Research - APRIL 19, 2017

Savills: One-day delivery changing the retail market

by Andrea Waitrovich

European consumers are becoming accustomed to one-day delivery. The impact of technology combined with changing consumer habits means that increasing amounts of warehouse space is required across Europe, according to Savills’ Megatrends Logistics report.

By way of context, in 2014 the most common form of employment in 28 U.S. states was driving a truck of some description.

In 2016, almost 6 percent of Amazon’s costs were related to shipping, accounting for $16.2 billion, and whilst figures are unavailable, a large proportion of this cost will be for labor.

Already retailers are tackling this in innovative ways. Amazon Flex, launched in the United Kingdom and the United States, allows anyone to act as an Amazon delivery driver.

Savills Europe predicts this employment market and labor will be eliminated when technology and regulation allow for autonomous vehicles to operate, whether airborne in the form of drones or on land in the form of driverless vehicles and trucks.

Currently, the economics of drone delivery do not stack up when compared to traditional delivery operations. However, the retail world is becoming accustomed to same-day delivery of small items. Amazon stated that 86 percent of its deliveries weigh less than 5 pounds, meaning they could be carried by drone. Analysis from ARK suggests that drone deliveries could be made for $1 and still be profitable.

All of these solutions require authorities to legislate and regulate the market, with research from Morgan Stanley suggesting by 2030 all regulatory and technological hurdles will have been surpassed. However, the possibility exists that concerns about safety, and also protection of existing industries, will override any other perceived benefits.

Key to the evolution of this sector is sophisticated data analysis. “Big data” will allow companies to know more and more about how we live, work, shop, eat and enjoy ourselves. This will in turn lead to the evolution of “anticipatory logistics”, where retailers and manufacturers can predict what we want before we want it and move products closer to the end user in anticipation.

Savills says Europe may be entering an era that sees more barriers to trade in the form of tariffs or border checks. This will not only increase transit times for manufacturing, retail and food supply chains but also add further nodes into those supply chains which will require real estate.

However, according to Ecommerce Europe, just 8 percent of all European retail was conducted online in 2016. This is therefore reassuring, but also presents an area of huge disruption if the proportion of online retail increases to anywhere near the 25 percent of total retail in Europe as forecast by some commentators.

Choice, availability, speed of delivery and the ability to have products delivered to the home, office, click-and-collect point, delivery locker or even the boot of your car, as recently trialed by DHL in Germany, are the new battle grounds for retailers, says Savills.

This in turns creates the need that some form of real estate is required to store and then distribute products.

Countries where e-commerce is set to rise dramatically, combined with an urbanized population, will see the greatest potential for change. However, countries in Eastern Europe such as Poland, Hungary and the Czech Republic, where labor is cheaper and land is in greater supply, could be the net beneficiaries should the supply chain center of gravity shift east, driven in the most part by the increase in autonomous vehicles and truck platooning.

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