Capacity crunch: fighting eCommerce growth with alternative fulfillment solutions
The demand on eCommerce; a facet of retail already surging pre-pandemic, soared almost overnight when the pandemic hit. Demand is expected to continue after the lifting of lockdown restrictions (PFS research shows more than three quarters (77%) of consumers expect to continue purchasing online more once the lockdown is lifted), and coupled with the aftermath of Brexit, retailers have been faced with a new challenge: the capacity crunch.
In a bid to keep up with fierce online growth, staggering 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 factors such as the UK’s withdrawal from the EU and the recent peak season added a new level of urgency, and for many, additional warehouse capacity proved make or break during this period.
In the lead up to 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. Meanwhile, the surge in online sales during peak season 2020 was perhaps the biggest test of fulfilment capacity. Our own research found that 53% of retailers said they did not have enough internal resources to make the operational changes for the increase in online transactions. This resulted in over one-in-six (17%) believing they had missed out on critical sales.
Managing supply and demand
With all of this in mind, it is no wonder that over a third (36%) of retailers are planning to increase their investment in fulfilment capabilities in 2021, with a further 52% of retailers planning to outsource large portions of their eCommerce operations. In fact, analysis from Knight Frank has predicted that 92 million sq ft in additional warehouse space will be needed across the UK by 2024.
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. This is where alternative fulfilment methods come in. To be able to keep up, rather than just looking at traditional warehouse facilities, brands should be expanding their fulfilment methods.
Here are just a couple of alternative solutions brands should be considering, to facilitate future growth:
- Pop-up distribution centres: PFS’ research found that, to combat an expected surge in online sales last 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.
- Multi-node fulfilment: On a larger scale, 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. When underpinned by an effective distributed order management system (DOM), these micro-distribution centres 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.
- The dark store/hybrid store model: Last but certainly not least, brands can also look to take influence from models such as the dark store, in which existing store space is used as micro-distribution hubs. 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.
Getting set for growth
A capacity crunch may seem like a daunting prospect, one that can only be tackled by doubling down on more and more square footage. Whilst demand is expected to continue even after the lifting of lockdown restrictions it is certainly the case that warehouse space will urgently need to be expanded to match our digital-first era – brands cannot afford to get tunnel vision.
‘Capacity’ can encompass a whole range of fulfilment models, from the pop-up DC to multi-node, even using existing store space. This means that the next stage of growth for online brands will be hinged not just on sourcing additional capacity as we know it, but on identifying alternative distribution and fulfilment infrastructures, and utilising them to ensure consumer demands can be met effectively.