Evolution of Retail Logistics

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Source: Adapted from Jones Lang Lassalle (2013) E-commerce boom triggers transformation in retail logistics: Driving a global wave of demand for new logistics facilities.

The retail sector has experienced a notable evolution of its logistics in recent decades with globalization and e-commerce being the factors having the most significant impacts. This evolution has involved new and more effective forms of distribution and can be summarized in four phases:
  • Direct replenishment (1970s). Up to the 1970s, most of the sourcing was domestic and provided either directly by suppliers (manufacturers) or by wholesalers specializing in specific categories of retail goods (e.g. toys, apparel, shoes, etc.). These suppliers were having their own warehouses supplying directly their customers. Each store was also maintaining its own inventory and ordering directly from its suppliers, many of them within the region. Imported goods, while present, represented a small share of retail sales, usually for specialized or luxury goods. For smaller markets, the share of imports could be higher.
  • Rationalization (1980s). During the 1980s the emergence and expansion of large retail chains such as Wal-Mart incited the rationalization of logistics where many retailers built distribution centers in peripheral areas. They acted as warehousing and sorting facilities between the suppliers and several stores, often within the same region (regional distribution centers). A streamlined and high throughput form of distribution center took shape as a cross-docking facility.
  • Global sourcing (1990s). Outsourcing and offshoring expanded the spatial reach of sourcing strategies, which involved a growing number of overseas suppliers and long distance transportation. As an important share of retail imports became containerized, import centers emerged nearby container port facilities. These centers de-stuffed import containers and arranged shipments for domestic distribution. Transloading is a common activity performed by import centers.
  • E-commerce (2000s). The growth of web based retail sales triggered the development of new logistics structures. Since the majority of the online retail purchases are shipped as parcels, this distribution structure saw the emergence of e-fulfillment centers, which are large facilities assembling individual orders that are shipped through parcel services. The parcels are then moved to hubs that consolidate shipments or sortation centers that arrange shipments by their regional/local destinations. Sortation centers are feeding parcels directly into local postal delivery routes or into the carrier’s local delivery system. The parcels will then reach a delivery center where they will be placed on specific local delivery routes. In large urbanized areas local depots can also be used for urban deliveries using small vehicles such as vans (“last mile logistics”). The final destination is either the residence of the customer, a collection point (such as an urban freight station or an urban pickup location) or a delivery point such as postal box or even the lobby of a residential building.
It is important to underline that each of these phases in the evolution of retail logistics did not completely replace the previous ones, but more than often added to them. For instance, there are still direct deliveries from suppliers to stores, but this strategy is less prevalent. E-commerce has obviously not replaced standard retailing activities supplied by national or regional distribution centers, but added new distribution channels that are a times competing with existing retailing, but also can be complementary when a retailer is jointly involved in conventional retail and e-commerce (often labeled as omnichannel).


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