How sustainable is online retail?

How sustainable is online retail?

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By James Watson – 18 July 2019

Is online retailing sustainable? I don’t mean just in a business sense, but also with regard to the environmental impact it has.

Online retailing isn’t going away; it’s what the consumer wants. However, the concept is still a relatively recent phenomenon and it is perhaps more interesting to consider where it is going, rather than where we are now.

In a recent Property Week article, Andy Gulliford made a valid point. Omni-channel retailing means there is little separation between physical and online retailing. However, there is an important distinction to be made that is at the root of the issue.

Many of the largest ‘pure-play’ online retailers pay very little tax in the UK because of their overseas ownership. This gives them a substantial advantage over omni-channel, UK-domiciled rivals. This is an inequitable situation that is likely to be addressed by the much-heralded online sales tax.

In the meantime, people are waking up to the fact that in terms of environmental impact there is no such thing as ‘free delivery’. There are now 60% more vans on UK roads than a decade ago and this has primarily been caused by online delivery fulfilment. This is having a negative impact on our town centres and our suburbs. Air pollution, as well as wear and tear to roads, must be paid for.

The introduction of ultra-low-emission zones in UK cities to combat this will bring a raft of charges to logistics providers. In our latest Midsummer Retail Report 2019, we predict the introduction of a new suburban congestion charge as local authorities get tired of picking up the tab for the environmental impact of others.

So the bad news for both pure-play and omni-channel retailers is that having expected delivery costs to decrease over time through greater efficiency and logistics competition, these new factors will actually drive up the cost of online fulfilment.

The better news for the logistics sector is that the volume of online retailing will probably continue to increase in line with the projected increase in general consumer spending – expected to rise from the current level of approximately £330bn to £500bn by 2026.

However, there will be a change in how online retailers get products to shoppers and how product returns are made. Increasingly, many online retailers will encourage – or compel – us to pick up goods from centralised urban locations and will not deliver them to our homes. The return process will be the same. You only have to look at what businesses like ASOS, Zalando and Next are doing for evidence of this.

This will have implications for the configuration of the logistics sector, as will the next business rates revaluation, where the system will catch up with the major increases we have seen in logistics rents and values, and slap on the same kind of burden that retail had to face in 2017.

As such, we expect there to be more synergy between physical shopping environments and the logistics process than there is at present. They will become more integrated and interdependent. It’s worth noting that 90% of all online orders at the ‘big four’ grocers are now fulfilled in store.

Seeing online and physical retailing as deadly rivals is anachronistic and dangerous to the profitability of both.