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IREU Merchandising Report 2019

IREU Merchandising Report 2019

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What’s in store for retail logistics in 2019?

Alex Sword, eDelivery Editor, investigates the trends ahead for delivery and retail logistics in 2019 and their impact on ecommerce trading.

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It’s a new year but for online retailers delivering products the pressures remain the same: customers want shorter delivery times for the same price, if not for free, not to mention in an environmentally friendly way.


As a recent Capgemini report argued, retailers urgently need to find a balance between customers’ delivery expectations and maintaining their own profitability. There are all sorts of potential solutions for this challenge; some are technological, some rely on new ways of thinking. We cut through the hype to look at some of the main problems and solutions that retail logistics will face in 2019.


AUTOMATION, AUTOMATION, AUTOMATION

Of those technologies generally seen as futuristic, automation already has the weight of evidence behind it. Retailers and logistics companies are already achieving demonstrable results from introducing automation both in transport and warehousing. The retail industry could save $41.36 billion a year by introducing AI into its logistics operations, according to a study by Capgemini.


The case for automation is fairly simple arithmetic – expected delivery times are going down, the number of orders are going up and the amount customers are willing to pay is not rising with it. Something has to give and automating processes can both reduce costs and increase the speed of handling orders.


One of the most visible pioneers of this is Ocado, whose CEO recently claimed that capacity added from new automated customer fulfilment centres had led to double digit growth in new customer acquisition. The grocer has opened two sites recently in Andover and Erith, with the more recently opened Erith facility now processing 30,000 orders per week using picking robots.

 

The two sites use Ocado Smart Platform, a combined hardware and software platform for fulfilling orders which is being used by Groupe Casino and Kroger.


We can expect to see a greater number of companies introducing automation this year, although it won’t always be as dramatic as introducing robotics as in the Ocado case. There is no necessity to automate everything at once – processing at distribution centres is a good place to start.


As for automation of transport, progress is also likely to be largely in the software side of things rather than physical infrastructure or vehicles. Self-driving vans are still some way off for both technical and legislative reasons, but software can be used to automatically manage things such as vehicle scheduling.


DELIVERY DRONES

Although Amazon conducted its first package delivery by drone in 2016, the marketplace had also claimed that it would have drones making commercial deliveries on a more regular basis by 2018. This deadline has clearly been missed.


So what is the hold-up? It is not a technological issue in the vehicles themselves – the capabilities of drones have been demonstrated in a range of B2B and public service applications. A demonstration by Vodafone in December also showed that even current 4G mobile networks are capable of supporting drone deliveries.


The obstacle is largely regulatory. There is a gap between what is capable technologically and what legislation allows – and certainly the disruption attributed to illegal drone flying at Gatwick last month does the industry no favours. Rightly or wrongly, authorities are still concerned about the safety of the unmanned craft and how they will interact with manned aircraft such as planes.


When the regulatory will is there, projects can really take off. In Japan’s capital Tokyo, for example, a new suburb has been designed around the use of drones for delivery of groceries.
This year will see steps being made towards convincing authorities to adjust legislation. Amazon is taking part in drone trials at a former airbase in Belgium alongside a host of local partners, while in the UK, a drone corridor has been set up by Blue Bear and the University of Cranfield to allow trials. Trials will help more interested parties, including retailers, to win licences and strengthen the case overall for the safety of drones.


CUSTOMER PERCEPTION

Without naming any names, a cursory search of comparison sites shows that many of the big last mile delivery companies are suffering from a major reputation problem. There is a certain confirmation bias in these sites, as people who have had a bad experience are usually more likely to review services, but poor scores are still harmful.


This poor perception is not just limited to the people who have used the service, but achieves a broader traction due to prominent reporting in the national press and word of mouth. There are stories of couriers throwing packages over fences and worse.


Empirical evidence of this was provided by the Capgemini study mentioned previously which found that in the UK, France, Germany and the Netherlands the delivery sector had net promoter scores of 0, -29, -13 and -13 respectively.


Delivery companies can’t get away with this forever. With more retailers starting to offer a choice of delivery services at the check-out, the reputation of a delivery company will come to bear on that customer choice. Retailers that don’t want to offer a choice will also think more carefully about how a poor delivery experience impacts on them.


Accordingly, it’s likely that companies with poor reputations will have to make more of an effort to manage this, whether through marketing or better staff training. But another part of this will be improving the customer service procedures, so that if things do go wrong, the customer knows who to contact and can expect a helpful response.


CLICK & COLLECT

The CEO of Doddle, Tim Robinson, argued in a recent interview with eDelivery that there are limits to how fast and cheap delivery can get. Failed deliveries are also a significant cost to the industry, not only in the wasted resources but in the impact on customer satisfaction.


A Magento survey of over 300 retailers in the UK and Germany saw 65% identifying failed or late deliveries as a significant cost to their business, with 1 in 20 deliveries reportedly failing.


By contrast, a delivery to a continually manned business address and subsequent collection by the customer solves all of these problems at once. For the outlet that hosts the click and collect service, it can also help trigger in-store purchases.


It is possible then that retailers will look to incentivise customers to choose click and collect over delivery. Many retailers, including the likes of Argos and Screwfix, already offer a free click and collect option. However, this effect can be negated if delivery options are free anyway.


Therefore there may be a move to offer a discount on the overall price at checkout in exchange for choosing click and collect if retailers grasp the opportunity.


Environmental issues are moving up the delivery agenda, with more attention being paid both to carbon dioxide and nitrogen oxide pollution.


While home delivery is likely to remain more environmentally friendly than individuals shopping by car, the sheer volume of online deliveries is likely to draw attention from regulators. For example, the French Senate has discussed introducing a tax on ecommerce deliveries.


This is, of course, unless companies jump before they are pushed. As in 2018, a number of companies will trial new schemes using environmentally friendly vehicles such as bicycles.


We may also see more use of stores as distribution centres. By fulfilling orders from a physical store, retailers can instantly launch a ready-made distribution centre in an urban area.


The industry faces a number of problems and there are many potential solutions out there. As with other areas of retail, keeping the cost and customer at the heart of what you do will remain the success.

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