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DX WAREHOUSING 2023 REPORT Micro-fulfilment


Could small urban logistics hubs be the future of ecommerce fulfilment and last mile delivery?

Once upon a time distribution centres would have been ‘Big Sheds’ facilities with strong connections to the UK’s motorway network. And while these sites will always serve a vital purpose to the ecommerce logistics sector, there is a new kind of distribution hub – the micro-fulfilment centre (MFC).

MFCs are by definition small, and often highly automated. These hubs are designed to fulfil ecommerce orders, as well as local store pickups. MFCs may be located in an existing store or warehouse, or be a standalone small distribution or warehouse space in an urban setting.

It is their urban location which is key, these MFCs are intended to be hyperlocal, close to the end customer with the potential to both speed up delivery and make it greener.

Cross River Partnership, a non-profit organisation working for positive change in London, champions MFCs as these urban hubs “have an important role to play in promoting healthy and efficient deliveries”. Such MFCs can reduce the number of vehicle trips and, as a result, congestion, by enabling deliveries to be made in electric vehicles, by bike or on foot. This in turn reduces harmful exposure to toxic air pollutants.

The MFC boom has in part been driven by the rapidly evolving ecommerce delivery models. With consumers demanding quick and green deliveries, these sites can facilitate more sustainable forms of logistic vehicles.

Striking the right balance
Parcels coming into these very central sites have to start their journey somewhere, and this is often where the existing warehousing network comes in. Larger sites will still be needed for inbound logistics, for storage reasons and for fulfilment purposes. Micro-hubs are not a replacement for the existing model, more of a supplement.

In a recent interview with DeliveryX, Jonathan Jenssen, CEO of delivery start-up Relay Technologies, stressed that the traditional warehouses still need to be respected. It is after all where a retailer’s inventory sits. He added that we can’t expect businesses to turn their back on big warehouses which have cost millions of pounds of investment. “We need to ask, with that positioning of their inventory and warehousing, how do we maximise the delivery experience from whatever possibilities that they have,” explains Jenssen. MFCs can be seen as a “pit-stop” in the ecommerce journey. These small sites play a key part in maximising delivery efficiency and therefore the end customer experience.

Repurposing retail space
Competition for strategic warehousing and distribution space, whether large or small, has led to some developers looking at existing, perhaps unused, facilities to convert. With former retail outlets sitting empty, investors are taking advantage of strong rental growth in the logistics sector. In some cases the logistics element is integrated into the retail offering, while some sites are completely converted. One-time retail units have the benefit of being located in densely populated areas, proving a perfect location for quick delivery.

While neglected retail parks have the connection to key road networks. Industrial property company Prologis purchased Ravenside Retail Park, 15km from central London, for £51.4m and has earmarked the site for ecommerce fulfilment. It is not only former shops that are being repurposed as ecommerce sites. British Land is working to turn empty car parks into urban distribution sites for same-day delivery firms.

The property company, which owns Sheffield’s Meadowhall shopping centre, aims to spend £189m on assets with “urban logistics potential”. This includes sites in central London where British Land could buy warehouses and build additional floors onto existing ones before renting these out to retailers providing rapid delivery in the UK capital. It has already acquired a £20m underground car park in Finsbury Square, central London. Subject to planning, work will begin in 2024 to convert the site into a last mile logistics complex. Parcels from further afield will be dropped off, stored and then picked up for delivery around the city.

Ship from store
It is not only former shops, and car parks, that are playing their part in the ecommerce journey. Some retailers are taking advantage of their open bricks-and-mortar locations for ecommerce fulfilment. Similar to urban MFCs, shipping directly from a store enables deliveries to be made from closer to the customer.

Thus, there is less lead time required and potentially less transportation cost associated when filling orders. Furthermore, a ship-from-store strategy increases the footprint of the company’s warehouse by using storefronts as mini distribution centres, while reducing the carbon footprint by using locally held stock to fulfil orders. As ecommerce’s market share continues to gain on physical retail, shipping directly from stores could help reduce demand on warehouses while making the most of high street sites. It might not be the best option for all retailers however, as smaller firms may struggle with the space and staff needed. Yet again it comes down to finding the right balance, and retailers choosing the best fulfilment model for their business.

This feature originally appeared in the DeliveryX Warehousing 2023 Report, download it in full here.

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