Zalando on weaving a web of logistics, e-commerce and retail

Online retailer Zalando's vice president of corporate real estate, Raimund Paetzmann, explains how a functional logistics network is key to e-commerce meeting customer demands.

It has only been 20 years since I started using the internet, ordering my first books in 1998. At that time, I would hardly have thought that just a little later, in May 1999, I would embark the Amazon ship, exploring the unchartered waters of e-commerce and changing the way I view logistics.

I still remember the first parcel being delivered, the odor when I opened it and holding the book in my hands. It was a new experience. However, technically it was only a gradual improvement of an already well-established ordering system that book retailers used in Germany, which made it possible for customers to order almost every published book and collect it from the store the next day. The only small difference the product was now delivered directly to customers, who could search and order it via a website without physically going to the bookshop to pick it up.

Keeping up with the customer

I mention this because we underestimate ‘supposedly small’ differences and improvements. The book retailers were proud to have a system that made books available within 24 hours. The customer seemed satisfied. However, as Jeff Bezos, founder of Amazon, once said: “Customers are always dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”

To be successful, e-commerce was forced to innovate and introduce new services to sell a less tangible product on a website. Hence it is e-commerce that has driven most of the innovations and a greater customer focus in the retail sector. The traditional retail offering often watched all this in disbelief, and probably hoped that this would simply be a temporary episode, still in the firm belief that the customer does not need all that and would never buy certain products without ‘touch and feel.’ Now I work for Zalando, Europe’s largest fashion e-commerce platform, which sells fashion, a product that, according to the logic of the time, should be seen, touched and tried on.

If you want to understand what e-commerce and logistics might look like in the future, it is helpful to understand the motivation and mechanisms behind the innovations. Looking at developments in recent years, you can see that these are not gradual, but exponential. Bill Gates once said that we tend to overestimate what will change in the next two years while underestimating how it might evolve in the next ten years. We can no longer look at a single field in isolation because parallel developments and innovations are combinatorial and amplify each other. Therefore, we will continue to see innovations on behalf of the customer improving the convenience of shopping. With an increasingly connected world, the boundaries between online and offline are blurring, and in the future it will be hard to distinguish between an online and a stationary purchase. However, customer centricity, vast selection and fast delivery will continue to drive success.

Critical logistics

To accommodate rising e-commerce penetration, we will continue to see demand for all sorts of buildings for logistic networks. Considering that the share of e-commerce across Europe is still relatively small – approximately 12 percent – and that most e-commerce players still report substantial double-digit growth, the demand for logistics buildings will continue to be strong during the next decade.

However, challenges along the way, like scarcity of land in urban areas together with difficulties securing the necessary labor will drive changes in building designs and locations. Again, the answers to the two problems will amplify each other: the challenge to the workforce will drive more automation, enabling multi-story buildings for logistics that can help to respond to land scarcity. More automation will also allow the consideration of locations that have not yet been on the radar of warehouse operators.

One, although not the main, focus will be city logistics, where we will see local mini-fulfillment centers and a variation of delivery stations and micro hubs.