GUEST COMMENT On the shelf: Not just products, retailers are now selling logistics services

The rapid growth in online shopping forced retailers to rethink their last-mile process. The traditional mode of supply chain operation collapsed in the face of rising shipment volumes leaving retailers with rising costs and frustrated customers, writes Danny Hudson, UK and Europe director of FarEye.

When customers started trickling away and profits dipped, retailers began embracing new processes to improve their last-mile operations. In the U.S., several retailers tied up with delivery companies, leveraging the power of the gig economy to make faster deliveries. Staples and Best Buy joined forces with Instacart. Raley’s recently announced a partnership with delivery platform DoorDash for making on-demand deliveries.

The retail industry is also seeing an interesting trend with many retailers choosing to bring delivery capabilities in-house. Target acquired grocery delivery firm Shipt for nearly $550 million to speed up deliveries. Costco bought Innovel, a last-mile logistics company for a whopping $1 billion in cash to strengthen the delivery of big and bulky items like appliances, furniture, televisions, and fitness equipment.

While the Target and Costco acquisitions happened some time ago, recently fashion retailer American Eagle Outfitters bought third-party logistics company Quiet Logistics last year in a move to bolster its in-house logistics capacity. Gap Inc., the multi-brand retailer, claims an order accuracy rate of 99.8% and 99% on time/ready to ship with its newly opened automated fulfilment centre in Texas, able to handle nearly 1 million units per day.

Walmart recently announced its purchase of Delivery Drivers Inc. (DDI), a gig-labour management company, that helps the retailer fulfil its deliveries as well as for GoLocal, its white-label delivery service. Kroger, another big name in the retailing world, partners with Ocado, a grocery technology company to build artificial intelligence-based customer fulfilment centres that facilitate fast shipping.

In the UK, retailers have taken a cue from their counterparts across the Atlantic. While retailers are tying up with third-party delivery companies, they are actively bolstering their own logistics processes to make their last-amile operations more efficient and customer-centric.

Sainsbury, UK’s second-largest supermarket chain is joining forces with Körber, a warehouse management technology provider to optimise its logistics and fulfilment centres. Dassault Systèmes, a French software company will help Asda, enhance its in-house transport capabilities to improve efficiency and sustainability and strengthen its ability to offer “high quality and convenient” services to more than 18 million customers per week.

Tesco, the biggest name in the UK retailing industry, has five urban fulfilment centres in the country. Multinational retailer, Marks & Spencer, acquired logistics services provider Gist for £145 million in cash to modernise its supply chain network.

The shift towards boosting in-house logistics capabilities gives retailers more visibility and control over their last-mile operations. More visibility has a domino effect – positively impacting delivery efficiency and enhancing the consumer experience. But the benefits of an in-house logistics system are much more.

In the U.S., retailers have now started offering fulfilment services to brands that want to provide swift deliveries but lack the necessary logistics muscle to do so.

Walmart’s last mile delivery business, GoLocal, supports delivery for local merchants and has already made 1 million deliveries so far. The white-label service enables brands to manage scheduled and unscheduled deliveries and provide same-day and next-day deliveries to their customers.

Gap Inc.’s GPS platform services offer a range of utilities that include returns management, post-purchase experience, and even short-term storage. American Eagle Outfitters’ Quiet Platforms provides fulfilment, logistics, and transportation services to other brands.

Thus, the investments made in bolstering logistics competence are not just helping these retailers make faster deliveries, enhance consumer experience and gain a competitive advantage over their competitors, they are also creating a source of revenue for the retailers.

Every retailer must reinvent itself and become a logistics company. Brands across the UK need to adopt modern technologies like artificial intelligence, machine learning, and the internet of things to set up in-house delivery operations rather than depending on third-party carriers for deliveries.

While several brands in the UK have already embraced this new model of sculpting their delivery arms, more retailers need to come forward and adopt this growing model to survive in this world of volatile global supply chains and demanding customer expectations.

Danny Hudson, UK and Europe director of FarEye