Before the COVID-19 pandemic swept the world, consumers had already driven significant growth in e-commerce, with demand for convenient online shopping and expectations of quick delivery.
E-commerce has only continued to generate massive profits at breakneck speed, propelling the crucial role of warehouses and distribution centers. These critical supply chain pieces will continue to increase in importance even as they work to improve processes and reduce operating costs without sacrificing customer service.
E-commerce by the Numbers
From e-commerce’s humble beginnings that predate even the internet, global ecommerce reached $150 billion in 1999. By 2019, retail ecommerce sales hit USD 3.53 trillion, and experts expect its revenues to grow to USD 6.54 trillion by 2022.
E-commerce accounted for 14.3% of all retail sales in 2018, up 15% YOY. Prior to the COVID-19 pandemic, experts estimated that ecommerce sales would hit 17.5% of global retail sales by 2021.
According to the U.S. Census Bureau’s Q2 2020 report, U.S. retail ecommerce hit $211.5 billion — up 31.8% from Q1 and 44.5% YOY. It also accounted for 16.1% of Q2’s total retail sales, up from 11.8% in Q1 2020. Purchase volume grew 35% in June 2020 when compared to sales a year ago.
Clearly e-commerce’s growth has significantly impacted to the commercial warehouse industry. And as that exponential growth continues, the warehouse industry — and companies that depend on warehouses — will need to keep embracing change and innovation to keep pace.
Increased Proximity to Consumers
Speedy delivery requires a closer proximity to customers. Warehouses continue to spring up in urban areas and just outside residential communities. These urban warehouses offer an efficient “last mile” delivery processes and more easily support one feature that makes e-commerce so attractive to consumers: free shipping, or significantly lower shipping fees.
Retailers and developers have also begun to convert underperforming stores into last-mile distribution centers to support e-commerce sales. Those sites — often located within urban areas — have become ideal locations for last-mile warehouse developers.
A Shift from Bulk to Individual Orders
Originally, warehouses and distribution centers focused on processing primarily bulk orders. But the convenience of online shopping means significant growth in the number of smaller — even individual item — orders.
To maximize their abilities to pick, pack, and ship single items or small volume orders, warehouse managers should invest in solutions that may include slotting optimization, inventory management, and mobility systems.
Unpredictable Buying Patterns
No longer can warehouses accurately predict consumer buying patterns because consumers can order and have items shipped directly to their homes. The effect of e-commerce on the retail industry includes influencing what people buy — and when. An inability to accurately predict seasonal demands may lead to under- and overstocking. Various technology, like predictive analytics, may help with warehouse management.
An Increase in Returns
The e-commerce market relies on warehouses to efficiently manage returns. Not only do customers expect a seamless buying experience and quick delivery, they also expect a hassle-free return process. Consumers who shop online return an average of 22% of their purchases as opposed to only 10% of store-bought items.
But the process — known as reverse logistics — creates an additional challenge for warehouses. Returned goods require additional personnel to manage, and they can take up valuable real estate, too.
Not all distribution centers or warehouses have good reverse logistics processes in place, but e-commerce’s rapid growth indicates that managers should prioritize how to manage this important aspect.
Zero Down Time with 24/7/365 Operations
Online shopping never closes. This shift toward 24/7 shopping has propelled warehouses to also operate around-the-clock, as has the guarantee by many retailers of next day delivery. Now warehouses and distribution centers process orders overnight. But while it’s not an issue in industrial areas, warehouses located on neighborhood fringes can risk the ire of local residents disturbed by constant truck traffic and commotion.
Warehouses Will Continue to Adopt Emerging Technology
E-commerce and consumer demands will keep growing. That growth will drive the need for more improved warehouse processes. Companies recognize the role technology plays to help warehouses work smarter, faster, and more efficiently.
A 2019 MHI Annual Industry Report concluded that both large and small companies have adopted a diverse range of warehouse technologies. Cloud-based warehouse management systems (WMS) held first place, with a 56% adoption rate. Other trends include handheld devices like barcode scanners, IoT-enabled warehouses, predictive analytics, sensors, robotics/ AI, and big data.
The ongoing pandemic has most likely accelerated the shift toward e-commerce online shopping. As consumer expectations evolve, warehouses and retailers have continued to update equipment and technology. Companies are moving to utilize real estate closer to their customers, which decreases costs and facilitates faster delivery.
E-Commerce: A Driving Force for Future Warehouse Innovations
Future growth of e-commerce and evolving consumer expectations will continue to drive change and innovation in commercial warehouses and distribution centers. Experts recommend that warehouse managers remain flexible, preparing to adapt to changing shopping patterns and new expectations that result from e-commerce growth. The members of CREA United’s Industrial group offer a wealth of experience and recommendations for clients with warehousing needs — whether it’s management systems, end-to-end warehouse infrastructure, the buildings or space itself, or anything to do with supply chain management.