ASOS deal symbolises a transformation in the contract logistics sector

Logistics service providers wondering what the future holds for contract logistics should pay close attention to the recent award to Norbert Dentressangle of a contract to run a 1,100 square foot fulfilment centre for the fashion internet retailer ASOS.

The facility itself is not new, having been previously run by Unipart on behalf of ASOS. However, ASOS itself is undergoing explosive growth with sales increasing by 45% over the past 12 months, giving the company revenue of over £500m. Sales from customers outside the UK increased by 48% and now account for 67% of total revenue. Consequently, the facility will need to expand its capacity by 50% in the short-term.

The significance of the deal should not be underestimated, as developments in the British retail logistics sector have major implications for the global e-commerce market. The UK is possibly the most advanced economy for e-commerce. A recent estimate by BCG suggested that the proportion of total retail spend accounted for by ‘online’ retailing would increase from 13.5% in 2010 to 23% in 2016. In contrast, by 2016, Germany’s online retailing will account for 11.7% and in the US it will be 7.1% of total retail sales.

It is also worth noting that although UK retailers such as ASOS may start-out just serving the British market, they rapidly become global in their orientation. The implication of this is that a string of retailers will open operations in Britain which serve global markets.

Of course, the most high-profile company aiming for dominance of internet retailing for consumer durables is Amazon. It has invested vast sums in a logistics infrastructure revolving around very large fulfilment centres. What Amazon is striving to achieve is unique access to the customer characterised by higher service levels and lower service costs.

A company such as ASOS simply cannot match the capital requirement needed to match Amazon. It needs to use an outsourced model – be it dedicated or shared-user. Therefore, this must surely be not so much an opportunity as a transformative moment for the contract logistics sector. The conceivable collapse in throughput for conventional retailing will be replaced by rapid growth in demand for logistics systems optimised for internet retailing with the ability to achieve the price/service levels seen in Amazon’s networks.

Retail drove the emergence of the contract logistics sector in the in the 1980s. It may be driving a similar transformation today.

Ti’s Global e-commerce Logistics series provides detailed analysis of opportunities within the e-commerce logistics sector. Click here for more information.