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Retail and logistics at the crossroads of e-commerce

15/11/2021 Written by: Laureano Turienzo Esteban

The pandemic and everything it has brought in its wake has caused a boom in e-commerce across all markets of the world. A revolution that had already begun, but that has ended up winning over many consumers, brands and all agents within the sector. New uses that have a marked impact on the entire functioning and prospects of the logistics sector, which is transforming and adapting at such a speed that we will inevitably see the odd setback.

In March 2020, the pandemic altered our consumption habits radically and virtually overnight. The retail sector was one of the hardest hit and this naturally had a knock-on effect for its close cousins, the logistics and distribution sectors.

While the retail trade has had to endure restrictions on when stores could open and the number of people allowed in, the sector as a whole has displayed great resilience and levels of activity are now not far off pre-COVID levels (in the United States, China and many other Western countries, sales figures are actually above 2019 levels —meaning the pre-pandemic scenario— so technically not only has the recovery arrived, but there has even been a highly significant increase in consumption in recent months).

Logistics, meanwhile, shrunk by 3.3% globally in 2020, despite benefitting enormously from the surge in e-commerce in the wake of the pandemic. This year, however, the big logistics operators expect to end the year with a 2.9% increase over the year immediately preceding the pandemic. This is in global terms, because Europe, which has suffered most from the economic effects of the pandemic, will remain 0.5% below the 2019 figure. Even so, in the mid run, logistics is expected to expand at a rate of 3.2% per year until 2025 in Europe and 5.1% globally.

Hybrid buyers: the trend that changes everything

In the retail world, all these months of constant change, adaptation and uncertainty have accelerated hybrid or omnichannel consumer trends, which were already very much a thing, but have now become even more widespread. Hybrid shoppers are those who indiscriminately use all the channels and resources the industry offers to make their purchases: traditional physical stores, e-commerce and online shopping services with in-store collection.

A study carried out by DS Smith (the British multinational packaging company) found that Spaniards make on average six purchases from physical stores each month, three purchases online and two purchases with collection in store (click and collect). And click and collect is growing across Europe, although the shopping experience needs to be improved a lot as 60% of people believe that it brings together the worst of the digital and physical shopping experience.

A large proportion of Spaniards still prefer shopping in physical stores and will continue to shop there once the pandemic has passed because they miss the experience of shopping, and also because of the undeniably social side of shopping in physical outlets. The big challenge now facing brands and indeed the entire retail sector is to improve the online shopping experience, and above all the click and collect experience, whether by adding experiences, making systems more agile, paying attention to the packaging or product presentation, etc.

In terms of generational impact, the rise in digital consumers during the pandemic has been driven mainly by two main segments of society: firstly, young people, who were already the biggest e-commerce users and have become even more so following the pandemic; and secondly the over-40s, who used to buy very little, if anything, online but who, during the successive lockdowns, ventured into the system and liked the experience enough to continue with it after the restrictions were lifted.

Because the fact is we are heading towards a near future where shoppers will not choose one shopping system, but will use all of them, combining them according to taste, interest and convenience. And if they have a bad experience with a particular brand in one channel, they will look for an alternative brand. Ideally a brand will manage to achieve customer satisfaction regardless of the channel through which they buy its products.

Last mile logistics: where everything comes together

In this climate, the distribution and transport of goods play a key role in today's e-commerce and in-store collection systems. We must keep working to improve delivery times, ensure that products arrive in one piece, facilitate returns and increase consumer confidence and trust in a type of shopping where they cannot see and touch the goods until after they have purchased them.

During the pandemic, transport companies and couriers alike had a hard time adapting to the massive explosion in e-commerce, yet adapt they did. This was mainly because the lockdowns and ensuing travel restrictions kept the roads clear, thus making routes, deliveries, journeys and stoppages to load and unload all the more agile and efficient... and the products could almost always be delivered because the customers were always at home to receive them, making the whole thing more efficient and profitable than having to spend time stuck in traffic and spending long hours in the office.

Now with the return to normal, the pressure on e-commerce has in many cases remained unchanged, though the hugely favourable conditions that delivery drivers enjoyed not that long ago are now a thing of the past. The lifting of the mobility restrictions and the economy recovery, coupled with the difficulty of getting around cities and parking problems, have all made delivery conditions much more onerous and pushed up operating costs for distribution and transport companies.

Little surprise then there has been a remarkable level of investment in the development and transformation of logistics centres and platforms to bring goods directly to the homes of end consumers, in a phenomenon known as last mile logistics. More precisely, in the first nine months of 2021, companies already consolidated in our country and new players with plans to build their business have given a huge boost to real estate investment in logistics; sometimes in large logistics centres and other times in smaller set-ups on the outskirts of cities.

In the first half of 2021, investment totalled 1.4 billion euros, up nearly 170% on the same period of the previous year, making it the second highest figure in the time series. This gives us an idea of the importance and growth of investment in this sector, 97% of which has focused on traditional, large-scale logistics centres: Madrid, Barcelona, Valencia, Zaragoza, Seville and Bilbao.

Logistics as an added value of retail

It is plain to see that last-mile logistics is a hugely important aspect for retailers to guarantee a satisfactory service for their e-commerce and click and collect customers. Consumers have come to expect express delivery times when it comes to e-commerce. And the pressure that these deadlines place on supply networks is enormous. Often the costs of this express delivery service practically wipe out the companies' profits or can even lead to losses; and in many cases there is no justification for these ultra quick delivery times and nor do they generate any real value for the end customer.

We are at a point in time when everything has to be delivered right now, and this has serious economic and especially environmental consequences. From this point forward, logistics companies and retailers will have to invest in much greener logistics, and consumers must also understand that their individual satisfaction threaten the common good. In 2021, billions of parcels will be delivered by express couriers all around the world, and today's e-commerce logistics packaging is highly polluting. That's why most retailers, brands and logistics companies are investing in new strategies that will lead to much cleaner and more sustainable logistics before the decade comes to an end.

However, in the current climate logistics has become a direct part of the customer's shopping experience and is one of the decisive factors. In fact, if you head to the product reviews for online stores, you will find that users often take it out on the products if they receive a late delivery, a return to sender or if their item is delivered with broken or damaged packaging.

In this sense, logistics is now beginning to enter into the strategy of retail companies, which are starting to realise that perhaps their own resources are not enough to cover periods of peak demand, or unforeseen events... and they need specialised logistics companies because they are ultimately the ones with the expertise, resources, material and human capital needed to deal with any situation.

A great opportunity: Next Generation EU recovery funds

European recovery funds are now flowing into Spain and are a big opportunity for the retail sector, with the potential to generate up to 55,000 jobs, according to the Ministry of Economic Affairs. They should be the driving force to modernise the sector, drive digitalisation and sustainability and get the country ready for the challenges in store.

Retail has everything it needs to meet the European criteria for Next Generation funding: it accounts for a large part of the active population (14% of employment in Spain), strengthens territorial cohesion and already enjoys a high degree of diversity (55% of women, 33% aged over 50, while also bringing the immigrant population into the labour market, etc.).

There is also a need to improve one particular aspect that is of huge importance within Europe: efficiency, sustainability and circular economy. Any initiative that aims to efficiently integrate all processes of manufacturing, purchasing, sales, distribution and delivery of products will be a winner. Improving the environmental impact of last-mile distribution (its big Achilles' heel), delving deeper into biodegradable packaging, recycling more packaging, reusing waste, and so forth.

The sector is in midst of change, perhaps even a revolution. The particular way in which the pandemic crisis has affected the sector, the opportunity of the recovery we are already seeing and the challenges we face from consumers who, for now, are ahead of the curve, promises an exciting near future for retail and logistics. Soon we will be able to see large logistics platforms, autonomous electric delivery vehicles in cities, order picking centres... and everything else that the sector dares to imagine and that we will need to satisfy the hybrid breed of customer that is now here to stay.

Laureano Turienzo Esteban

Chairman of the Spanish Retail Association.

Linkedin Top Voices Retail Spain.

Retail Professor ESIC Business & Marketing School.

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