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UK e-fulfilment: Market Insight Report 2015

  • June 2015
  • -
  • Apex Insight
  • -
  • 31 pages

What does the report cover?

This market covers the provision of fulfilment services to internet retailers in the UK. It includes both pure play on-line retailers and traditional store-based retailers which also have an online presence – increasingly this is all major retailers.
It does not include fulfilment of purely digital products such as software, travel tickets or music and video via electronic downloads.
We quantify the market size and historical growth rates, while reviewing key factors behind these figures.

We also carry out an in-depth analysis of the relevant drivers of industry growth – including the macroeconomic environment, e-commerce volumes – for both domestic and international orders – and e-fulfilment price and volume trends. It sets out historical trends and available forecasts.
Our forecast for industry growth is based on this our market model which has been constructed based on our analysis of trends and growth drivers and using assumptions based on market evidence and discussed in the report.

Why is this report interesting?

As internet shopping continues to grow, so the fulfilment of its orders continues to be a growth market – in contrast to the maturity of many areas of the logistics industry.

Key drivers include:
– Ongoing growth in internet penetration and consumer acceptance of, and enthusiasm for, shopping online.
– The increasing internationalisation of internet shopping.
– Innovations on the part of internet retailers, fulfilment providers and their transport partners – including click and collect, SMS notifications and development of chains of parcel shops and secure locker banks.

Who is it useful for?

The report is intended for:
– Operators of e-fulfilment and general logistics businesses
– Retailers who sell via the internet
– Investors in these businesses
– Potential new entrants to the e-fulfilment market
– Market regulators and policymakers
– Banks, analysts, consultants and other parties with interests in the sector.

What are the sources and methodology?

This report is based on
– Publicly available data including company annual reports, websites, press releases and government statistics
– Interviews with senior-level contacts in the market
– In-depth analysis of the macroeconomic environment and relevant market drivers such as trends in retail sales, internet shopping, mail order and price trends.
– Our own experience of carrying out commercial and operational due diligence on behalf of many investors considering backing logistics businesses.

Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.

Summary

Market background

E-fulfilment refers to the logistics processes necessary to support an on-line retailing operation.

The service usually comprises the core elements of warehousing, IT system provision, transport management, and returns logistics. In addition, value added services, such as contact centres, packaging, repairs, assembly & configuration or website development are often provided as part of a solution.

The UK is an advanced market relative to others in Europe with a large proportion of households now regularly shopping online. However, even in the UK, the internet accounts for just 11% of overall retail, indicating the potential for significant further growth.

Market issues and trends

Consumers are increasingly becoming open to buying from overseas websites. Given its lead in internet retail, this is a key benefit for UK sellers and many have already established significant international sales.

Market estimates are that around 22% of UK e-retailer sales in 2014 were to overseas customers. This has increased from from 14% in 2012, and we expect this figure to increase in future.

Delivery services have continued to innovate and improve, offering quicker delivery, more options and streamlined returns. Free delivery and returns reduce the barriers which prevent customers from ordering.

Click and Collect, which now represents over £2bn, has been important. It has been embraced by large retailers who combine physical and online presence as it allows them to use their store networks as a differentiator in online sales.

While outsourcing e-fulfilment is increasingly common for smaller e-retailers and marketplace sellers, some large retailers have started to bring the service back in-house, recognising its strategic importance to their proposition. In doing so, they are following the lead of Amazon, which, having originally outsourced its logistics, has now become a pioneer and innovator in this area.

Market size and growth

We estimate that the number of UK retail transactions requiring fulfilment exceeded half a billion in 2014. This represented a market of over £4bn in value. This includes both warehousing, transport services, which are typically outsourced to parcels carriers or other transport carriers, with the fulfilment provider retaining a margin, and value added services.

The overall level of retail sales and the proportion which is carried out on-line are the main drivers of market growth.

In recent years, international transactions have become more important, encouraged by the reduction in the premiums charged for international vs domestic delivery.

Operator trends

Major logistics groups like DHL, Kuehne + Nagel, CEVA, UPS, Dentressangle and Allport offer e-fulfilment as part of a broader offer, which often includes transport services. Their international operations may be particularly attractive for large e-retailers looking to expand via international sales.

At the smaller end, the market remains fragmented and there are a number of specialists, such as iForce, Clipper, Torque, Amethyst and Spark Response who serve both medium-sized and some large e-retailers.

Outlook

We expect the market to continue to grow in the future at a rate well above that seen in most segments of the logistics market.

This is because the key drivers are positive: economic recovery in the UK is likely to support ongoing retail sales growth; the proportion of retail sales transacted online has scope to rise significantly higher; and international sales made by UK retailers are set to increase further.


Table Of Contents

UK e-fulfilment: Market Insight Report 2015
List of charts and tables 7
e-fulfilment market overview 8
Description
International comparisons
Characteristics of the market
Low entry barriers for serving small customers
Scale necessary to serve large e-retailers
At the low end, margins may be higher but business is less secure and account management requirements may be greater
Desire of start-ups to outsource
Switching barriers
High importance of IT systems
Cost pressures from the consumer down the supply chain
High returns rates
Transport management

Market trends 13
Increasing internationalisation of e-commerce
Trend for baskets to get smaller
Delivery innovations
Click and Collect and multichannel retailing:
Delivery: convergence of B2B and B2C parcels operations
E-fulfilment developed in-house when e-retailers have the capacity

Market size and growth 16
Household Disposable Income and retail sales
Internet sales
Views of other analysts
Transaction volumes
International transactions
Market size and segmentation

Competitive landscape 20
Overview
Major logistics groups
Parcels groups
Fulfilment specialists
Smaller fulfilment specialists
Marketplaces
Amazon
eBay
Post offices developing e-fulfilment services

Forecasts 25
Driver forecasts
Household Disposable Income and retail sales
Mail order transactions
Average shopping basket
International transactions
Market forecast
Risks to the forecast

Appendix: List of abbreviations 30

List of figures (UK e-fulfilment Market Insight Report 2015)

1. Overview of e-fulfilment services
2. Internet shopping penetration for selected EU countries / % of households
3. Internet shopping returns rate by category of item / %
4. Basket values: market average and ASOS / £ per order
5. Household Disposable Income and Retail Sales / % change
6. UK Mail order and internet retail / £bn
7. Number of UK mail order transactions / millions per year
8. UK e-retailers sales, domestic and international transactions (£bn)
9. e-fulfilment market size (£m)
10. 2014 e-fulfilment specialists' revenue (£m)
11. 2014 e-fulfilment specialists' profit margin (%)
12. Household Disposable Income and Retail Sales / % change
13. Number of UK mail order transactions / millions per year
14. Average shopping basket value
15. e-fulfilment market size forecast (£m)
16. UK e-retailers sales forecast, domestic and international transactions (£bn)

Companies mentioned in this report

Allport Cargo Services
Amazon
Arvato
ASOS
CEVA
Clipper
Cloud Fulfilment
Dalepack
Debenhams
Delamode
DHL
eBay
House of Fraser
Iforce
Ingram Micro
John Lewis
Kuehne + Nagel,
La Poste
Liberty
Next
Norbert Dentressangle
Royal Mail
Sainsbury's
Shipwire
Shutl
Spark
Tesco
Torque
Unipart
UPS
Weight Watchers
wnDirect

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