Is logistics really set to become the New Retail?
13 March 2019
The term ‘urban logistics’ is certainly on trend in the property market and in an effort to keep pace with the demands of the modern consumer, retailers are increasingly targeting urban industrial units to help tackle a key part of the supply chain; the last mile. The challenges of the high street are well documented and the fragile retail market has forced many retailers to re-assess all aspects of their business model. With traditional store retailers needing more space to help service on-line orders and e-tailers needing to scale up their infrastructure network to support their growth, achieving a flexible and agile supply chain to meet these demands is certainly a topic that should be at the top of any retailers to do list.
I want it all and I want it now!
Traditionally, we, the consumer, would go to a retail store to make a purchase. If it was not available immediately, waiting up to 3-5 days for our item was not the end of the world. However, in this new retail era where instant gratification is expected, the relationship between a retailer and consumer has been turned on its head and the consumer now holds most of the key cards in the retail game.
The modern consumer is more informed than ever and will often expect nothing less than immediate availability, accessibility, transparency, value and convenience. If a particular retailer can’t deliver what a consumer wants, where it wants it and when it wants it, within a matter of seconds, a smart phone will find a competitor who can.
It is also common knowledge that a consumer is more likely to share a bad experience than a positive one. However, the speed and ease within which this can be done (a simple tweet on a retailer’s feed) and the size of the audience who receives it has meant that retailers are seriously up against it when trying to protect their reputation and brand.
Logistics is certainly at the front line of the retailer/consumer relationship and with the decline of consumer loyalty, retailers need to work harder and smarter in order to adapt traditional methods and seize opportunities in the market place.
So how can tackling the ‘last mile’ help gain a competitive edge?
Distribution is one of the fundamental elements of a retailer’s business. Retailers need to manage a complex distribution network effectively to ensure the physical movement and holding of goods in the locations and quantities required to meet demand.
Last mile logistics is getting the product from the distribution centre to the door step and despite being the final step of the journey, is often the most challenging. As a result, retailers are looking to invest in smaller urban units (commonly referred to as ‘customer fulfilment centres’) and incorporate them into their larger distribution network in order to help meet the short shipping times and consumer expectations which are putting huge pressure on the industry.
But one size does not fit all
Amazon (as you would expect), is leading the way with an aggressive strategy which has seen it securing out of town retail assets for its network of delivery hubs. It continues to set new industry service standards by investing heavily into cutting edge logistical technology and consumer fulfilment. Other global retail giants like Alibaba and JD.com are also delving into the territory of logistics by building out last mile delivery and logistic services.
Most supply chains, however, are not set up for modern demand and cannot afford the massive investment seen by the retail heavyweights. Smaller retailers will therefore need to adapt their strategies by effectively collaborating with logistic companies in order to stay in the game. As the quality of such collaborations will directly influence the retailer/consumer relationship, ensuring the values and brand of the retailer is maintained at all times will be key.
How a retailer adapts will be as important as what changes are implemented. What is becoming clear is that the supply chain is becoming an increasingly competitive battleground for retailers and getting closer to the consumer will help enable retailers to dominate.
If keeping up with the demands of the modern day consumer was not hard enough, retailers must also overcome many other market challenges in their quest to tackle last mile logistics. These include:
- a lack of available stock in the right location and increases in urban industrial rents due to demand;
- population growth and the pace of urbanisation causing increased demand;
- the traditional lease model not being fit for purpose to achieve the desired flexibility which would enable retailers to scale up/down to meet demand;
- planning constraints restricting speculative development and re-purposing of industrial units through a change of use;
- complex construction projects and infrastructure difficulties (including sufficient transport links and available services); and
- the latest innovations in logistics data and technology. The rise of block chain, AI and AR, use of bots, drones and autonomous vehicles will require retailers to be digitally fit. What digitally fit means for one retailer will be different for another.
So is logistics really set to become the New Retail?
To say that implies that traditional retail no longer has any role to play. Despite all the doom and gloom in the press, we cannot see the ‘shed replacing the shop’. Whilst the store is changing, with focus turning to experiential retail, it will continue to provide a crucial gateway for showcasing products and brands which will help drive online sales.
The future of retail is therefore multichannel and whilst the blurring of the lines between traditional retail and e-commerce will continue, the fusion of logistics into the mix will become more prevalent. This has left many referring to the relationship between the store, e-commerce and the logistics as ‘Total’ or ‘Connected’ Retail rather than ‘New Retail’.
Whatever the retail store/unit of the future will look like, it is clear that taking advantage of the opportunities which the logistic market has on offer will play a crucial role. With further disruption in the logistic market inevitable due to the advancement of technology and the evolution of smart cities, ‘Smart Retail’ may be a more appropriate tag.