John Perry asks: How can UK businesses overcome the warehousing crisis?
Advances in mobile technology and UK consumers’ increasing appetite to shop anywhere, at any time, mean that online shopping continues to grow in popularity in the UK – and shows little sign of slowing. Indeed, recent research from GlobalData suggests that online spend in the UK is set to increase by 29.6 per cent over the next five years.
However, the growth of online shopping, and the subsequent need for retailers to substantially expand their distribution networks, has led to a major spike in demand for warehouse space across the country. The extent of this growth was made clear following a study from property research firm CBRE, which revealed that demand for warehouse space has almost doubled over the past decade.
This online retail boom, along with more recent factors such as UK businesses having stockpiled goods throughout the year in order to safeguard themselves against ongoing Brexit uncertainty – particularly in the retail sector, wherein stockpiling has now reached record levels – means that warehouse space is now at a premium. Just last year, Savills predicted that we would run out of warehouse supply space by 2021; an issue only likely to be exacerbated by the ongoing issues from this year.
Let’s take a closer look at what this warehousing ‘crisis’ might mean for businesses, as well as the areas in which a solution may be found.
What might the warehousing shortage mean for businesses?
In today’s online-dominated retail landscape, a shortage of warehousing space has a direct impact on businesses’ bottom line. Companies that have nowhere to store their goods subsequently are less able to fulfil orders in the timely manner expected by today’s consumers. Indeed, more than a quarter (27 per cent) of consumers now consider premium delivery options, such as next-day delivery, as an important deciding factor when considering which retailer to purchase from.
We must also consider how the lack of warehousing space is driving up the price for the space that is left. This issue was highlighted earlier this year, when representatives from the UK Warehousing Association (UKWA) reported that storage costs had risen by as much as 25 per cent due to increased demand.
This in turn creates a danger that, while major players such as Amazon will be able to continue buying up space without any major adverse impact, smaller suppliers may be unable to afford additional storage space as easily. Should this come to pass, businesses may have to limit the services they offer – such as downsizing product ranges and delaying delivery times – which, in the long run, could exacerbate the damaging monopoly that larger suppliers hold.
Profiling the solutions
When it comes to warehousing space, we’re currently heading in a direction that isn’t sustainable long-term; a fact not lost on forward-thinking brands that are already looking at innovative solutions to the crisis.
For example, more than 36 linear kilometres worth of records for the National Archives are currently stored underground in a Cheshire salt mine, and more recently the prospect of a 175,000 square-metre underground logistics space was explored at Heathrow Airport. What’s more, Amazon – often at the forefront of mainstream delivery innovation – has even filed a patent for ‘underwater warehouses’, which would store watertight packages under resevoirs, rivers and even oceans.
While these solutions are no doubt innovative, they will simply not be feasible for all – particularly smaller companies that cannot afford to spend on expensive, largely-unproven concepts such as underwater storage. Fortunately, there are also several shorter term ways for businesses to make the most of their existing storage space.
Companies should look at the functional layout of their current warehouses to see if there are any immediate opportunities that can be made. For example, when storing goods of varying size and weight, the real utilisation of space needs to be audited and there are frequently opportunities for increasing storage density, reducing aisle widths, varying beam heights, and very often significant opportunities to increase utilisation of the individual storage locations. Solutions can vary from a series of ‘marginal gains’ through to full re-organisation of layouts but all can deliver space gains and capacity increases in existing facilities.
In addition, it’s also important to consider verticality when looking for ways in which to create extra space. While the warehouse may appear to be at capacity, spaces located higher up – such those above dispatch areas, loading docks and picking areas – can all create a additional space if utilised correctly. Indeed, research suggests that – dependent on current rack usage – warehouse space can be increased by as much as 50 per cent by simply moving a few beams and adding decking.
The solution is multi-faceted
While there are a number of ways in which businesses can make the most of the warehouse space they have – which will remain a key solution to the warehousing crisis – we also need to consider longer-term remedies.
To this end, businesses will need to invest in developing additional industrial buildings to store their goods. While this isn’t an immediate solution, given that many larger warehouses can take around three years to build, if something does not change in the near future space is going to run out sooner rather than later.
However, for this to suit the needs for both major corporations and businesses with smaller budgets – after all, SME’s make up over 99 per cent of the economy – government intervention will be needed to make it more viable for these warehouses to be built. This could be through introducing financial incentives for construction firms to build these warehouses, or even through incentivising firms to consider building in less ‘desirable’ areas such as disused brownfield sites.
Between the continued growth of e-commerce, and Brexit uncertainty showing little sign of resolving itself in the near future, warehouse space is only likely to become less prevalent in the coming months. Given this, businesses would be wise to begin proactively exploring the ways in which they can go about mitigating the impact of the ongoing ‘storage shortage’ now.
This preparation will give businesses the best possible chance of not being left wanting or having to limit the services they offer further down the line, in turn preserving company reputation, customer relationships and the businesses’ bottom line.
John Perry is managing director at SCALA, a leading international consultancy based in the UK, which specialises in procurement, supply chain, logistics and customer service, and provides independent and objective expertise. It has gained an excellent reputation working with major clients in the grocery and FMCG sectors to drive supply chain improvements, deliver business benefits and enable business strategies and objectives to be successfully achieved. SCALA manages a number of supply chain best practice forums for leading companies and leaders in benchmarking service and performance.