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Why space is so important to D2C retailers

By James Kemp, MD of Pentadel

It seems like there’s a gold rush at the moment for warehouse and fulfilment space as online retailers and direct-to-consumer operators wrestle for every last inch of viable commercial space across the UK.

Research by Knight Frank backs this up, with 40 million square foot of new commercial space slated for development this year alone according to the property company – double that of last year.

It doesn’t surprise me.  Over the last year online and direct-to-consumer (D2C) retailing has sky-rocketed in the UK, propelled by the pandemic.   D2C is now the go-to business model for many new dynamic start-ups and disruptors as well as established players looking to diversify in sectors as varied as pet care, pharmaceuticals, floristry and FMCG.  I read recently that online sales have risen by £34 billion year-on-year in the last year and are expected to exceed £150 billion by 2024. 

We design and manage the delivery of modern industrial facilities for clients in the UK and globally and many of them in the D2C and online retail sectors – so we know only too well the challenges they face in finding the right space for their production and fulfilment operations.   Here I share some of my observations and advice for retailers either looking to set up or optimise their fulfilment operations and why space is one of the most important considerations.

Size matters

If you’re starting from scratch without an existing premises, make sure you find the right space for your current and long-term needs.  Don’t sign a lease before you’ve done all the necessary assessments and projections needed to future-proof your production and fulfilment operations. 

This means looking at your operations as a whole across areas such as sales, energy, employees and automation.   You will soon discover that you need a bigger building than you imagined – somewhere you can grow into.   This is especially the case for those who want to automate now or in the future – machines take up way more space than people!  And although space may not seem a priority now, it will become so sooner than you think. 

Prioritising space

We haven’t worked on a single project where the space initially earmarked by a client has been sufficient.  As demand for your products and business grows so too does your need for space to expand your operations.  However, many businesses often balk at signing a bigger lease that gives them more space from the outset.  Having the right size facility will pay dividends in the long-term – and if you do a thorough assessment and build a business case around this, it will help you raise, and spend any investment you need in the most efficient manner.

Expanding and optimising

Never before have we taken on so many site optimisation projects – with warehouses at a premium now, everyone who has an existing facility is looking at ways to expand and use their space more efficiently.  We advise they take a holistic view of their entire process to best assess this.   From what comes in, to how it is processed and packaged, through to storage and distribution output – everything is interrelated.  And if you want to automate now or in the future or introduce new  equipment, you will need the foresight to factor in enough space.  If not, further down the line you’ll either need clever thinking to help you optimise the space you already have or you’ll have to move premises – both costly exercises.

Direct to consumer – to automate or not

The D2C boom has been quite astonishing over the last year, but it was well underway before the pandemic hit – we were working with D2C clients as far back as 2016.   What has changed over the last year is that consumers are now more used to the model particularly through subscription schemes.   With all the benefits of regular home deliveries, it is no surprise that D2C is becoming a more popular and mainstream retail experience.   

While the subscription based D2C model is also a winning ticket for suppliers due to security and predictability – it also brings its own new and unknown challenges in production and fulfilment and yes you guessed it, space! 

People want products with little warning and their orders are usually small, often one unit, so this means that product has to be available immediately and ready to package and ship with no delays.   The D2C world is all about fulfilment and delivery and while you might imagine a D2C facility is full of automation, this is not necessarily the case.  While it is true that the handling and organisation of orders needs to be integrated with customer ordering software, full automation of the process doesn’t have to be a priority from day one. 

We have seen some very successful low tech D2C operators get off the ground only to add automation as volumes increase and they are financially ready.   Depending on the levels of VC and other investment, D2C providers have to cut their cloth accordingly.  And while there may be some challenges integrating new technology into a live environment down the line, the biggest hurdle they’ll have to get over is having enough space to fit it all in! 

So at the end of the day, it all comes back to having the space and flexibility needed to enable product storage ideally up to six weeks of stock to fulfil random one-off orders.   With a nationwide shortage of storage (especially in the refrigerated sector) it pays to always think space first and automation second.

Summary

We are definitely seeing a real lack of available buildings for our D2C clients to develop and fit out for their current and future requirements. With demand so high and rents very likely to increase as a result, we are encouraging clients to start thinking smart about how they squeeze more from the space they already have available in their production and warehouse facilities.  And for those starting out we strongly recommend that they carry out a thorough assessment of their current and long-term needs to help them find the right place and space for future growth before signing on the dotted line.

By James Kemp, MD of Pentadel

James Kemp is founder and managing director at Pentadel Project Management, a company of architects, engineers and project managers.  His team has worked with a number of new D2C businesses and brands over the last year including Bloom & Wild, Echo Pharmacy and Butternut Box helping to design and deliver fulfilment centres to meet the demands and quick turnaround expected by customers.  They also work with start-up and established businesses in the food and drink and FMCG sectors.  www.pentadel.com

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