Why Retail Success is All About Logistics

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Christmas 2014 was the year when more people than ever abandoned over-crowded shops for armchair shopping via the internet – myself included. And I’m happy to report that this year there was less of the frantic dashing back and forth from neighbor to shop to sorting office, tracking down online deliveries that had gone astray or inevitably arrived when we’d nipped out. I felt the benefits of online shopping when my mother’s new Dell computer was assembled then delivered on Christmas Eve, having been shipped from China only eight days before.

By and large, there was more information about when things would arrive, more choice on where they would ship to and more convenient ways of returning unwanted goods. But what interested me the most was not what they were getting right, but who was getting it right. Figures for Black Friday and Cyber Monday show that the winners weren’t dedicated online retailers. But rather, traditional retailers like Walmart: pure players who may have come late to the internet revolution but are catching up fast and experiencing an online revival.

On Black Friday alone, pure players saw their sales increase by 18 percent. In the U.S. Cyber Monday numbers were up 8.5 percent compared to last year; and when incorporating the whole weekend, the number is even more impressive; up 17 percent on 2013. From looking at IBM’s Digital Analytics it is clear that mobile devices have skyrocketed in popularity, accounting for 41.2 percent of all online traffic on Cyber Monday, an increase of 30 percent from last year.

Over in the U.K., John Lewis revealed that the U.K. enjoyed a “market-beating” Christmas, with online sales accelerating after shoppers snapped up gifts over the internet on Black Friday. For the five weeks leading up to December 27 2014, total sales at John Lewis were £777m, an increase of 5.8 percent when compared with last year. Online sales for the five weeks were up 19 percent on last year, with johnlewis.com representing 36 percent of total sales during this period.

The key to retailer success in this second round of retail revolution is adaptability and scale. With longstanding experience, established logistics infrastructure and networks of shops, pure players are theoretically better placed than internet-only operations to adapt to the new trend of omnichannel retailing – delivering when and where it’s most convenient for customers. Of course, they haven’t all cracked it yet. There are still huge logistical challenges to overcome as online shopping becomes more and more prevalent. But the figures show that they’re certainly setting the pace of change.

So what are the challenges?

Managing inventory is still problematic – and in the experimental phase.

Warehousing needs to be larger and more sophisticated to accommodate not just stock, but the growing number of people needed to prepare orders and get the right goods to the right people.

Returns logistics are putting huge pressure on retailers. To comply with consumer law, they need to be able to accept returns, put things back in the system and make them look brand new for resale. No easy task with an infinite number of different packet sizes and categories!

But the biggest challenge revolves around customer expectations on delivery: everyone wants fast fulfillment but few are prepared to pay for it. This needs a huge investment in real estate and logistics for something that’s competitive and hardly profitable. Low-cost retailers are likely to struggle and do not want to have to make such an investment.

The future shape of retailing is still far from clear. But one thing is clear: the importance of logistics and distribution real estate and technology. The right resources will enable businesses to understand customers’ needs and expectations better and act faster to achieve them.

About the author:

 

Amaury Gariel
Managing Director EMEA Industrial & Logistics at CBRE
www.cbre.com/amaury.gariel
amaury.gariel@cbre.com

 

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