- 2 July 2015
- Transport / Logistics Services
By Frank Proud
The UK is an advanced e-fulfilment market relative to others in Europe with a large proportion of households now regularly shopping online. However, even in the UK, the internet accounts for just 11% of overall retail, indicating the potential for significant further growth.
We estimate that the number of retail transactions requiring fulfilment exceeded half a billion in 2014. This represented a market of over £4bn in value for e-fulfilment, or the logistics processes necessary to support an on-line retailing operation. This usually comprises the core elements of warehousing, IT system provision, transport management, and returns logistics. Actual transport services are typically outsourced to parcels networks or other carriers, with the fulfilment provider retaining a margin. In addition, value added services, such as contact centres, packaging, repairs, assembly & configuration or website development, are often provided as part of a solution.
The overall level of retail sales and the proportion which is carried out on-line are the main drivers of market growth. Also, in recent years, international transactions have become more important, encouraged by the reduction in the premiums charged for international vs domestic delivery. Given its lead in internet retail, this is a key benefit for UK sellers and many have already established significant international sales. Estimates are that around 22% of UK e-retailer sales in 2014 were to overseas customers. This has grown from 14% in 2012, and we expect a similar rate of increase in future.
Delivery services have continued to innovate and improve, offering quicker delivery, more options and streamlined returns. Free delivery and returns reduce the barriers which prevent customers from ordering. Click and Collect, which now represents over £2bn, has been important. It has been embraced by large retailers who combine physical and online presence as it allows them to use their store networks as a differentiator in online sales.
While outsourcing e-fulfilment is increasingly common for smaller e-retailers and marketplace sellers, some large retailers have started to bring the service back in-house, recognising its strategic importance to their proposition. In doing so, they are following the lead of Amazon, which, having originally outsourced its logistics, has now become a pioneer and innovator in this area.
Major logistics groups like DHL, Kuehne + Nagel, CEVA, UPS and Dentressangle offer e-fulfilment as part of a broader offer, which often includes transport services. Their international operations may be particularly attractive for large e-retailers looking to expand via international sales. At the smaller end, the market remains fragmented and there are a number of specialists, such as Allport, iForce, Clipper, Torque, Amethyst and Spark Response who serve both medium-sized and some large e-retailers.
We expect the market to continue to grow in the future at a rate well above that seen in most segments of the logistics industry. This is because the key drivers are positive: economic recovery in the UK is likely to support ongoing retail sales growth; the proportion of retail sales transacted online has scope to rise significantly higher; and international sales made by UK retailers are set to increase further
Apex Insight’s report on the UK e-fulfilment market includes insights from interviews with logistics service providers, findings from our research on published and company sources, background on the leading companies as well as our estimates of historical and forecast market size and views on future development of the market.