The eCommerce market continues to grow, both in the UK and worldwide. With annual growth projections of 15% year on year, it seems there is no limit to the growth potential of the UK eCommerce sector specifically. Or is there?
IMRG predict 13% year on year growth in UK Delivery volumes, with May 2015 showing an 11% growth on the same time in 2014. But as parcel volumes increase, so too does the storage requirement in eCommerce fulfilment warehouses across the UK.
A recent whitepaper compiled by a think tank involving Colliers International, Total Logistics, UMC Architects and KAM Project Consultants identifies a shortage of ‘big sheds’ (warehouses over 100,000 sq/ft) across the UK. With no big sheds openly available in regions such as the South West, Golden Triangle, Wales, and the North East, and less than two months worth of availability across the rest of the UK, including London and the West Midlands.
Is the solution to build more warehouses?
Not exactly. The think tank highlights the fact that it takes 18 months to 3 years to specify and build a 100,000 sq/ft warehouse. So any brands or retailers considering doing this should be aware of reaching capacity so soon into their lease or ownership. For example an eCommerce business with 15% YoY growth can expect to see their storage requirements increase by 30%-40% by the time they actually move into the new warehouse, let alone the growth required for years 5-10.
Build more warehouses, but build them with flexibility in mind
The solution for property developers, specifiers, and retailers seems to be simple. Build warehouses with flexibility in mind. In practice, this means building sheds in the best location to allow for expansion, allowing for load capacity to support future mezzanine floors to maximise space, and allowing height for any such development, providing flexibility for docks and access doors, and considering sprinklers and safety equipment in the initial build.
There is an alternative
The think tank points to the costly implications for building or leasing large scale warehouses over a long period of time, with capacity issues at the heart of any costs. Allowing for too much growth means operating a warehouse inefficiently and is a drain on overheads. Reaching capacity too soon naturally reduces future growth potential, but also leads to other large scale costs. Those costs include expansion and development of the warehouse space, which is typically a large scale capital expenditure. The other option is to lease or acquire an additional space, but this adds ongoing costs into the mix, increasing the overheads by splitting stock and therefore increasing delivery costs.
Remove the risk
Outsourcing the warehousing and fulfilment aspect of an eCommerce operation removes the risk associated with large scale capital expenditure and warehouse expansion. The risk, and the costs of expansion therefore fall to the outsourcer. Third Party providers such as Spark Response typically offer variable cost models, which eliminate the fixed costs associated with warehouse operations, offering instead a cost model based on activity, which provides a much more flexible method of managing volumes across the long term. That flexibility also helps to cover for peak seasons in eCommerce fulfilment, such as Christmas, Black Friday, and seasonal dates.