The ecommerce phenomenon is having an increasingly profound effect on the logistics supply chain.
According to CBRE’s July 2017 UK market snapshot, online retailers accounted for 33% of warehouse leasing in the first half of the year, more than double the 2015 rate and six times the rate of uptake in the first half of 2014.
This is continuing to drive demand from investors too, with CBRE also reporting industrial returns of 8.2% for the nine months to the end of September, easily outstripping the performance of offices and retail. In the South East, CBRE reported that industrial values rose 1.7% in the month of September alone.
Consumer demands are driving this growth, with online shoppers increasingly wanting to buy now and wear now. According to future commerce consultancy Salmon, 60% of shoppers now think all online retailers should offer same-day delivery, compared with last year’s expected delivery time of 2.6 days.
Salmon also notes that 88% of UK customers say speed of delivery is more important to them than the brand being ordered. If retailers do not have a warehouse network that can fulfil that need they will surely lose sales.
But what about the greatest challenge of all - that 30% to 40% of those purchases are sent back? How can retailers balance their need to expand online with the complexity and cost of returns to the new warehouses they lease?
With such a high percentage of online sales coming back, the extra warehouse space and work needed to handle them becomes a thorny issue.
Once again, speed is the key, particularly for stock that may go quickly out of fashion or date. The default position is to create a separate area, frequently at mezzanine level, within the warehouse specifically tailored to returns.
More significantly, we are seeing the growth of dedicated return centres run by specialist logistics groups for retailer clients as consumers demand not just a speedy delivery but the opportunity to return products and get their money back fast.
But will this be enough to solve the returns conundrum, which according to consultancy Clear Returns is costing UK retail £60bn a year, with £20bn a year of this accounted for by online sales? The average returned product passes through seven pairs of hands before it is sold again.
At SEGRO, we believe the next step will be collaboration between retailers creating shared returns handling centres. When the problem is common, collaboration seems the solution.
When the problem is common, collaboration seems the solution
And the step after that? Dedicated, shared local returns centres on the edge of every major town, to ensure goods can be sent back and re-appear in shops or on a website without having to travel through a warehouse in the centre of the country.
The pace of change surrounding online retailing has increased again this year.
Aviva Investors Real Estate has just released a paper arguing that “store-based retail is set to decline significantly” and that successful shops will need to be “platforms for discovery, engagement, experience and interaction”. Shops would showcase products, while the major sales growth would continue to take place online.
JLL has just published ‘Logistics in London’, which predicts further far-reaching changes such as online shopping peaks in the morning and evening, and delivery of online sales to offices becoming more problematic. Both suggest the need for more local consolidation centres to regularise and smooth the flow of deliveries.
For SEGRO, the online activity levels among retailers are creating huge opportunities as well as some mutual challenges. What is for sure is that it makes logistics the most dynamic, exciting real estate sector to be in right now.