Logistics investment set to increase from 9% to 12% of annual revenue, according to new research from TLT
Retailers are investing in faster delivery times in response to perceived demands from consumers, according to new research from UK law firm TLT.
According to the report, Full Speed Ahead, based on interviews with the UK's top 100 retailers, the proportion of retailers offering same day delivery is expected to increase from 19% to 29%.
Those offering next day delivery or faster are about to face increased competition, with the proportion offering this expected to jump from 62% to 83%.
With the continued growth of online sales, half (46%) of UK retailers say the future of their business now depends on improving fulfilment and logistics.
The average level of investment in fulfilment and logistics is expected to rise from 9% of annual revenue to 12% over the next five years. This is compounded by the fact that three quarters (73%) of retailers say more businesses will have to offer free delivery in the future in order to compete.
Returns are adding to this pressure on costs, with retailers reporting an average 28% rate of returns on all goods sold, climbing to as high as 58% for some. 56% of retailers say effective management of returns is now key to the profitability of online sales, with TLT's report highlighting recent innovations from retailers.
Two of the biggest areas of investment in fulfilment and logistics will be technology and urban real estate solutions.
The number of retailers investing in warehouse management systems/robotics is expected to increase from 22% to 44% – both the highest increase in tech investment and the biggest planned area for IT spend.
The biggest barriers to technology adoption include economic uncertainty (66%), legacy issues (58%), not knowing where to invest (53%) and difficulty finding the right partners (32%).
Most retailers are focusing on proprietary investment in technology (57%), while a third (30%) plan to partner with technology companies and a fifth (20%) plan to buy off-the-shelf. Only 11% plan to acquire or invest in a technology business and only 8% plan to partner with other retailers.
Retailers also expect to require 15% more warehouse space over the next five years, on average, rising to as high as 42% for some. This is one area where retailers are opening up to the idea of partnering with other businesses; the proportion of retailers investing in shared warehouse space is expected to increase from 14% to 20% in the coming years.
Two thirds of retailers believe urban warehousing (66%) and urban lockers (67%) will become a genuine trend, with the majority (64%) expecting urban warehousing to take place in retail parks.
Perran Jervis, partner and head of retail and consumer goods at TLT, says: "We've been surveying the UK's top 100 retailers for several years now, and while adapting to an increase in online sales is not new, this year's data suggests that retailers have reached a tipping point and business models need to change to make retailers more agile.
"Consumers increasingly want fast, free and flexible delivery. That's going to require fundamental changes to warehouse locations and technology, product visibility and commercial offerings, including offering customers a more personalised service.
"The scale of change needed and the pressure on costs means that retailers cannot however afford to do this alone. Retailers are now embracing partnerships to deliver the infrastructure required to get products into consumers' hands and this trend will have to continue. Retailers need to consider what's missing and who they can partner with to quickly access the technology, space or network they need for example to improve their logistical capability."
Find out more by downloading a copy of the report