UK e-fulfilment: Market Insight Report 2018-19
This market covers the provision of fulfilment services to internet retailers in the UK.
– It includes both pure play on-line retailers and multi-channel – traditional store-based retailers which also have an online presence; increasingly this is all major retailers.
– It also includes both outsourced fulfilment and fulfilment activities carried out by the retailer in house
Overview of e-fulfilment services
It does not include fulfilment of purely digital products such as software, travel tickets or music and video via electronic downloads. It also excludes grocery, for which there are distinct supply chains operated in-house by the major chains and on-line specialist, Ocado.
As internet shopping continues to grow, so the fulfilment of its orders continues to be a growth market – in contrast to the maturity of many segments of the logistics industry.
We quantify the e-fulfilment market size and historical growth rates, while reviewing key factors behind these figures.
We also carry out an in-depth analysis of the relevant drivers of industry growth – including the macroeconomic environment, internet retail sales, basket sizes, returns rates, the level of cross-border shopping and logistics supplier innovation.
The report covers development and growth of the market since 2012 and provides forecasts up to 2022. It includes:
– Description of trends in the market such as warehouse price increases, development of systems and robotics
– Analysis of market drivers, which form the basis for our forecasts
– Profiles of a wide range of e-fulfilment providers
Who is it useful for?
The report is intended for:
– Operators of e-fulfilment and other logistics businesses
– Retailers who sell via the internet
– Investors in these businesses
– Potential new entrants to the e-fulfilment market
– Market regulators and policymakers
– Banks, analysts, consultants and other parties with interests in the sector
What are the sources and methodology?
This report is based on:
– Publicly available data including company annual reports, websites, press releases and government statistics
– Interviews with senior-level contacts in the market
– In-depth analysis of the macroeconomic environment and relevant market drivers such as trends in retail sales, internet shopping, mail order and price trends.
– Our own experience of carrying out commercial and operational due diligence on behalf of many investors considering backing logistics businesses including those with e-fulfilment activities.
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.
The e-fulfilment market
e-fulfilment refers to the logistics processes which support an on-line retailing operation.
The service usually comprises the core elements of warehousing, IT system provision, provision and / or management of delivery services and returns logistics.
In addition, value added services, such as contact centres, packaging, repairs, assembly & configuration or website development may be provided as part of a solution.
We believe that the market is now over £11bn in size, having grown rapidly as internet retail has increased
The typcial operating model is that of a site in the midlands which is able to support next day or later delivery to most of the UK population via a traditional parcels carrier.
– Other models such as those including mobile warehouses and smaller storage sites in big cities, which could support same day delivery, are being considered.
– So far these models have been more widely adopted by in-house operations (such as Amazon and Argos) than by outsourced providers.
Arrangements may be on a pay-per-use, closed book or open book basis.
Given the large amount of information which must be processed and managed accurately, IT systems are very important. Some providers have developed their own systems (eg iForce) while others use systems from leading vendors such as Manhattan and Metapack
High returns rates, in particular in the clothing segment, create additional challenges both in handling of transaction information and physical goods
While transport cost increases have been modest, warehouse prices have increased at above the rate of inflation in recent years. This has led to increases in prices but also some pressure on margins, and greater usage of techniques such as mezzanine floors to maximise building usage. Higher warehouse costs may speed the adoption of robotics, which can also lead to significantly better usage of space.
While outsourcing e-fulfilment is increasingly common for smaller e-retailers and marketplace sellers, some large retailers – such as Amazon – keep the service in-house, recognising its strategic importance to their proposition. Some multi-channel retailers are exploring the potential to use their store networks as fulfilment hubs to support same-day delivery.
The main driver of the market is the level of internet retail. However, other factors are important, including:
– Consumer buying behaviour: average basket size and return rates
– Level of value added services provided
– % of sales by UK internet retailers which are to overseas customers
The e-fulfilment market can be segmented according to size / capability of provider. It is served by three different categories of providers, defined by their size, their service focus and their customers:
– Some companies, including Amazon, target start-ups and smaller / marketplace sellers,
– Major logistics groups such as DHL, K+N, Wincanton and XPO, who mainly focus on serving the largest retailers
– A range of providers serve medium sized customers, some with a general focus and some of whom specialise in niches such as garments. Providers include independents and also transport companies such as DPD and Whistl.
Entry barriers are low in serving smaller customers but scale is necessary to serve the largest retailers
Switching barriers exist but do not prevent some switching occurring if, for example, there has been a serious service failure or the current provider is not able to offer a required service
At the low end, unit prices and gross margins are typically higher, but offset by much greater customer management costs
Most companies in the market provide other logistics services as well as e-fulfilment. Frequently, other services are included within a single contract which might cover both e-fulfilment and physical store fulfilment for a multichannel retailer.
We expect to see continued growth in the market, driven by further increases in internet retail.
Growth is likely to be less rapid than in the past as internet retail inevitably matures as it accounts for an ever-larger share of overall UK retail
Key emerging trends include:
– adoption of warehouse robotics to increase picking efficiency, reduce labour costs and also reduce property costs
– use of satellite storage locations – such as retail stores, mobile warehouses, or Amazon Prime Now hub-type locations in or close to large urban areas to support same day delivery
– integration of transport and fulfilment services to support better end-to-end process visibility and enable later cut-off times.