We are firmly in the heart of retailers’ ‘golden quarter’, the period of October to December where consumers increase their shopping during Black Friday and the lead up to the festive period. It’s a crucial time in the retail calendar and is a particularly strong period for e-commerce; in 2023, online orders grew by around 30% in the UK compared to the rest of the year and were up 25% in Europe. Consequently, companies fill around 43% more deliveries than the rest of the year, so efficient, cost-effective services are critical in maximising results from the quarter.
Many retailers’ business models include outsourcing their delivery services to third-party providers which specialise in transporting goods from sellers to buyers and these are a crucial part of the e-commerce ecosystem. Well-known examples include DHL, UPS, FedEx and Evri (previously Hermes) which are used by retailers like IKEA, Next and John Lewis. However, by outsourcing, these companies are doing more than just handing over the delivery process, they are also putting their reputation in the hands of these providers, as their performance is a direct reflection of the brand to consumers. Simon Barker, former Supply Chain Director at Selfridges and, previously, Logistics Director at Urban Outfitters and VP, Logistics at TJX Europe, explains, “Reliability is key. Of course, delivery speed remains important, but it is also important to deliver what you promise – if you say you’re going to deliver a parcel on Monday, then deliver it on Monday, if you say Tuesday, then make sure it’s Tuesday. Customers expect consistency and reliability.”
Marks & Spencer is an example of when partnering with third party providers really works. Of those that outsource, it was voted the best retailer across logistics and store-based or online shopping experience in a survey published in ‘How They’ll Spend It 2024’ earlier this year, and its delivery service was key to this result as app users increased to 4.9 million from January to September 2023. The company uses a combination of couriers – Ocado for its grocery deliveries and Evri, DHL, DPD, Parcelforce, Royal Mail and Yodel for everything else – to fulfil its orders which has been a success in providing flexible and reliable deliveries. Joost Bous, Chief Operating Officer at zooplus, explains why it makes sense to outsource transport, fulfilment and last mile distribution. He says, “For most companies, insourcing, especially of transportation and last mile distribution isn’t feasible because they don’t have the scale to make that a cost-conscious choice.” From a practical perspective, insourcing those aspects would lead to owning and operating vans, trucks or even ships. Joost says: “I don’t want to own all kinds of assets that are a commodity on the market anyway. Same for shipping. It doesn’t make sense until you are the size of Walmart or Lidl (and even then, it’s questionable if it would make sense) because you don’t want to be focusing on something like buying and operating all these assets.”
“Returns is still pretty underdeveloped and it’s definitely still an area of the market that’s up for grabs.”
Due to the rationale above, most companies will look to outsource delivery services and distribution and fulfilment centres, but this is not the right route for everyone. For those that reach a certain scale, insourcing and fulfilment can make sense provided the business can support the capital expenditures that come with doing so, because of the process oversight from start to finish. Examples of retailers who do this include e-commerce giant Amazon and supermarkets like Tesco and Sainsbury’s.
Zooming in on the last mile element of distribution, the interest in third-party delivery companies has been strong over the last year, with ownership changes and significant movement in the space. In July 2024, Apollo Global Management acquired Evri from Advent in a £2.7bn deal, ahead of JD.com and DHL who were also interested in purchasing the company, while in May, Czech billionaire, Daniel Kretinsky took over IDS (which owns Royal Mail) for £3.75bn.
Simon thinks there is every chance that the activity around smaller third-party delivery businesses will continue, and Joost agrees, although he notes that consolidation is the key to building value. He tells me: “It doesn’t make sense to buy one delivery provider in the UK, then one in Belgium, then one in the Netherlands, because the real value-add is buying multiple businesses and putting the networks on top of each other to further increase density of deliveries in the same geographical area.” However, Joost notes that it may be harder for European-based businesses to go down this path because of regulatory challenges. He adds: “Our rule book is preventing consolidation, and this is why I, personally, would not invest.”
Looking towards the future, third-party services should be targeting value-add in order to get ahead of the curve. Due to the rise of e-commerce, outsourced businesses that would have had exclusive and specialist knowledge of distribution and fulfilment ten years ago no longer have that edge, as more companies can turn in-house for the same insight. So, it seems there now needs to be a progression in the services provided by third-party companies if they are to continue to feel like a value-add moving forward. Delivery also needs to think about other ways it can evolve. Simon tells me: “A key opportunity for retailers, particularly high-end retailers, is to make the final mile experience more experiential rather than transactional. How do you create a point of difference? Returns is still pretty underdeveloped and it’s definitely still an area of the market that’s up for grabs.”
The position of third-party logistics services is clearly crucial in the retail landscape, especially at particularly busy times of year, but it will be interesting to see how the relationship between retailers and these services continues to grow and evolve going forward. The space feels like it’s moving with acquisitions and opportunities for consolidation, but the need for genuine value is one that these providers may need to focus on when looking to the future. Will e-commerce continue to fuel growth? And who will be the last third-party providers standing? I’d love to hear your thoughts.
