Report: Fulfillment Costs Could Take Bite out of U.K. E-Commerce Profits

March 24, 2016

Report: Fulfillment Costs Could Take Bite out of U.K. E-Commerce Profits More and more, consumers are demanding merchants meet them on their terms and, in the case of e-commerce, it could be taking a bite out of the profitability of U.K. companies, according to a recent report. The increasing costs associated with the delivery of online orders could shave already thin margins by 1.5 percent, according to global consultancy OC&C Strategy Consultants. The report noted that while overall retail grows slowly in the U.K. over the next decade, home delivery and “click-and-collect” will explode.

In 2015, 19 percent of overall retail sales were made through delivery, 3 percent were made through click-and-collect and 78 percent were fulfilled in store, OC&C said. By 2025, the research firm expects home delivery to account for 30 percent of all orders and click-and-collect to account for 10 percent. Only 60 percent of overall sales will be fulfilled in stores.

“Retailers need to tackle the last mile head on while making the economics stack up,” said Anita Balchandani, partner and head of retail at OC&C Strategy Consultants. “Firstly, retailers should start to rethink activities like warehousing, picking and packing and delivery in order to make them more cost effective. The latter, for instance, accounts for as much as 60 percent of last mile spend. There are a number of ways retailers can do this—for example, shipping from stores which are closer to customers’ home, improving the drop density of each driver in particular areas, or using more flexible labor models.”

Balchandani also noted retailers should consider partnerships that will help them fulfill the last mile. She used Uniqlo and 7-Eleven as an example. The clothing Website enables consumers to pick up purchases at 7-Eleven locations around the clock, while giving 7-Eleven access to more customers.