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Wrestling the gorilla at The Delivery Conference

19 February 2018

This Omni-channel Report will show the massive challenge Amazon is posing to the rest of the eCommerce market and much of the traditional retail world, and will ask what strategies retailers can take and what solutions they can deploy to make their logistics more effective to take on this challenge.

Mid-market eCommerce retailers and brands must differentiate in order to survive against the considerable might of Amazon, Alibaba and eBay. This was the urgent message from Patrick Wall, founder and director of MetaPack, in his keynote speech at The Delivery Conference in London. Wall said the three main marketplaces were predicted to dominate up to 40% of the eCommerce market by 2020.

“The only way retailers and brands can avoid the dangerous middle ground in the eCommerce sector is to drive a distinct proposition,” he said. “This can be based on cost, or differentiation based on specialisation, range authority, brand loyalty, design or experience.” Amazon is the gorilla in the room and while talking a lot about technology, it is actually gaining advantage through scale, being able to distribute stock closer to conurbations, seeking to make immediate delivery a structural advantage through scale.

The golden thread in this is collaboration, says Wall, ‘we need to match the scale of the huge global players, with open networks, consolidated delivery, many more pick up and drop off points open to all carriers and delivery partners’. He proposes more retailers opening up stores to other retailers, with an understanding they have to serve consumer needs, and mindful of the larger picture of competition.

Sir Ian Cheshire, chairman of Debenhams, agreed: “Amazon looms extremely large in our market by thinking differently and driving change. They are a player with a commitment to innovation which is quite extraordinary, and as retailers we have to add value and work out where to focus, where to invest and where to be flexible.

“We [retailers] used to pay huge money to landlords, now we pay it to Google. I see no particular reason to suggest online retail – at 24% of sales online for non-food – has peaked yet. All growth in retail is online, all food growth is down to inflation and there is no growth elsewhere.”

Cheshire said Amazon will make the model based purely on distributing other people’s products obsolete. Retailers need to add value and delivery and logistics are areas they can do this. In the last peak, Amazon didn’t gain share in fashion retail, whereas Primark and ASOS did.

Delivery options played a key part in their service. Cheshire added: “Investment is also a challenge. Amazon re-invests cash in innovation and growth. It is spending 6%, while most retailers spend 1-2%. This mind-boggling scale of investment has led to a boom in the logistics property market at the same time most retailers are trying to get out of property.”

Cheshire pointed to start-ups such as Stitch Fix, an online personal stylist / fashion retailer offering to create your wardrobe for you. “It combines bloggers and stylists and machine learning, with a human set of insights, amplified by AI. It also offers free returns, has a big market capitalisation and low revenues at present. “It is just getting going, and may ultimately not be a big player; but these emerging models are important because they force retailers to think about their offering.”

While Patrick Wall outlined that retailers must think hard about how to differentiate themselves against Amazon and the other giant online marketplaces, he urged a pragmatic approach to technology.

“There is a balance between core versus innovation. Yes drones and autonomous vehicles are interesting, but it is our view that over next three years, we won’t see these effect more than 5-10% of market. Being too early can be problematic, perhaps it is better to be a fast follower than an early adopter?” Dr Ludwig Hausmann, partner at McKinsey &Co took a sceptical view of delivery technology start-ups.

“We see start-ups promising instant delivery, but we don’t see it as a sustainable business model. We see new delivery starts-ups as one trick ponies, they are costly, without having the benefits of scale. “So far we’ve only seen it work in a single category – prepared hot meals – because it has a very high gross margin. It makes much less sense on low margins businesses like grocery.”

Hausmann also pointed to the high attrition rate of crowdsourced couriers at these start-ups, which he said was up to 50% per month, increasing recruitment costs. He does not predict a big change on delivery technology over the short term, but said that autonomous vehicles with parcel lockers on-board could be an more efficient and widespread technology from 2030.

Brexit update

A key part of The Delivery Conference was a Brexit Round Table, which sought to debate some of the potential issues that could effect retail logistics in the admittedly foggy post-Brexit ground.

Accenture Strategy MD Harry Morrison said: “All bets are still on the table, we could have a soft Brexit, it could be hard, the talks could collapse. Yet, most clients are opting to plan for the most challenging scenario, i.e. a hard Brexit.

“Multinational clients are thinking hard about where to put distribution centres. It is a difficult question anyway involving complex trade-offs, and Brexit is nudging those calculations, and layering on a bit of extra cost. “At the moment, it’s not about pressing the button, it’s about scenario planning. That could change if we crash out in a year.”

He added that while people often focus on tarrifs, other barriers around standards and regulations, and around the movement of workers, will be important. “It is a big spreadsheet problem. There could be many knock-on impacts on import prices, upstream as well as downstream.”

Morrison urged end users to think of ‘no regrets’ moves and said he thinks increased investment in automation will be a way to mitigate costs in the future. HMRC is already busy with a major upgrade to the IT system used to manage customs declarations. It is expected the capability of the system originally specified may have to be substantially enhanced if the number of customs declarations dramatically increases post-Brexit.

BluJay chief product strategist Doug Surrett said: “Even without Brexit, customs is struggling to keep up. It will be challenging to manage this new platform and Brexit.”

Professor Matthew Goodwin of the University of Kent gave a perspective on the broader politics surrounding Brexit. “Don’t bet on a major change in on public opinion,” he said. “The only regular tracker is still split down the middle and this is with currency volatility we had after the Referendum decision.

“The elephant in the room is if there is a collapse of the Conservative party. The local elections are in Spring, and if they are decimated there will be lots of pressure on May to give something to the eurosceptics.

“All we know is that the outcome will be dependent on political calculations, neither of the main parties is united and nothing will be resolved over the next few months.

“My guess at this point is by the summer we will have a clearer choice between a soft-Brexit Labour, and hard-Brexit Conservatives.”

Intelligent tools

MetaPack has launched Delivery Intelligence to provide in-depth insight and actionable reporting. It has been designed to give retailers a clear picture of delivery and carrier performance in real-time. It is available as a software add-on for existing users of the Delivery Management Platform.

Amongst its features, retailers will be able to: assess lead times with three options: end-to-end delivery from warehouse to recipient; final mile from carrier collection to recipient; fulfilment time from shipment creation to pick up by carrier; calculate the speed of delivery in a particular geography or trade lane, even within cities and key locations; identify the location of a package and where and when parcels have been scanned; profile the count, weight and volume of a package to a specific destination on days, weeks, months and years, against the optimal carrier options; and track scan compliance.

MetaPack has also launched the Carrier Mapping tool. Retailers and brands using MetaPack Delivery Manager will have instant online access to carrier information by origin, destination and type, allowing them to provide customers with increased delivery choice and to overseas growth.

Carrier Mapping brings together a complex web of data on every route and service offered by carriers, and presents the information in four different categories: ‘category leader’, ‘certified carrier services’, ‘platform’ and ‘low or no volume’. This enables eCommerce retailers and brands to make choices, against clear criteria, from thousands of different propositions.