US retailers plan major investment into distribution networks to handle e-commerce boom
Percentage of retailers expecting to have a fully automated distribution centre within the next 12 months increases by half and the percentage of networks with micro-fulfilment centres expected to more than double over the next three years
The pandemic has pushed retail executives to turn to automation to enhance their supply chains and control their e-commerce shopping experience. This has resulted in retail executives to recognise that pop-up DCs, micro-fulfilment centres and dark stores can help with keep online inventory close to consumers.
Within the next 12 months 50% of retailers plan to fully automate their fulfilment locations to be best positioned to address consumer needs. Use of pop-up distribution centres, dark stores and micro-fulfilment centres will double as retailers pivot to customer-driven commerce. Fourteen percent of retailers currently have automation across their fulfilment locations today, and 21% are expecting full automation in the next 12 months according to the Fulfilment Research Report from Blue Yonder and Researchscape International.
Almost a quarter (23%) of retail executives expect to have most of their fulfilment locations automated in the same timeframe. Drug store and health and beauty retailers are currently leading here, with 17% having all their fulfilment locations automated, which is more than any other vertical.
The report showed that over the next two-to-three years, retailers’ usage of pop-up DCs will double, rising from 12% of networks today to an expected 26%. It also showcased that dark stores will double from a small base, growing from 6% of networks today to 12%; and micro-fulfilment centres will nearly double, rising from 15% of networks today to 27%.
Retailers are also repositioning fulfilment assets and labour to align with their customer expectations. To do this, they will need to work on their picking processes and warehouse costs, which aligns with plans to invest in local fulfilment hubs. Over the next 12 months 43% of retail executives want to prioritise increasing capacity, and 42% increasing labour productivity.
Increasing capacity was particularly prominent for grocery and pet care retailers with 49% of each sector citing this as a major issue. Pet care retailers also looked to increase labour productivity (52%) more than any other vertical aside from drug store/health retailers, also 52%. Warehousing costs and picking processes were the other priorities, at 38% and 39% respectively.
Customer experience was also at the forefront of retailer’s supply chain initiatives, and inventory accuracy and real-time visibility are top priorities to ensure the retailers are meeting consumer demands. In the next year almost half want to improve pricing and promotion to ensure profitability (48%), 38% want to improve workforce management, and 36% wanted to improve real-time inventory visibility and orchestration to drive higher sales and margins across channels with localised customer insights.
Sixty-four percent of retailers currently provide buy online, pick up in store (BOPIS) services and contactless shopping experience, but usage of this looks to decrease by roughly 8% over the next two-to-three years, likely due to the vaccination programme and reopening of stores in the future.
“Retailers are expanding their fulfilment network and footprints in part to address last-mile delivery while meeting the surge in e-commerce orders in the short-term,” said Ed Wong, senior vice president, Global Retail Sector, Blue Yonder. “Equally important, they understand that accurately predicting demand is critical for sustaining revenue growth and advanced, omni-fulfilment capabilities and locations embedded with automation are the key to quick and efficient fulfilment. Having the right supply chain solution to gain that end-to-end visibility will be a key to retailers’ success.”
The report was conducted in October 2020 and analysed responses from 300 senior executives across retail and e-commerce responsible for logistics and fulfilment operations in the US.