Retailers must find a way to reduce and manage this, whether that’s 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.
“The majority (56%) of the top 100 admit that effective management of returns is key to the profitability of online sales.
“The 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%.”
The report highlights these examples of innovation and success in minimising returns:
- ASOS – using virtual fitting solutions - including images, video and information - to help consumers decide if a product is right for them.
- Amazon – offering a voucher instead of a return, for when a product isn’t quite right but the customer is happy to keep it on this basis.
- House of Fraser – 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’s confusion regarding “where to make improvements first”.
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 – 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: “Artificial 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.
“This may be symptomatic of the disconnect between the hype around AI and retailers not knowing where to invest to realise sufficient return on investment.
“The most popular model for tech and digital investment in fulfilment and logistics is proprietary development (52%) – 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%).
“Choosing what technology to invest in is always a significant challenge as the tech moves so quickly – often far quicker than most large businesses can implement with confidence.
“In 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.
“Those retailers that can meet these expectations will be well positioned to compete as ‘generation now’ increases its spending power and new technologies and agile business models intensify the battle for faster and more flexible delivery options.
“That won’t be easy – 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.”