Strengthening the last-mile storage and distribution system is the strategy deployed to provide first-class customer service, at the lowest cost and as fast as possible.
The future of supply chains lies in a locker: the end point of the last-mile storage and distribution system where the fashion and beauty industry will seek to get their products to customers as quickly as possible, and at the lowest price.
This venture goes by the name of “proximity hubs”. Booming in Europe and seen as the next major retail trend in North America, things are just getting started in Latin America. “They are far more than just a fad. They represent a solution, and are in essence a necessity,” according to José Ruiz, Supply Chain and Operations Advisor at the international consultancy firm KPMG in Mexico.
In late 2020 and early 2021, online sales charts posted double-digits growth worldwide, leading analysts to go from wondering if this behavior would be temporary – stemming from pandemic-induced lockdown – to arguing that it represented a structural shift in changing consumer habits.
Ruiz explains that this means that primary logistics, which move merchandise from production centers in heavy-duty units, has switched to distribution centers near high-density population areas for delivery in smaller vehicles. This has given rise to the concept of “microhubs” or self-service storage, models invoking the P.O. boxes of yesteryear: areas fitted with several automated lockers, where brands deliver merchandise for buyers to collect. Lockers are opened with a numerical code sent to their cell phones.
“It’s a quest for the most efficient and sustainable model, economically and environmentally. It’s a logistics phenomenon,” says Juan Flores, director of Market Analysis and Consulting for Newmark Knight Frank (NKF), a global real estate services firm. Growth has been so strong, he adds, that it could soon aid real estate restructuring in large cities, with spaces being created for proximity hubs, one of the changes urban areas will witness as part of the e-commerce boom and all its related services.
The movement is global. In addition to being retail-driven, where the fashion and beauty sectors play leading roles, it is also changing the way things are done in tech. It’s even making inroads in cities with high population density, lacking large spaces for logistical operations.
“For example, in Tokyo, Paris, Seattle or New York, we’re seeing (these proximity hubs being created) that are multi-level and operated with robotic arms, which take products from shelves, and humans arrange them to ship consolidated deliveries,” explains Gerardo Ramirez, Regional Industrial Director at JLL Mexico, a global real estate services company specializing in business properties.
In the Lap of Luxury
The first fashion industry companies to invest in the proximity hubs-based logistics model include Hermès (Allan, France), Louis Vuitton (Sainte-Florence and Beaulieu, France) and Gucci (in Scandicci, Italy).
Ruiz points out that these models have an overriding goal: “wow” factor. To be competitive and more enticing for buyers, businesses seek to shorten delivery times. “It all depends on how aggressive the value proposition generated for customers is. If 24-hour delivery is promised, this defines the storage and distribution set up. When planning this, companies must establish their intended value proposition.”
Louis Vuitton is leading the way here: according to its Paris stock exchange reports from 2018, the firm developed a proximity hubs strategy to meet 7-day delivery times. This sounds standard in peak digital boom but remember that in 2014 their delivery times were 7 weeks. These dropped to 2 weeks in 2018 and now it’s just a week. Such a response capacity is key in an industry that must react extremely quickly to trends and to customer demand for new clothes and accessories.
Vietnam, China and India are renowned for their industrial capacity for manufacturing footwear, clothes and bags, among other accessories. However, the need to bridge the gap and ensure faster deliveries, reduce logistics costs, and move inventory faster has already aggressively driven this operating model in other regions.
The “Latin America Industrial Market” report for NKF (Q1 2020) notes that the main income-producing operations in São Paulo in Q2-2020 came from companies in the transport, storage and logistics sector (45%), e-commerce (43%) and industrial sectors (12%). Most of this activity is registered within a radius of 30 to 40 km from the state capital, confirming a trend of companies moving to the city.
Mexico City is taking its first steps towards this delivery specialization model. “The Last Mile Boom” analysis, also from NKF, highlights the $40 million investment made by the developer and landlord O’Donnell in the Gustavo A. Madero community: 38,765 m² to meet growing e-commerce sector demand and last-mile needs. Ramírez adds that the company is already analyzing these alternative development companies such as Prologis and Corporate Properties of the Americas.
“The Latin American market is at an early stage (in this trend) but is moving quickly, mapping a sustainable course as long as e-commerce continues its exponential growth,” Ruiz notes, adding that Europe has already witnessed this process, with environmental factors also driving growth. This is because self-service storage and mini-hubs reduce traffic involved in home deliveries, require shorter trips and can be done in light, electric vehicles, which pollute less, pursuant to regional demands.
If the trend is so clear, and facing medium-term consolidation, what comes next? Including this factor in reverse logistics, according to Ramírez: “The next step involves having logistics in place enabling an item to be easily returned when consumers don’t like the color or size. The chain must be efficient when delivering products, but also when picking them up and returning them to the distribution center,” he adds.
Three Key Pillars to Get Started
The fashion and beauty industries can get more out of last-mile logistics. JLL México’s Regional Industrial Director highlights that the agile supply chain can generally be used for faster deliveries in cosmetics and fashion. How?
- Define the value proposition. Logistics planning begins when the desired value proposition has been defined. Analyze to establish whether this is a major differentiating factor affording a competitive advantage in delivery and turnaround times.
- Strategic areas. Next, identify the clusters of areas where the most orders are generated: where the highest volume of purchases take place and how often these are requested. Specialized software exists to help interpret these big data, for enhanced strategic decision making.
- Assess the service cost When designing the core strategy, establish how much the hub will cost in the following key areas:
- Storage
- Primary and secondary logistics distribution
- Last-mile and last delivery execution
Do you want to learn more about this topic? Find more in the Marketing and Communications for Fashion & Luxury Brands program.