A recent press release from IMRG (the Interactive Media in Retail Group) suggests that £6.4bn was spent on-line in the UK during September 2012 which represents a 16% “year on year” growth and both IMRG and Capgemini are predicting an annual growth estimate of 14% for 2012. More impressively mobile retail showed a 312% “year on year” growth in September.
eCommerce growth in the UK over recent years has been spectacular. This article will explain the structural changes that have been driving this innovation in the UK and how the eCommerce industry in the UK will have to fundamentally adapt and change if it is to meet the challenges and opportunities of the emerging “Omni-Channel” eCommerce market. In the past eCommerce growth has always been measured against “High Street” decline but this is no longer a valid comparison as the “High Street” is morphing to become an essential part of eCommerce infrastructure.
Culturally the changes will be driven by mature eCommerce customers encouraged by the next wave of smart mobile technologies. A distribution market that has historically been defined by B2B, B2C and C2C sub-sectors will be redefined by a very new categorisation – “Smart” and “Dumb” distribution. I don’t mean “Dumb” in a disparaging way because in Pareto terms it will still represent 80% of the market. What will be different though is that “Smart” will probably also mean more efficient and “Cheaper” !
“Smart Distribution” will map very neatly onto the “connected” generation who expect choice and value and who are enabled by the latest smart mobile technologies. They are used to innovation in their technologies and now expect innovation to be built into their services and retail experiences.
Development of the UK eCommerce Market
In the early 1990s there was a very strong Mail Order “Catalogue” shopping culture in the UK driven by companies like Freemans, Gratton’s and Empire stores. This was exclusively B2C and had a strong regional focus. Most of the goods were distributed from large warehouses in Yorkshire, Lancashire and the East Midlands. This early infrastructure provided a sound foundation for the first moves into eCommerce which was really just about replacing a Catalogue and Phone order with an basic web ordering facility.
The attractiveness of the Web experience started to open up other B2C and B2B markets to eCommerce and then companies like eBay provided web infrastructure for C2C business. So today we have a wide range of different markets supported by the UK’s eCommerce infrastructure.
There was a huge effort to reduce costs and drive efficiency within the UK market. One of the most important catalysts were “Multi-Carrier” systems from companies like Metapack. These systems gave consumers considerable choice both in terms of “Speed of Delivery” and the choice of carrier to be used. From the retailers perspective they gained a superb insight into the delivery performance of various carriers and put them in a far better negotiating position – so carrier prices were driven down. Carrier performance has also improved dramatically and is far more consistent. I think it is fair to say that Multi-Carrier systems like Metapack have completely changed the eCommerce ecosystem in the UK.
Extreme rationalisation based on cost reduction and network optimisation has taken place in the carrier industry. Most distribution systems are now extremely lean and are driven from super-hubs based in the Midlands. These super hubs are located adjacent to the UK’s major motorway arteries which now makes “overnight sortation” and “next day delivery” the de facto UK national standard.
What is Omni-Channel eCommerce ?
Original eCommerce involved picking goods in a large centralised warehouse and then delivering the goods to a home address. Excellent economies of scale and not much precision required. For the “connected generation” this traditional model puts huge inconveniences and troublesome processes into the eCommerce model. Having to wait at home (all day) for an important delivery or having to go and collect from the parcel depot after an unsuccessful delivery attempt. These inconveniences are no longer acceptable to the “Smartphone / Social Media” generation and they want choice. They want “choice” and they are not prepared to “wait” !
They want to order “in store” and get their items delivered “at home” or “at work” at a time convenient to them. They want to order “at home” and collect “in store” at the weekend or from a “box system” at the railway station when they arrive in London next morning after their daily commute.
The “need” is obvious and easily articulated but the infrastructure demand is immense and requires a complete re-engineering of old-style eCommerce infrastructure. There are some really interesting challenges. In my opinion the 5 main challenges for the industry are as follows:
1. The Addressing Challenge The new model requires an understanding of “the individual being at an address” but the address could be @home, @work or @station. Both the person being delivered to and the addresses require to be validated. Concepts such as “moving house” or “changing jobs” need to be understood in a dynamic sense.
2. The Parcel Identification Challenge We will need to adopt open identification standards like ISO License Plate for parcel identification – that can be used by the entire ecosystem (including consumers). New Identification Technologies should also be used.
3. The Network Design Challenge There is a need to redesign the Warehousing infrastructure. Already some distribution companies are creating “Dark Warehousing” facilities just outside major business or population centres. Automated box systems will need to become pervasive and be located conveniently. Physical infrastructure must be “open for use” for all players in this new ecosystem.
4. The “High Street” Challenge A number of major High Street retailers have been successfully experimenting with “new concept” stores. “House of Fraser”, “John Lewis” and “Marks and Spencer” have all been running some really interesting trials. Getting good quality advice and guidance from well trained retail staff is the key. Technologies such as Augmented Reality and Contactless Payment will completely change the face of High Street retail.
5. The International Challenge There is a huge demand for Cross Border eCommerce – but the issues and solutions are not yet well understood. eCommerce Warehouses are starting to appear in countries for imported goods so that goods can be brought into the destination country at a wholesale price, “break bulk” warehousing and then “local look and feel” domestic retail ordering and delivery. The trick is to only pay customs duties on the wholesale value of the goods – not the retail value. Canada and Saudi Arabia are good examples of countries were big changes are starting to happen. The Universal Postal Union (UPU) have just launched some significant eCommerce tools that countries can use.
We are at the start of a very exciting phase of eCommerce development. Recent technology advances allow “Smart” eCommerce distribution which is now demanded by a far more discerning “connected generation” They are also demanding cheaper and greener distribution models. It would be really interesting to understand how active “Smartphone” users map onto the growth of eCommerce. I suspect there is a very high correlation.
It is clear that a “laser style” focus on “smart” distribution is needed if we are going to build and exploit the next generation of eCommerce infrastructure. It will no longer be eCommerce vs High Street. It will be eCommerce & The High Street.
Delivery Management Ltd
19th October 2012