The rise of ecommerce has brought dramatic changes to the warehousing sector. The rapid growth of both B2B and B2C ecommerce has triggered a revolution in customer expectations. In turn, this has required innovation and change from distributors.
As a nation, the UK is the largest online spender in Europe, so it’s unsurprising that it’s here that the growth in the logistics sector is being driven.
To compete effectively in the burgeoning online market, companies have had to respond to the developments in the supply chain landscape.
The Economic Importance of Logistics
In 2015, the British Property Federation (BPF) published its Delivering the Goods research into the economic importance of the logistics sector.
Its findings show how economically important the logistics sector is to the UK.
The BPF report found that logistics accounted for 8% of the UK workforce. This is equivalent to around 2.2 million employees – a sizeable chunk of the working population.
Additionally, employment in warehousing operations increased by 40% between 2009 and 2013. And data since this report indicates that it has increased by a further 40% between 2013 and 2017.
Further, the rate of employment growth in the sector was projected to exceed the national average – of 20% – by 11 percentage points between 2013 and 2035. The latest forecasts, for 2017 to 2038, indicate that employment growth in the sector will remain above the national average.
Salaries in the logistics sector are often considered to be low. But the BPF report found this to be a misconception: average wages in logistics are actually greater than the national average. Logistics also contributes to people working locally: most logistics workers live within 15 miles of their place of employment.
Economic productivity in logistics is estimated at £100 billion Gross Value Added (GVA) per year and is projected to grow by 83% between 2013 and 2035.
To meet rising demand and supply challenges, the logistics sector is modernising and innovating technologically. This is driving two things. Firstly, it means more employees are having to respond to greater technologically efficiency. And secondly, there is more demand for skilled workers in IT, analytics and mechanical and electrical engineering.
A Turley report for the BPF, What Warehousing Where, published in March 2019, further points to the market disruption being caused to logistics and warehousing thanks to the rise in ecommerce.
How consumers respond to retail understandably influences the logistics sector. How they shop affects the kinds of response required of the industry.
Increasing ecommerce is affecting the sector’s locational needs and characteristics. While in-store retail continues to remain prominent, online growth is driving change for warehousing and logistics.
Almost a fifth (18%) of purchases are made online. But about half of those retain some sort of in-store aspect, such as collect from store, or return to a store. In this way, in-store shopping is impacted. John Lewis, for example, reports that its online shoppers who collect their orders in store will go on to spend an additional 20% in the retail outlet when they collect.
In this way, we can expect to see that physical stores will continue to play an important role in the supply chain. This is particularly so in grocery and retail, where sometimes order fulfilment is done is directly from stores.
The Turley report for the BPF predicts that in-store retail will continue to prevail, but that online sales will drive change for logistics.
In the first six months of 2018, online sales grew ten times faster than in-store sales. No online retailer example demonstrates the rise of ecommerce quite as well as Amazon. During 2017, Amazon sales accounted for 4% of all retail sales – including offline sales – making it the fifth largest retailer in the UK. With such a large market share, it’s clear to see what impact and influence Amazon has had on the UK market. We’ve already seen how its Prime service has propelled competitors to offer similarly fast delivery times. And with continual innovation and disruption, it’s set to continue to dominant change in the logistics market.
Rethinking Land Use and In-store Layout
Thanks to the rise of ecommerce, retailers are required to fulfil orders differently. In store, space is now required for storage of both returns and click and collect items. This has resulted in a blurring of retail and logistics space.
Some retailers use this to their advantage. Argos, for example, uses its store network as delivery hubs, allowing it to reach 90% of UK consumers within a four-hour drive.
Ecommerce growth has also coincided with a doubling in the demand for warehouse space over the past ten years. The amount of that space used for retail has also increased, from one third to two thirds.
Projections made by Turley found that “21 million square feet of additional warehouse floorspace is required each year to match the Government’s annual target of 300,000 new homes. This is equivalent to 280 football pitches each year.” It’s clear this will impact how land is developed in this country in the future, shaping our towns and cities.
How will the Rise of Ecommerce Affect Your Warehouse Operations?
It’s evident how the growth in ecommerce is affecting the economy, warehousing space requirements and in-store considerations. And while it’s hard to predict the future, there are certain aspects of warehouse operations that will undoubtedly be affected.
To remain competitive by serving large numbers of customers at speed, it will be paramount that distributors identify optimal locations for warehouses and depots, as well as the best delivery methods and routing.
Capacity will need to be frequently considered too – the rise of ecommerce will mean more sales, which will mean a greater storage need.
And getting increased numbers of orders out quickly and accurately will require distributors to invest in the most sophisticated WMS, WCS and TMS software solutions.
It’s an exciting time to be in retail, distribution and logistics. Especially for those companies that will embrace the changes and plan proactively and systematically to capitalise on them. How will you fare?