Press Release Monday, March 14, 2016

Reinventing the Last Mile

  • 40% of non-food sales in Britain will be made online by 2025, according to research by OC&C Strategy Consultants;
  • However, the increasing costs associated with the last mile are expected to decrease retailers’ margins by a further 1.5%, with multichannel retailers hit the hardest
  • With 60% of abandoned baskets online due to delivery-related issues, British retailers need to take urgent action to address uncertainty around their customer promise


By 2025, the UK’s home delivery and click-and-collect market is set to double, as 40% of all non-food sales will be made online – according to new research unveiled today by OC&C Strategy Consultants, which will be presented in full at Retail Week Live on 16th March.

The findings suggest that, unless retailers tackle the economics of the ‘last mile’ head on, this seismic shift in how consumers physically get their hands on their purchases could decrease retailers’ margins by as much as 1.5%.

Over the past decade, online purchases excluding food fulfilled through delivery and click-and-collect have doubled in value – and they are predicted to double yet again over the next 10 years. With the size of the retail market expected to increase by a modest 2.2%, from £189bn in 2015 to £230bn in 2025, the increase in delivery and click-and-collect will come primarily at the expense of in-store sales:

  • In 2005, only 9% of retail sales (£15bn) were fulfilled through home delivery and less than 1% by click-and-collect. The remaining 91% (£152bn) of sales were made in store.
  • Last year, 19% (£35.9bn) of sales were made through delivery, 3% (£5.6bn) were made though click-and-collect, and 78% (£147.4bn) in store.
  • By 2025, home delivery is expected to be responsible for 30% (£69bn) of sales and click-and-collect for 10% (£23bn), whilst in-store purchases will decline to 60% (£138bn).


In addition, the last mile has gotten considerably faster. Between 2013 and 2015, the proportion of shoppers opting for next-day delivery grew by 50%. However, over the same time period, the proportion of those willing to wait 3-5 days for their parcel to arrive dropped by 10%.

Anita Balchandani, Partner and Head of Retail at OC&C Strategy Consultants, said:
“When six in ten shoppers abandoning baskets online are doing so because of issues relating to the last mile, it’s clear that investing only in the front end of e-commerce is no longer sufficient. The last mile is fast becoming the ultimate battleground for retailers as shoppers demand more convenience. Being able to offer predictable delivery slots, free next-day delivery and an accessibly priced same-day service is becoming the norm. The challenge retailers face is how to meet these changing expectations while making the economics work for their business.”

The research reveals that these shifts in how consumers shop for and receive their purchases will continue to put increased pressure on retailers’ margins. For example, when it comes to variable costs to fulfil, click-and-collect costs retailers four times more than in-store purchases. Similarly, home delivery of small or large parcels can be anywhere between 5 and 23 times more expensive respectively than in-store purchases for retailers. Yet customers’ propensity to match these costs is not aligned. For instance, in order for same-day delivery to become mainstream, the research revealed that the maximum shoppers are willing to pay for it is £4 or less.

As a result of the changing retail environment, average operating profit margins for the UK’s top-10 multichannel retailers have more than halved since 2011, from 6% in 2011 to 2.5% in 2015. To add to the profit pressures being faced by multichannel retailers, the shift in the last mile landscape could adversely impact retailers’ margins by an additional 1.5%.

Anita Balchandani continued: “Retailers need to tackle the last mile head on while making the economics stack up. Firstly, retailers should start to rethink activities like warehousing, picking & packing and delivery in order to make them more cost effective. The latter, for instance, accounts for as much as 60% of last mile spend. There are a number of ways retailers can do this – for example, shipping from stores which are closer to customers’ home, improving the drop density of each driver in particular areas, or using more flexible labour models.

“Secondly, retailers should start considering mutually beneficial partnerships that will help them fulfil the last mile, and do it in a way that is faster and less capital intensive. Here, the UK can take inspiration from retailers around the world. In the US, for example, Uniqlo partnered with 7-Eleven to offer click-and-collect from their stores. This meant customers could collect their purchases around the clock, while giving 7-Eleven access to more customers. Alibaba’s partnership with Suning in China has meant that Alibaba is now able to deliver to all districts, which it previously wasn’t able to do.

“And finally, our research shows that it is possible for retailers to fight back with stores too. Consumers suggested they could be persuaded away from buying online if items they wanted were available locally, if they could check stock was available online in advance, and if items were easy to find.

“Multichannel retailers need to urgently review their last mile strategy, as online pure-plays continue to develop innovative solutions to lock-in consumers for the long term. For example, the research has revealed that over one in three households have subscribed to Amazon Prime because it offers free next day delivery. Eight in ten subscribers say they purchase more frequently from Amazon as a result, and almost the same proportion spend more overall with the brand since signing up. Ultimately, the level of convenience in accessing products is going to be one of the key drivers for success over the coming decade”

– ENDS –
Anita Balchandani presented the findings of Reinventing the Last Mile research at Retail Week Live Wednesday 16 March, 2016.

Reinventing The Last Mile is available on request, for a copy contact Jake Martin


  • OC&C’s study included 20 retailers with publicly reported revenues of over £500m;
  • These were split by online pureplays and multi-channel retailers to assess profit margins;
  • OC&C also completed an online survey of over 1000 retailers facilitated by Fly research.
  • Combining these resources, OC&C built a market model and forecast using customer KPCs.

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