Thought Leadership

Thought Leadership Corner: UNDER PRESSURE: IT’S TIME TO MAKE A CHANGE

For the UK retail sector 2017 was not a good year. It was, in fact, the sector’s worst year since 2013 according to the Office for National Statistics, which said: “For the whole of 2017, the quantity bought in retail sales increased by 1.9%; the lowest annual growth since 2013”.

Even the Christmas period was disappointing, with retail volumes dropping 0.9% compared with November. Of course, that’s partly down to the influence of  Black Friday, you may be thinking. And you’d be right. Christmas itself might not be a moveable feast, but for shoppers the Christmas shopping period comes earlier and earlier – and it comes with lots of discounting.

So, volumes are down, except at those times when there are lots of bargains to be found. Yet at the same time the amount of money spent in the shops (including online) is up. Up by 4.4% over 2017 (Sky News).

December’s footfall was badly hit too, according to the British Retail Consortium: down by down by 4.7%, 5.2% and 3.7% in Scotland, the South West and Greater London respectively.

What’s going on?

It feels a little lazy to blame the Brexit vote for everything that’s going wrong in the UK, but in this instance it needs to be at least considered. In the aftermath of the June 2016 referendum result the value of the pound fell, leading to increased costs across many parts of the UK economy, including the retail sector. This was seen when the rate of inflation rose to 3.1% in November, the highest it had been for around six years, and the Bank of England subsequent decision to increase interest rates (for the first time in 10 years) by 0.25%.

Higher volumes combined with heavy discounting are a sign that shoppers are happy to get a good deal and that they’ll shop with gusto when it’s in their interests. And with footfall down it seems those shoppers are staying at home and hunting for bargains online, which is hardly surprising given how quick and simple it is to compare prices across dozens of sites simultaneously – something that would take literally hours to do visiting bricks and mortar stores.

But all of this is a series of worrying trends for the retail industry and its friends in fulfilment; the cost of shipping doesn’t fall just because there’s a sale on, and although some might be ok with waiting a little longer for their online orders to be delivered, most shoppers are simply not going to accept service degradation just because a retailer has a lot of orders to process.

The greater the volume of orders, the harder it is to process and deliver them without incurring costs hand-over-fist. It all feels a little, well, a little unsustainable.

Back in 2014, Yodel was hit with an influx of 600,000 more parcels than it had expected in the wake of that year’s Black Friday. The following year it invested a whopping £30m in its network and put restrictions on the amount of next-day Black Friday deliveries it would take on (eDelivery.net). Meanwhile, and more recently, UKMail is investing more than £21 million in three new sites to support growth.

Doesn’t that strike you as being a little like a fulfilment arms race, though? Shopper expectations keep rising, as do order volumes – but only when margins are affected by discounts, which means margins are kept low – and everyone has to invest heavily to keep up. Meanwhile, shopper expectations keep rising, as do order volumes… as someone once said, big fleas have little fleas upon their backs to bite ‘em. The little fleas have smaller fleas, and on ad infinitum.

Sooner or later the circle of escalation has to be broken, surely.

Forget drones. Despite all the hype, and there really has been a lot of hype – delivering shopping via a drone is not as simple as it might sound. Regulations have stalled parcel-by-quadcopter plans and wheeled drones are just as hampered by reality; they’re not great with stairs and the chaos that could be caused by half a dozen of them trundling down a busy, narrow high street is as comical as it is worrying.

Of course, there is an important role for technology and innovation in helping retail fulfilment cope sustainably. But it’s not based around some sci-fi fan’s idealised view of life in the future. It’s about identifying current problems and finding solutions to them. It’s about building on what’s in front of us today and using technology to bring creative ideas to fruition. The use of spare capacity across a delivery network is a great example of how this works. On one hand you’ve got parcels and shoppers that need to be brought together. On the other hand, empty store space and partially-filled delivery vehicles.

Combining the two makes life easy for the shopper and earns more revenue for the retailer, while mitigating the cost of running their own delivery network. That’s without mentioning the added benefits of getting people out of their homes and into stores, and the reduction in the number of vehicles in use, which in turn is good for the environment. But it can only be done if you’ve got a good technology platform and data integrity underpinning things.

Simply trying to squeeze more out the retail delivery network isn’t going to work forever. It’s time to break the circle. It’s time to put sustainability at the heart of everything we do. That needn’t mean a complete rejection of how things are currently being done. But it will take a commitment to doing things differently and making a change going forward.

 

Sebastian Steinhauser, CEO & Founder at Parcelly points out: 'It is surprising that it took the industry this long to take measures, but great to see an ever growing number of eCommerce and logistics stakeholders trying to make a change. Parcelly’s business model was invented with a sharing economy concept at its heart, putting sustainability first and into everything we do. By leveraging our nationwide network of carrier and retailer agnostic PUDO locations, Parcelly keeps reinventing ways to manage the first-and last mile more efficiently and ease growing pressures on the supply chain and dwindling carrier and retail margins.

The concept of converting redundant space in local shops and businesses into revenue generating customer services not only revives local high-streets, but also helps to meet growing customer demands, whilst having a positive impact on the environment. Starting out with a sustainable click&collect concept that puts the consumer back in control of their deliveries and optimises carrier delivery routes, we continue to diversify our omni-channel technology platform into a multi-service proposition that enables retailers to streamline their fulfilment processes, speed up delivery cycles and ultimately improve sustainability and customer experience.'

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