International ecommerce – do you need a warehouse overseas?
With strong growth in international ecommerce, UK retailers with significant overseas sales frequently consider the option of local warehouses in their operating countries.
This question usually comes in a number of guises:
- I’m shipping to the USA – do I need a warehouse to serve ecommerce customers there?
- My country managers are complaining of slow delivery speed compared to local competitors; will a local warehouse help to provide a better service?
- At what point during my growth is there a good business case for a second warehouse that is outside the UK?
The answer to these questions is usually fairly simple – stay with one warehouse in the UK for as long as possible. But why? Here are the three main reasons.
- Stockholding and rate of sale. For a fashion retailer, who is introducing new collections every few weeks, holding stock in more than one warehouse is likely to result in massive markdowns, unsold stock and huge expense. For example, a fashion retailer with a live SKU count of 30,000 at any one time (which is fairly typical for fashion) and the USA its biggest single overseas market, may have a rate of sale of fewer than one item every three months for the slower selling half of the SKUs. For retailers with a very large SKU count, the impact of unsold stock and markdowns is even larger.
- Shipping speed. The UK has a very high volume of cross-border shipping, which is quick and in some cases faster than local competitors. By using a specialist delivery business, such as wnDirect, two-day delivery to all of the USA, three-day delivery to urban Australia, and next day delivery across most of Europe is possible. For France and Germany, the next two largest European ecommerce markets after the UK, a UK warehouse can offer almost as good a service as a local French or German warehouse for order cut-off times and delivery speed.
- Stock management. Working out correct divisions of stock between multiple locations is very hard to achieve. It involves forecasting sales by market at a high level of SKU accuracy, before shipping from suppliers, which in the fashion world is not possible. So the reality is that stock runs out in one warehouse while stock is held in another warehouse, and either stock is shipped between warehouses, or customer orders are split and additional carriage costs incurred. Both scenarios are expensive and difficult to manage well.
However, sometimes the answer is not so clear cut. One of the major challenges of online fashion retailers is dealing with returns, and a partial overseas solution is to have returns processed locally, and good stock shipped to customers who are ordering single items.
This has the dual benefit of speedier refund processes (which customers like and enables them to spend the returned cash sooner), less markdown on returns, and a lower parcel cost, shipped from the local country rather than from the UK. However, even for this to pay off, a good level of scale is needed, and generally it works best in large demand countries such as the USA.
However, this does lead to the next challenge – as growth continues, a single warehouse cannot handle the volume of stock held and the demand patterns, particularly at the seasonal peak in the run up to Black Friday and Christmas. As the warehouse gets larger, sourcing enough labour can become very difficult.
The simple options are to extend the warehouse, move to a larger warehouse, move out discrete activities, such as returns processing and non-collectables (larger items that are delivered separately), and extend the delivery promise at peak.
The next option is to selectively introduce automation, and this will be covered in a future blog.