Capacity crunch: keeping up with the demands of digital-first retail

By Christophe Pecoraro, Managing Director of PFS Europe

A colossal shift to online shopping over the last year, coupled with increased demand born by Brexit, has signalled an undeniable capacity crunch across a variety of areas, including warehouse space. In fact, figures from real estate firm JLL revealed deals for 22.1 million sq ft of industrial and logistics space were agreed in the first nine months of 2020 – up 36% from the previous year. Additional analysis from Knight Frank predicts that 92 million sq ft in additional warehouse space will be needed across the UK by 2024 purely to keep up with fierce online growth.

With the pace of eCommerce acceleration showing no sign of abating, the demand for logistics infrastructure will only continue to proliferate. After all, the devastating impacts of COVID-19 have revealed a new digital consumer, introducing new trends at a rate few could have predicted. And these trends are set to continue. PFS’ research found that, in addition to the 53% of consumers shopping more online since lockdown began, more than three quarters (77%) of consumers expect to continue purchasing online more once the lockdown is lifted. However, whilst demand continues to skyrocket, supply is struggling to keep up and a decrease in availability and vacancy threatens to stunt the growth of brands that do not have adequate warehouse capacity.

Fulfilment capacity – a crucial investment for the future

Recent events, including the UK’s withdrawal from the EU, have certainly shone a light on the need for additional fulfilment capacity. Ahead of Brexit, splitting inventory to base fulfilment in existing UK and European facilities was one of the top 3 fulfilment preparations being made by most retailers. Now, as the ramifications of Brexit continue to unfold, it is becoming increasingly apparent that brands with products distributed across multiple facilities, delivering to their customers in region, are best placed to overcome these headwinds.

Amidst a last-minute scramble to prepare for Brexit, brands were also faced with the pressures of the recent peak season, which presented its own demand for additional warehouse capacity. According to PFS’ latest peak research, in a bid to keep up with surging sales, 32% of retailers invested in extra fulfilment capacity ahead of peak season 2020. And, of those retailers surveyed, 36% anticipated investing even more in extra fulfilment capacity in 2021. In fact, to support increased eCommerce demand, PFS has opened new distribution facilities in Belgium, Texas and Las Vegas in the last six months alone.

A long-term solution based on temporary infrastructures

As peak-like volumes continue online beyond the festive season, brands have no choice but to leverage alternative warehouse and fulfilment infrastructures to keep up in this digital age. PFS’ research found that to combat this ahead of the recent peak season, 27% of retailers invested in pop-up distribution/micro fulfilment. Like the concept of the pop-up shop, the pop-up distribution centre (DC) can be rapidly deployed, enabling brands to quickly set up and serve customers as required. Due to their adaptable nature, these space-on-demand warehousing methods can provide a flexible and cost-effective solution to online fulfilment.

In a market full of opportunity, the pop-up DC can also allow growing brands the flexibility to test the waters in new regions and approach new audiences without having to commit serious resource to a permanent facility. By doing so, brands can reduce initial capital outlay whilst getting their products closer to the customer.

Spreading the load with multi-node distribution

Multi-node fulfilment can also serve as an effective solution to brands facing the capacity crunch. Rather than operating and holding stock in one larger distribution centre, this concept utilises multiple ‘nodes’ strategically placed to serve a variety of locations. These micro-distribution centres when underpinned by an effective distributed order management system (DOM) can enable brands to identify which facility can fulfil the order most effectively, i.e., within the shortest time frame. Once identified the DOM can successfully route orders to ensure all inventory is fully utilised.

This has become increasingly important in recent months, where retailers have witnessed delays importing and exporting goods to and from the EU worsen since Brexit. This is highlighted in a recent survey which found that two out of three supply chain managers are now experiencing import delays of two to three days. With consumer expectations around next day delivery growing, a multi-node fulfilment strategy, that spreads inventory across multiple sites within the UK and mainland Europe will be essential.

Achieving more with existing resources

The concept of a distributed fulfilment, however, isn’t necessarily limited to traditional warehouse space. By taking influence from models such as the dark store, brands can leverage existing store space to act as micro-distribution centres. Dark stores are typically laid out like traditional stores but are inaccessible to the high street shopper. Instead, in-store pickers use the store to solely fulfil online orders, therefore acting as a small pop-up fulfilment hub.

Whilst current store closures, with redundant stock, can accommodate this, a longer-term solution requires a hybrid approach. Moving forward, and as the high street reopens to the public, store spaces can offer the best of both worlds. Providing the much-missed in-store experience whilst using stock rooms combined with technology to deliver online goods through an omnichannel approach.

Making room for the next stage of growth

As we navigate the demands of a new digital era for retail, the capacity crunch being faced will only continue to grow. And this will become a serious issue for brands who are unable to overcome it. The next stage of growth for online brands will be hinged on identifying alternative distribution and fulfilment infrastructures, and utilising them to ensure consumer demands can be met effectively.

Retailers have faced myriad challenges over the last year and whilst opportunity lies on the horizon, brands must ensure they have the capabilities to embrace it. Not only will greater distribution capacity be required to thrive, but brands will also need to ensure these methods integrate effectively with existing operations, whilst providing a scalable solution for future growth.

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