How can UK businesses manage the warehousing shortage?

30 November 2018

Development, innovation and thinking outside the box are just a few of the options we must consider to tackle a shortage of storage space

With online retail sales rising by 13.9% year-on-year, businesses are having to invest in more physical warehouse space to store products. While this is good news for the e-commerce retailers, it is putting pressure on storage in the UK. During the last decade, the amount of new warehouse space purchased by online businesses in the UK has increased by over 700%, from 1.5m sq ft of new space in 2008 to 12.2m sq ft in 2017. 

A more recent, and even more pressing squeeze on industrial space that is fast-tracking a UK warehousing crisis is Brexit, with the uncertainty of what will happen in April forcing companies to re-evaluate their logistical options.

Many businesses that export to and from the UK and face the prospect of delays to the movement of goods are looking to stockpile ‘safety stock’ to ensure that they can continue to meet consumer demands. This solution is not only expensive for businesses, but also puts warehouses under pressure to house the surplus of product.

In fact, a survey in May by the UK Warehousing Association found that a fifth of logistical businesses were planning to increase their warehouse portfolios in the UK over the next two years. Yet, since 2009, existing warehouse space availability has fallen by 71%, and the amount of new space being developed fell from 8m sq ft in 2015 to around 3m sq ft in 2017.

With the recent level of warehouse take-up, Savills estimates that there is only around two and half years of supply left, unless more warehousing space is developed.

A shortage of space leaves businesses facing a worrying future, especially as consumers demand ever more personalised and instant delivery options. A recent study found that 67% of consumers would be more likely to spend more if they had same-day delivery. But, to offer that, businesses must be even more focused on product availability and the implications that might have on future stock levels.

Amazon is now the world’s third largest retailer and has seen its latest profits rising by 31% to $3bn. This growth has meant that the business has had to expand its operational space and is currently buying warehousing space in the UK at an unprecedented rate. During 2017, it acquired an estimated 4m sq ft, increasing its overall warehouse space to 19.7m sq ft. And most recently, the company has emerged as an ‘aggressive bidder’ for the stores that Homebase is looking to offload in a restructuring of its business.

Creative solutions

Some forward-thinking businesses are looking for alternative options to resolve this crisis. Storing products underground is one method being explored. In Heathrow, Formal Investments has planning permission to build an underground warehouse on a 4.8m sq ft site, big enough to house 25 football pitches.

Amazon has taken underground storage one step further by filing a patent for an aquatic warehouse. It is planning to store goods in watertight containers that are placed in underwater storage banks with conveyor belts. Each container will be fitted with a cartridge that controls depth and will receive a signal when required to send the package to the surface once an order is made.

For most ordinary businesses, this level of innovation will not be plausible. An alternative solution lies in companies optimising the warehouse space they currently utilise. This often requires investment and, more importantly, excellent management, as existing operations must continue as usual while this process of optimisation takes place.

However, for those businesses expanding significantly, more space will be needed. Some of this may come from other struggling businesses, but new warehouse space that is suitable for the changing marketplace and new operational requirements will be vital when it comes to business development and growth. This is where the government could step in and make it more viable for additional warehouses to be built. If not, retailers will be at risk of having to sacrifice some of the services they can provide.

John Perry is managing director of supply chain and logistics management services firm SCALA 

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