Amazon has built an entire business around maintaining our growing desire for instant gratification.
First the e-commerce giant offered three-day delivery slots, then next-day, and now with Amazon Prime, products can be delivered in an hour. What the Amazon customer wants, the Amazon customer gets – and expects – at breakneck speed.
But such dedication to rapid delivery comes with implications that go way beyond the online platform. Now cities will increasingly have to be built around a growing need to get products to consumers as quickly as possible.
As for Amazon’s plans specifically, the $500bn (£371bn) company is famously shrouded in secrecy when it comes to strategy and its boss Jeff Bezos remains staunchly tight-lipped about future development.
But there is someone else who has almost 15 years’ insight on the inner workings of the e-tail giant, and he knows a thing or two about the future of multi-channel retailing too.
Raimund Paetzmann is Amazon’s former head of European real estate. He worked for the company for 14 years before leaving last year to head up the real estate arm for German e-commerce company Zalando.
At Amazon, Paetzmann watched the retailer’s success story unfold first hand as net sales grew from $600m when he joined in 1999 to around $130bn in 2016. He was also responsible for establishing the company’s European distribution network.
Here he reveals how Amazon positioned itself to deliver within shorter and shorter time frames, considers how cities will have to evolve in the future to cope with growing demand and discusses the next steps for omni-channel retailing.
Amazon’s secrets
Although he has now left the company, Paetzmann says Amazon’s culture and way of thinking is not something he will easily be able to shake off.
“Once you have been a part of Amazon, then you will always be a part of Amazon,” he says. “The biggest leadership principle there is definitely the customer obsession, which is very important – always start with the customer and work backwards.”
And while so much of what Amazon does is fuelled by future-proofing in a fast-paced and constantly evolving retail environment, Paetzmann says the second most important Amazon principle is to not lose sight of what is not going to change.
When it comes to those constants, “the customer always wants to be offered a selection,” he says. “The customer always wants to have low prices. As long as you have a business model along those key elements then it will be sustainable.”
Increasingly the customer also always wants to be offered the fastest delivery time possible – a prime example of how quickly a shift in demand can become a permanent given.
Now that delivery within an hour is on offer, it is a service most online retailers will have to provide if they want to stand a chance of maintaining their position in the market. But it is not easy to do, and it is the logistics network that will bear the brunt of this insatiable demand for instant gratification.
“The customer has been teased now,” Paetzmann says. “From two hours, to one hour – this requires a different delivery network from e-commerce in general. I think the main principals will stay the same and, of course, the tendency to get closer to the customer will remain but the biggest driver of change will be city and urban logistics.”
And Paetzmann has prior experience of how relentless keeping up with demand can be when you need to find industrial assets in increasingly urban environments to support such rapid growth. “I have been through it,” he says. “I had to find building after building to follow and maintain Amazon’s growth. To stay on top of it, you have to act fast.”
Seek and you shall find
These days it can be even tougher to find those properties. With increased land constraints and competition from other sectors, securing assets for inner-city logistics is harder than ever. Paetzmann has some ideas on how things need to change to make the process easier.
He starts by advocating SEGRO’s “sheds and beds” concept that has been mooted as a potential solution in the UK but, as yet, no one has taken the plunge to deliver such a scheme.
But Paetzmann is adamant it is the way new developments will have to be built. “Sheds and beds is a great concept from SEGRO,” he says.
“This combination is something that is going to be required in the future. Cities are going to have to be more flexible than they are now. Logistics will become a utility, just like mailboxes were 10 years ago – it is a utility that needs to be provided.
“Logistics will have to sit alongside residential and it will have to sit alongside retail,” he adds.
“That is probably going to be the biggest challenge because currently there are no developments that really offer this. Mixed-use schemes where you have seen retail, offices and flats in the past? Soon you will also be seeing logistics in there too in a way that doesn’t disturb the residential.”
He says that to do this successfully, city planners and designers will have to completely reassess the way urban space is approached and mixed-use developers will have to think about logistics from the outset – something they are not currently doing.
“Even in big malls there will have to be logistics space,” he says. “The point is, normal developers don’t have any experience in logistics, and logistics developers don’t have any experience in normal developments. So I expect that a whole new field of development will emerge.”
The future of retailing
As to whether there is any danger of the industry getting ahead of itself, and that the e-commerce boom could plateau, Paetzmann says it is unlikely. “I expect we will continue to see the same growth rate as we have done in the past over the next 10 years,” he says. “I don’t see any reason why it should slow down.”
If anything, the other big change on the horizon will be more bricks-and-mortar retailers moving into the omni-channel space.
In Seattle, Amazon is already trialling Amazon Go stores and bookshops, and its recent $13.7bn acquisition of supermarket chain Whole Foods is a clear sign of its commitment to physical space. This, says Paetzmann, is the real definition of omni-channel and is what all retailers will have to embrace in the future in order to survive.
“When asked whether he wants to move into bricks and mortar, Jeff Bezos has always said he doesn’t want to in general, but that at a certain point we will have to and we will do it differently,” he says.
“There is always a new concept from Amazon and I guess that is the way that he wants to follow in retail – he will think of new ways to do it. That is the important part – you have to reinvent yourself.
“Online retailers will have to become bricks-and-mortar retailers, and bricks-and-mortar retailers will have to become online retailers – that is the concept of multi-channel and omni-channel.”
But after 14 years in the business, Paetzmann remains confident about the challenges that lie ahead. In his new role as vice president of corporate real estate for Zalando, he will not just be working on its supply chain, but its entire property portfolio.
He says: “Zalando is the second-biggest retailer in Europe from an e-commerce perspective.
“My new role will be similar to the network planning that I did when I was at Amazon, and I will also be advising on all corporate real estate, including offices in addition to services and facilities, so it is a much wider role and with a much bigger team, so the overall responsibility is bigger. Hopefully I can contribute to making them more successful.”
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