Delivery Efficiency is Paramount for Profitability during a Challenging 2025
The outlook for 2025 is challenging for any business involved in the retail fulfilment process – from online retailers to logistics providers. The changes to National Insurance and the National Living Wage made in the November 2024 budget has had serious financial ramifications for companies already operating on wafer-thin margins. Furthermore, consumer demand has also stalled, with the UK braced for weak consumer spending throughout the next 12 months as public confidence falls.
So how will the industry react? Where can retailers look to improve fortunes throughout 2025? Is it possible to cut costs without compromising the high level of experience customers now demand? Andrew Tavener, Head of Marketing, Descartes explores.
Impossible Squeeze
Britain’s largest retailers are warning of potentially thousands of job cuts this year as the industry braces for higher taxes and employment costs. A bleak Christmas shopping season failed to alleviate concerns about the outlook for 2025, with the British Retail Consortium (BRC) confirming sales growth over the “golden quarter” between October and December came close to flatlining. Consumer confidence is low. The UK’s economic growth projections have been downgraded. Retailers, therefore, have tough decisions to make. Not all will have the confidence and sheer size of brands such as Next which has said it will increase prices by 1% this year to help offset a £67m rise in wage costs driven by budget tax changes.
At the same time, of course, customers’ expectations continue to rise. If consumers are to be enticed into spending, they want to enjoy every aspect of the transaction – both online and in person. There is no tolerance for delivery mistakes. As the Home Delivery Consumer Sentiment Study 2024 confirms, problems such as expensive electrical items left on the doorstep in the rain or delivery confirmation photographs of someone else’s doorstep are a fast track to customer loss.
How will companies respond to this squeeze? Where are the opportunities to impose tighter cost control while also providing an exceptional customer experience and, of course, attaining legislative sustainability goals while accommodating customers’ environmental expectations for green delivery?
Optimise and Communicate
For an industry already operating on tight margins, these new financial pressures are potentially devastating. However, there are clear opportunities to improve performance whilst also improving the customer experience. The simplest, quickest and least expensive step is to ensure customers are kept informed at every stage of the fulfilment process, especially the last mile.
Managing delivery expectations effectively not only improves customer satisfaction it also reduces the missed deliveries that are so costly for any logistics business. In addition to minimising the number of expensive redeliveries, improving first time delivery performance avoids the risk of product damage or loss that can occur when customers are not at home. Leveraging notifications to reduce costs and improve the customer experience should be a key objective for any retailer over the next 12 months.
The entire delivery operation can also be significantly improved through intelligent, real-time route optimisation that improves delivery density. Artificial intelligence (AI) and machine learning will also play an increasing role throughout 2025 to further maximise the value of the existing fleet. By comparing planned delivery schedules with the actual performance over a period of time, AI can highlight specific addresses that cause problems – from a certain location that demands additional time to make the delivery to the impact of school drop off on local roads – to achieve far more delivery certainty. Companies actively including essential driver feedback – such as potholes slowing down traffic – into the mix, can also avoid delays and improve overall delivery performance.
Encourage Behavioural Change
A key trend throughout 2025 will be the move towards driving behavioural change at the checkout to further enhance delivery cost effectiveness. Retailers can leverage up-to-date delivery information at the checkout to provide customers with intelligent date and time choices that support more efficient delivery schedules. Encouraging a customer to opt for the same delivery time as a neighbour by offering a low cost, even free delivery, for example, radically reduces travel distance and allows the retailer to be far more sophisticated about maximising capacity and sharing resources across defined geographic regions. Adopting this approach has enabled John Lewis to increase delivery capacity by 35% without adding vehicles or drivers and reduce fulfilment costs by £1.8 million.
As retailers gain confidence in exploring intelligence to meet different economic goals and customer expectations, the model will become ever more sophisticated. From matching delivery offers to customer delivery personas to including information around clean air zones and traffic restrictions within the routing model, retailers can ensure customer promises can be achieved without incurring profit denting fines. Sustainability goals can also be automatically factored into the process, allowing retailers to continually amend delivery options and prices, using low cost local ‘green’ deliveries to further improve customer perception and environmental performance in decarbonising fleet operations.
Critically, this process allows retailers to encourage customers towards delivery options that suit existing delivery schedules. This not only improves delivery density and gains operational cost benefits without adding stress to drivers, it enables retailers to meet rising customer expectations without resorting to the over-promising that can lead to disappointment.
Conclusion
Retailers have been improving their delivery performance year on year but the new financial pressures facing businesses throughout 2025 are raising the stakes. The letter written by over 80 UK retailers to UK chancellor Rachel Reeves in November 2024 predicted the challenges created by changes to National Insurance, the National Living Wage, and the ongoing packaging levy. With the latest BRC sales figures confirming their worst fears and the economic outlook for the UK looking bleak, efficient, effective and timely operational performance is now critical.
Real-time optimisation, in tandem with the use of intelligence to drive changes in consumer behaviour, will be key to achieving essential operational change. Using AI to continually assess both delivery performance and consumer persona response will allow retailers to further refine the process. How do customers respond to low-cost delivery offers in January following the festive overspend compared to peak season? Are consumers more likely to embrace green delivery slots if the retailer shares CO2 calculations or are price and convenience bigger incentives? The ability to leverage customers’ desires and behaviours will become an increasingly key weapon this year as retailers push to control costs without compromising experience.
https://routinguk.descartes.com/