The online shopping revolution – 20 years of logistics innovation

August 2014 marks the 20th anniversary of the first online purchase – a CD (remember them?) by British artist Sting, bought in the US. Since that time the retail shopping environment has been transformed by the use of the internet not least in the UK which has the highest per capita spend of all countries, spending £91bn online in 2013.

Although the shopping revolution has now well and truly taken root around the world, consumers were initially cool to its adoption. Mistrust caused by problems with deliveries, security issues with the use of credit cards, poor stock availability and cultural inertia, compounded by the bursting of the dotcom bubble at the turn of the century, meant that the industry had to go through several reinventions before the channel became mainstream. In fact, according to a survey by retailer Shop Direct, on average most UK consumers first shopped online just 9 years ago with books being the most popular purchase – a strategy also adopted by Amazon when it entered the market in 1994.

Now in addition to books, clothing & accessories, music & entertainment and electronics top the list of physical purchases made over the internet. In fact more than 25% of furniture and homeware is bought this way and two fifths of electrical devices. In fact, many UK retailers believe that the online element of their sales will likely plateau when they reach 35% to 40% of total sales.

That internet shopping has had such a big impact on the world’s economy and society, is in no small part due to the way in which the logistics and express industry has evolved to facilitate its growth.

Online shoppers require products to be comparatively priced to the high street but delivered to a convenient location quickly and free, a situation that would be untenable if not for the express sector. These companies quickly recognised the potential from this new channel and adapted their networks to accommodate deliveries to ‘leafy’ residential addresses in addition to their traditional industrial estate clientele.

As customers’ expectations continued to grow so too has the sophistication of these express operators, with IT becoming an important differentiator.   For example, customers can now choose specific one hour windows in which their products will be delivered – with continual SMS communication updating them on the precise location of their purchases. The development of convenient ‘alternative’ collection locations has also been driven by the express sector, allowing customers greater flexibility and choice. “The use of these alternative networks is increasing exponentially, with Click and Collect services being the fastest growing segment of the industry in the UK” said Stephen Olugbode, senior analyst at Ti.

IT systems are a fundamental part of the multi-channel mix, with retailers requiring total transparency over stock levels and location. The fulfilment of online sales is very different from store based logistics and adds numerous levels of complexity, with goods usually being picked in a different way, often from different locations. This has led to the emergence of a number of specialist providers who have developed bespoke systems to assist retailers to manage these new channels as effectively and painlessly as possible.

However, many companies are now beginning to question whether continuing to fulfil online sales via today’s model is sustainable going forward. The added complexities, along with increased labour required for the picking and packing of products, results in logistics costs being far higher than in bricks and mortar retailing. This, therefore, represents an opportunity for the traditional logistics providers to develop attractive outsourcing solutions serving this increasingly important sector.

About the Author

Stephen Olugbode joins Ti with diverse and well-rounded customer focused management experience spanning the Retail, Telecommunications and Logistics Express industries where he specialised in identification and implementation of strategic business opportunities. Prior to his appointment at Ti he was employed as Group Research Manager for GeoPost, responsible for the organisation’s strategic market research programmes.