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Dec 29, 2016
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Warehouse space drought could hurt fashion e-tail growth in UK says report

Dec 29, 2016

A lack of warehouses in the UK could crimp online shopping growth there as a huge amount of space is required to process online fashion returns, a new report on the logistics sector says.

Warehouse space is scarce and with a high volume of returns, the e-fashion sector could suffer - Wikimedia

City law firm Addleshaw Goddard said over 18m sq ft of new industrial space is needed every year to satisfy exponential e-commerce growth and demand from parcel delivery firms, but only 3.5m sq ft of warehousing is due to be built over the next 12 months.

The report said this could mean consumers having to pick up the tab for the higher cost of industrial space for retailers and couriers.

The report, called How soon is now?: the future of logistics, said the growing need for online stores and delivery companies to have "last-mile" distribution hubs in expensive urban locations is fuelling a land supply crunch. Housing is prioritised and the lack of space in UK cities is driving land and rental costs higher.

With online sales projected to make up more than 20% of UK retail by the end of the decade, it cited property advisor Savills saying available warehouse space rates nationwide are already very low (below 4%) and aggressive acquisition by firms such as Amazon is cutting into the little remaining supply.

The report said one of the biggest drivers in demand is the amount of goods consumers send back - all of which need to be processed. Returns cost UK retailers an estimated £60bn last year. Ian Worboys, chief executive of logistics park specialist P3, said: "In Britain shoppers generally return about 7% of what they buy from physical stores. When you look at online shopping, returns are far higher - 40% for fashion and 27% overall. As a result, a huge amount of extra space is needed.

“This distribution to residential addresses just didn't exist in any previous cycle. From last mile to delivery from airports to inner-city hubs, we're seeing a whole range of new solutions emerging."

The report suggests that some out-of-town retail parks could be a potential source of land for urban logistics hubs, as they typically have good transport connections and suitable dimensions for warehousing.

Other potential urban logistics solutions include incorporating delivery hubs into mixed-use or multi-storey inner-city developments, something that will become more viable as advances in green transport make delivery vehicles less noisy.

Andrew Xeni, chief executive at Fabacus, a fash-tech start-up, said: "The retail supply chain has changed dramatically. It has become more saturated, margins have been squeezed and everyone's focused on streamlining their business. Location is far more critical than it once was, because of next day delivery and click and collect. This puts huge pressure on retailers and their logistics networks.”

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