Addressing the E-Commerce Challenge

Meeting customer expectations for stock availability, a convenient shopping experience, quick deliveries, fast returns, and a fuss-free customer service translates into increasingly complex challenges in supply chain and operations management for e-commerce businesses. To keep up with customers and competitors alike, e-tailers need to make sure that their front office, back office, supply chain, and logistics functions operate at the highest quality and lowest cost possible.

Choosing the right operational base is key. A location with world-class infrastructure, unparalleled global connectivity, a superior logistics ecosystem, plug & play sites, and offices as well as a constant supply of fresh tech talent at the centre of Europe would therefore be ideal for any e-commerce business. Germany’s Leipzig region is that location.

The Region of Leipzig

Leipzig is Germany’s most dynamic metropolitan economy with an average annual employment growth rate of 7+ percent. Since 2005, it has welcomed 110,000 new inhabitants, making it the country’s fastest growing city. It is projected to reach a total population of 650,000 by 2030.

With an average age of 42, Leipzig’s population today is predominantly young and educated – nearly a third have university degrees. Offering affordable rents, high quality of life and eclectic, open-minded community, the city continues to show especially strong growth in the 18 to 25 age group – a crucial demographic for becoming a tech hub.

E-Commerce & Digital Economy

Digital and tech is Leipzig’s fastest growing sector. More than 1,200 companies employing roughly 14,000 people currently have operations in Leipzig. The city is home to Germany’s densest digital and tech ecosystem, with almost 35 percent of all available office space taken up by start-ups, scale-ups, and large ICT companies.

Leipzig has always been a city of innovation in retail and trade too. Europe’s second oldest mail order fashion business, May & Edlich, was founded here in 1870. The Aughts gave rise to international e-commerce success stories like Spreadshirt and Mr Spex that all have its origins in the HHL Leipzig Graduate School of Management.

Credits: Pixabay

Established in 1898 as the Handelshochschule Leipzig, the HHL is one of the oldest business schools in the world. With a strong focus on business innovation and entrepreneurship, it has spawned more than 300 start-ups so far. The HHL has a particularly strong track record in churning out successful e-commerce and digital business founders. Companies like trivago, AboutYou, Delivery Hero, Auto1, IONIQ, Mr. Spex, Spreadshirt or Flaconi all count HHL Alumni to their founding members.

With differing regulatory frameworks, varying languages, market-specific consumer trends and payment preferences, staying on top of everything can pose a challenge for any e-commerce business. Having the right set of business partners and specialist service providers available on location allows for flexible operations management in multiple markets.

Leipzig’s e-commerce sector comprises quite a few notable companies. Major players like Amazon, momox or Future Electronics run major fulfilment operations in the region. Numerous leading service providers along the e-commerce value chain – like Radial, blugento, dotSource or diva-e – are also located here. The Mercateo Group, one of Europe's leading operators of internet platforms for business customers, recently announced the relocation of its 500 strong headquarters from Munich to Leipzig.

Since 2009, Leipzig is home to the most important e-commerce event for Germany, Austria and Switzerland dedicated to the Magento shop system – Meet Magento DE. Händlerbund – Europe’s largest e-commerce association with more than 80,000 secured online presences – is also headquartered in Leipzig. Moreover, the Central German Logistics Network, a member organisation that comprises logistics and other companies with a stake in the logistics sector aims to provide a platform for companies in the Leipzig-Halle region to develop joint ideas, concepts and also business models.

Digital Innovation Ecosystem

Established in 1898 as the Handelshochschule Leipzig, the HHL is one of the oldest business schools in the world. With a strong focus on business innovation and entrepreneurship, it has spawned more than 300 start-ups so far. The HHL has a particularly strong track record in churning out successful e-commerce and digital business founders. Companies like trivago, AboutYou, Delivery Hero, Auto1, IONIQ, Mr. Spex, Spreadshirt or Flaconi all count HHL Alumni to their founding members.

With differing regulatory frameworks, varying languages, market-specific consumer trends and payment preferences, staying on top of everything can pose a challenge for any e-commerce business. Having the right set of business partners and specialist service providers available on location allows for flexible operations management in multiple markets.

The digital transformation of retail and trade as well as the automation of customer journeys and supply chains will continue apace. In coming years, the availability and adoption of innovative technologies will become increasingly relevant to business success in the E-Commerce sector. Leipzig offers access to R&D partners and technologies that can help businesses develop and implement the right assets and solutions.

Drawing on its existing strengths in ICT, tech and digital, energy, mobility and the life sciences, Leipzig has been selected to become Germany’s smart city champion under the federal government’s Digital Hub Initiative. Since 2019, the country’s new agency for breakthrough innovation (Bundesagentur für Sprunginnovationen, SPRIN-D) is also located here.

Credits: freepik

The Logistics Living Lab in Leipzig is driving innovation along the logistics value chain. Bringing together academia, start-ups, and large companies the lab’s aim is to accelerate the technology transfer of cloud logistics, IoT, sharing economy logistics, big and smart data analytics solutions. Industry partners working with the lab get the opportunity to test technologies under real life conditions and with the brightest minds. In addition, a consortium including the University of Leipzig, the Hasso Plattner Institute of SAP fame, and several private sector partners develops IoT-driven smart last mile logistics solutions in Leipzig’s project SMile.

BENEFITS

A key objective for any e-commerce business is to gain market share. Selecting the right growth markets and segments to tap into is a fundamental business decision. Equally important is the actual go-to-market-strategy. Whether it is B2C, DTC or B2B, proximity to customers is crucial. Choosing the right operational base is therefore critical. Geography, infrastructure, access to talent, properties and business partners are all essential factors to take into consideration when making a location decision. Growing and expanding e-commerce businesses need an operational base that allows for scalability as well as the flexibility to quickly adapt business and supply chain operations for geographically diverse markets with ever changing demands.

Global Connectivity, Multimodal Infrastructure & Logistics

The online consumer wants a global marketplace with access to products from all over the world. Being able to source, ship, and fulfil orders for international markets from a single hub therefore is a major advantage for e-commerce businesses with international footprints.

Located at the intersection of some of Europe’s oldest trade roads, Leipzig has always been an important node for international trade routes and supply chains. Within Europe, the Leipzig region is ideally positioned to not only directly the German market with its 82+ million residents, but also the 150 million consumers in the nine neighbouring countries to the north, south, east, and west.

Today, the Leipzig Region forms the tri-modal hub of Central Europe. The Leipzig/Halle Airport (LEJ) airport, the autobahns A9, A14 (i.e. European motorways E49, E51) and A38 as well as the direct link into the DB rail network all make the Leipzig region an ideal location for companies with global supply chain operations.

Being home to one of DHL Express’ three global hubs, LEJ airport has become Germany’s fastest-growing air freight logistics location. It is Europe’s third busiest air cargo hub, only trailing Frankfurt and Heathrow airports. About 25 weekly cargo flights offer direct links to DHL’s global hubs in the US and China. More than 400 flights per week connect with an additional 60+ international destinations.

With more than 1,500 logistics companies and service providers, employing 36,000+ people, the Leipzig region has thus become a recognised leader in logistics. Its mix of logistic-relevant location factors as well as the already existing logistics companies are above average in comparison with the rest of Germany. Global players like DHL, DB Schenker and Kühne + Nagel as well as specialist logistics providers like AeroLogic and World Courier operate from the region.

Access to the German E-Commerce Market

Germany is the largest e-commerce market in Europe and one of the largest in the world. Total e-commerce sales reached EUR 72 billion in 2019, putting Germany in fifth place behind China, the US, Japan, and Great Britain. The German Federal Association of E-Commerce and Mail-Order Trade reports that gross sales of e-commerce goods grew by 11.4% year-on-year – a growth trend expected to rapidly increase in 2020 and beyond. With 65 million people – 80% of the German population – Germany not only has the most internet users but also the greatest e-commerce market potential in Europe.

Sector Trend Furniture

Online furniture sales in Germany have risen steadily since 2014 and generated sales of more than EUR 6.6 million in 2018. This trend is also expected to continue to increase, with projected 2022 revenues climbing to almost EUR 9.2 million. In 2018, Swiss company USM Haller has set-up a warehousing and fulfilment facility in Leipzig to better service the growing German as well as 40 international markets from one location.

Sector Trend Personal Care

Consumers in Germany have also begun to buy personal care and health products online at a greater rate. Germans spent around EUR 17 million in total on personal care and cosmetic products online in 2019. This clearly signals personal care and health products as a high potential income stream for retailers looking to expand their businesses online. Online retailers make the online purchase of these goods more attractive by offering subscriptions.

Sector Trend Pet Products

In 2018, the online pet product market generated up to EUR 1.1 billion in Germany - an increase of 30.6% from 2016 revenue levels. Most sales are generated in the specialist trade, but online sales have been growing for years – especially in the animal equipment segment. There is growth potential in the animal feed and animal equipment segments, meaning that online trading will play an increasingly important role in the future. DTC specialty pet foods company futalis chose Leipzig as its operational base for servicing this growth segment in Germany.

Sector Trend Children’s Toys

Parents can rent toys for their children through these websites and keep them as long as they like. Returned toys are inspected, cleaned, and disinfected by the shop and are available for re-order by another customer. In 2018, 46% of Germans bought toys and baby products online. It is the parent generation of 30- to 49-year-olds who make the most orders in the toy category. Meeting the increasing demand for educational toys, DTC businesses TinkerToys, offering individual 3D-printed toys, and TicToys, offering creative toy alternatives, both operate from Leipzig.

Access to Talent

Testament to its growth strategy and ongoing growth potential, Leipzig has been named a ‘city of the future’ by fDI Intelligence’s latest rankings of leading European cities and regions that have strong investment potential for the long haul. Leipzig was ranked 7th place for "Human Capital and Lifestyle".

More than 40,000 students attend the University of Leipzig and its other institutions of higher education. The Central German Metropolitan Region ("Metropolregion Mitteldeutschland"), with Leipzig being the very centre, has more than 155,000 students attending its many universities and research institutes.

The struggle for tech and digital talent has become a global issue. A good indicator for digital and tech talent availability is the hiring companies to university graduate ratio. In Leipzig, there are currently approx. 5,600 students enrolled in courses relating to digital, tech and ICT, with an average 430 graduates each year. Therefore, 2 companies statistically compete for 1 digital and tech graduate in Leipzig. In other locations, that ratio is significantly more disadvantageous to companies, with a ratio of 24 companies to 1 graduate in Munich for example.

One of the biggest challenges facing the logistics sector today is the availability of skilled labour. With regards to the availability of qualified and reliable workers, there are major differences between the logistics hubs in Europe. For most hubs, the recruitment of skilled personnel requires great effort and external support, especially in formerly low-cost economies. Compared to other logistics hubs in Europe, recruiting skilled labour still is relatively quick and easy in the Leipzig Region.

Credits: freepik

Plug & Play

In many locations, existing industrial and logistics stock no longer meets current business requirements. Owing to the persistently strong growth of the logistics sector, the Leipzig region offers state-of-the-art sites and spaces. Current developments in the Leipzig region include bespoke plug & play solutions managed by two major players in the industrial and logistics sector.

greenfield Technology Park Airport Leipzig / Halle

The greenfield logistics park will be built directly at the airport on a property of around 85,000 sqm. The logistics park consists of 5 hall sections with a total area of around 45,000 sqm. In addition, there are around 3,800 sqm mezzanine space and 3 office buildings as well as built-in office buildings with a total of around 6,200 sqm. The areas will be furnished to a very high quality to ensure a versatile use (logistics, storage, production), among others a very powerful sprinkler system, a concrete floor with a load capacity of 10 t and a WGK foil for the storage of water-polluting substances. Furthermore, the building will have a sustainable equipment; this includes a PV system, LED lighting and very high roof and wall insulation. The building will be located directly at the airport's World Cargo Center and is connected to the B6 federal highway, the A9 motorway and the A9 / A14 highway junction. There is also a footpath to the S-Bahn station. Construction has already started, and the first areas will be completed in spring 2021.

greenfield development is a developer and investor for industrial and logistics properties based in Düsseldorf. greenfield develops and builds logistics and industrial parks nationwide with a size of 20,000 - 60,000 sqm of production and storage space. The new construction projects are erected in a short construction time and are equipped to a very high standard and can be used in a multifunctional manner so that higher-quality manufacturing processes can also be implemented later. Due to the many years of experience in the logistics sector as well as in real estate development, customers from the branches of logistics, trade, industry, production, and service can be offered tailor-made space concepts.

→ greenfield Technology Park Airport Leipzig / Halle

Baytree Leipzig

The project will be developed in the North of Leipzig measuring around 214,000 sqms. The two logistics centres will have a total of 90,835 sqm hall space, roughly 6,187 sqm of office space and about 8,376 sqm of mezzanine space. The plot is right next to the Leipzig BMW plant and has direct access to the A14 motorway and the B2 federal road. All Baytree developments are custom-built in accordance with the BREEAM rating “very good”. Building usually takes 12 – 18 months till completion.

BAYTREE is a pan-European developer of logistics and industrial properties with a focus on the German, French and British markets. The company was founded in 2015 by AXA Investment Managers - Real Assets ("AXA IM") to develop modern and sustainable industrial and logistics properties for the AXA Group and its investors. BAYTREE already controls approx. 1.2 million sqm of land with a potential for industrial and logistics space of approx. 530,000 sqm.

→ Baytree Leipzig

Panattoni Park Leipzig Airport

The project will be developed in the AirportPark Leipzig-Halle measuring around 114,500 sqms. The logistics centre will have a total of 51,480 sqm hall space, roughly 2,000 sqm of office space and about 3,400 sqm of mezzanine space. The plot is right next to the Airport Leipzig/Halle and has direct access to the A9, A14 and A38 motorways and the B6 federal road. The completion is planned for turn of the year 2020/2021.

Panattoni Europe is a European branch of one of the largest industrial developers, Panattoni Development Company, established in the USA in 1986 by Carl Panattoni. Panattoni has a proven track record in the development, construction, and management of industrial space. It develops logistics centres flexibly to match client requirements regarding warehousing and office space. The company has developed over 9,6 million sqm in Europe since its inception.

→ Panattoni Park Leipzig Airport

A Lower Cost Base

Keeping costs as low as possible is essential to running a profitable e-commerce business. At the same time, neither operational excellence nor the quality of products and services must suffer. A successful location strategy in the EU must therefore take into consideration total operating costs, labour costs, inbound and outbound transportation expenses as well as quality and productivity issues. Running a business in the Leipzig region is significantly cheaper than it is in the "Blue Banana" corridor yet offering the same levels of quality and productivity "Made in Germany".

Property Savings

The Leipzig region offers sites, spaces, and facilities at the highest quality and at very competitive costs. Modern office and industrial stock are readily available. Below average costs help keep operational expenditures low.

At €3.70 per sqm, the average rent for industrial and logistics space in Leipzig is at a moderate level compared to the rest of Germany. Top rents of €4.50 per sqm also make Leipzig a comparatively favourable destination for industrial and logistics companies.

Despite continuously rising rents in the local office market, Leipzig still offers very competitive rent levels compared to other major cities in Germany. The office market in Leipzig averages at approx. €9.00 per sqm. Rents for prime A inner city office space currently peak at approx. €14.00 per sqm.

Salary Savings

The Leipzig region is a lower cost base for a company to grow its business over the higher cost clusters in the west and south of Germany. Salary costs for equally skilled employees are typically 25-34% less in the region, which can add up to significant cost savings each year.

Lowered Investment Costs

Leipzig is the only top ten logistics region in Europe offering non-repayable investment grants to e-commerce businesses. These cash grants are an effective means of significantly reducing initial business set-up costs. The allocation of these investment grants is directed by the Federal State’s Saxony Development Bank (“Sächsische Aufbaubank”).

Our Services

Invest Region Leipzig (IRL) is an economic development organisation funded by the City of Leipzig, the Leipzig Chamber of Industry and Commerce and the local authorities of Northern Saxony and Leipzig. We support companies that consider expanding their business and/or R&D operations into Germany’s thriving Leipzig region.

We help you shape a bespoke location strategy for the Leipzig region. IRL provides key decision-making data on market opportunities, competitors and suppliers, the regional workforce and talent pipeline, as well as available investment incentives. Working with our partners in the real estate sector, we help business clients find the right office, industrial or logistics properties at the right cost. Our recruitment experts help you accelerate the staffing process, providing clients with our wide network of recruitment agencies, university career as well as job centre partners. All our services are completely free of charge and treated with absolute confidentially.