Home Delivery Is Fundamentally Broken — Bloq.it Co-Founder Miha Jagodic on the Last Mile Fix

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[00:00:26] We do say that home delivery is fundamentally broken. It's very costly. It's inefficient. It has a lot of failed deliveries as well. I think I've read 25% of all the deliveries actually on the first attempt do not happen, and one of the most expensive things you can do is to repeat the delivery.

[00:00:42] There's countries in the Nordics where out-of-home volume is actually already bigger than going to home. In Poland today, you have more than one locker per thousand people already, whereas I would say that this ratio is much, much lower in maybe more Western European countries, or in the U.S., or pretty much everywhere else.

[00:01:20] E-commerce promised convenience, but increasingly, consumers are experiencing something very different. Missed deliveries, porch piracy, and what many are now calling parcel anxiety. At the same time, retailers are facing enormous pressure on delivery costs and sustainability targets. Today, we're going to be discussing why lockers and out-of-home delivery are rapidly moving from nice-to-have convenience to critical retail infrastructure.

[00:01:48] And there's probably no better person to discuss this with than Miha Jagadits, founder and CEO of BlockIt. Miha, it's great to have you on the podcast. Hi, happy to be here. So, just to get us started, can you tell us a little bit more about BlockIt, what you do, who some of your partners are, and where you operate? Sure, happy to do so.

[00:02:12] So, BlockIt's an over-seven-year-old company today, so we're providing an end-to-end parcel locker solution. So, we pretty much do everything from deploying lockers, building them in the first place, running the software on them, and processing all these parcels. We've been growing very rapidly alongside the industry trends. As you mentioned in your introduction, there's an out-of-home trend is real. Parcel volume is growing, but it's growing much faster going out of home.

[00:02:41] And we're very fortunate today to work with some of the biggest carriers in the world. We work with the likes of VintedGo, Inpost, DHL, GLS, DPD, Avery. So, yeah, we're fortunate not just to do big locker rollouts, but also to observe how these big companies change behaviors of customers directly, also through our solutions. Yeah, and whenever I have a founder on the podcast, I always like to get the origin story.

[00:03:09] So, I'd love to know what originally gave you the idea for BlockIt. Yeah, so the initial idea is dating very, very long time ago. It actually just came out of a need to have some space to store belongings in public. But obviously, this idea evolved. It actually kicked off back in 2018. I was in Silicon Valley during a summer business program. That's where I met my co-founder as well.

[00:03:35] And this was the Silicon Valley, I always say, in its peak, at least how it's felt. I mean, it's been extremely inspiring, crazy valuations everywhere. Lion was just launching the electric scooters. And this is really where I saw how I could transform this idea of storing a belonging to a hardware product used by public, based on shared economy, and operated by software.

[00:03:58] And, of course, afterwards, the biggest need was actually not in storing the belongings, but to find a way to deliver those parcels. So, these lockers today serve as an automated handover. So, yeah, this was just how it evolved from the very beginning. Yeah, yeah, that's really interesting. Because I know sometimes these things evolve because, you know, you might have spotted a problem that no one else was solving. And I think when we talk about last mile delivery, there are a lot of problems still.

[00:04:27] A lot of problems that need solving, I should say. So, I'd love to just hone in a little bit on parcel anxiety, which is something I mentioned right at the start. What's driving this and how big of a problem is it? Well, the problem is definitely huge for couriers and everyone that's trying to optimize the last mile delivery cost. The last mile delivery cost is by far the biggest cost in the entire logistics structure.

[00:04:56] And it's very straightforward. Instead of going to 100 different places, you can just drop 100 parcels at one spot in a locker. We're observing a global trend of lockers being pretty much adopted everywhere. But funny enough, the primary reason sometimes varies. In Europe, here we're trying to really just unoptimize the last mile. Whereas in some other areas, lockers are perfect to solve if addresses are not very accurate.

[00:05:25] In the US, there's a huge issue with the porch piracy. I think I've read that 2 million parcels are being stolen every day. So, yeah, just a secure, unattended delivery method or an automated handover, if you wish. It's definitely a future and lockers are playing a big part of it already today. And I want to come back to something you've just touched on, which is you've kind of hinted at the cost efficiency side of things there. So, we'll come back to that because it's an important topic.

[00:05:53] But first, let's stick with the problem. Because I guess my view as an analyst is that the challenge for retailers is that as more spending shifts online, two things happen. One, our expectations as consumers continue to grow. Like we expect delivery to be fast, free, reliable, convenient. You know, we want it on our terms. We want that choice. And I think the second thing is that there's very little margin for error.

[00:06:20] So, as shoppers, you know, we never notice when things go as planned. We just, you know, we don't complain when stuff turns up as it should. But when things go wrong, I think our tolerance for bad experiences is really low. And that can, of course, be incredibly damaging to a brand and have long-term implications around things like customer loyalty. So, would you agree with that, Miha? Like, do you think that last mile delivery is fundamentally broken? Yeah, it's actually the phrase that we commonly use.

[00:06:52] There's a lot of times, at least in the past, I've seen that buying specific product gives you a free delivery or something like that. But in reality, and carriers will know this best, there is no such thing as free delivery, right? This cost is bundled somewhere. So, the optimized and efficient delivery method is always going to be an important to the full structure. We do say that home delivery is fundamentally broken. It's very costly. It's inefficient.

[00:07:22] It has a lot of failed deliveries as well. I think I've read 25% of all the deliveries actually on the first attempt do not happen. And one of the most expensive things you can do is to repeat the delivery. And the failure delivery happens for many reasons. Either people are not home or something else comes in a way. So, definitely needs an infrastructure to solve that.

[00:07:43] And especially when you consider how much pressure retailers are under in terms of cost, in terms of firefighting and meeting evolving customer expectations. I mean, the list is just never-ending. But I think it's probably a good time to hone in on cost because you've touched on it a couple of times already. And I mean, I imagine, and I guess you've already said it, that it is far more cost-effective to do a consolidated delivery to a unit of smart lockers as opposed to individual home delivery.

[00:08:12] And there's also those indirect costs. It's not just the fuel and the labor, but the indirect costs that you've just touched on, which is around failed deliveries. So, I just wonder if you can elaborate a little bit here. What can you share around the economics of this? Like, what are the cost savings for retailers? One of the examples where we really learned how important it is to optimize the deliveries in a high-growing trend of second-hand items and second-hand fashion.

[00:08:40] As you know, we work with Vinted as a second-hand fashion marketplace. Very often, their items are actually low in value, right? So, you kind of destroy this value if the delivery cost then kind of duplicates the entire cost of purchasing that item, right? So, there are scenarios where an efficient out-of-home infrastructure makes all the difference to purchasing an item in the first place. Everything seems to be fast delivery, quick commerce, same day, next day, same hour. You know, it feels like that's the trajectory.

[00:09:10] But do you feel that consumers really value, like, reliability and control? Like, does that trump speed? I think definitely. I think they do get upset when they don't receive a parcel where and when they kind of want it. I think sometimes the parcel lockers and the out-of-home infrastructure provides much bigger value to a courier than a final user itself.

[00:09:38] But I think that's going to shift as the density grows. I live in Portugal, and I think the locker networks are just not dense enough. So, it's a little bit inconvenient still, at least for my area, to pick it up. Once I have a locker in every corner and once I can actually pass by it naturally every day, I'll definitely use it. So, that's one of the components. And what we see is that the adoption of lockers is growing faster alongside the density.

[00:10:05] So, more than you place, the more need you actually create. Yeah, that makes a lot of sense. I wonder if there are certain markets that are doing this really well. Like, where would you say consumer adoption is highest? And also, kind of what's driving that? Yeah, one of the best case studies, I would say, is definitely Poland. They were very fortunate.

[00:10:28] They had Inpost there who was very aggressive in the initial kind of initiating the adoption of lockers. They've really been kind of the first one to try to make it mainstream and really build a business model around it. And I think today they're very efficient for that reason. And Poland today have more than one locker per thousand people already. Whereas I would say that this ratio is much, much lower in maybe more Western European countries or in the US or pretty much everywhere else.

[00:10:56] But we can see Eastern Europe and the Nordics out-of-home volumes share very high. There's countries in the Nordics where out-of-home volume is actually already bigger than going to home. And even volume to lockers is actually the biggest share of all the deliveries. So, yeah. And we see this trend going everywhere. Yeah, I was going to say, I was going to come on to it a little bit later.

[00:11:21] But, yeah, I guess when we think about the evolution of out-of-home delivery, where do you think we are now? And I guess where do you see the opportunities? Do you think we'll follow in the footsteps of Poland and maybe some of the Nordics? Yeah, we follow everywhere. As I mentioned earlier, sometimes at the beginning for different reasons. But it's definitely going to be a global trend. It is already a global trend.

[00:11:44] If I focus just on our primary markets of today, which are Western Europe, just to match the same density of one locker per thousand people or a little bit more that we already see in some of these countries. It means that the Western Europe is already lacking 600,000 lockers in infrastructure as of today. Right. So there's a lot of deployments and a lot of infrastructure still to be built. But we see other parts of the world really picking up the speed.

[00:12:12] Latin America, the U.S., Canada, even Australia is running very interesting projects. Asia has already been adopting them for some years. So, yeah, definitely a pain everyone feels. As a kind of follow-up to that, when you're scaling delivery infrastructure, how important is it to offer a really simplified user experience? Like really cut the friction? Because I know, like, I guess just to back up, you know, we're all used to using our phone. We're used to scanning QR codes.

[00:12:40] So that kind of feels like second nature today. But I guess if you want to appeal to a wide audience, it really needs to be super easy and kind of foolproof. So can you just share some thoughts behind the user experience and how that's evolved? We have user experience on the side of a courier, but also user experience on the side of a user that is actually picking up a parcel, right? For both, the experience of the locker should be seamless. This should take seconds to retrieve or deliver a parcel. Final user just needs to collect it.

[00:13:10] It should be a matter of seconds and they should go on about their day. Everything else that wastes their time, a locker being too far from their house, all of these things just kind of destroy the value proposition for them using the locker. I was speaking of infrastructure and the numbers. I was only focusing kind of on the last mile delivery in terms of the logistics segment. I think there's huge potential for lockers and we see them in other market segments. Residential being one of them. It's actually the model that works the best in the US.

[00:13:37] Today, office buildings are adopting them as well. We have retailers, of course, using them for click and collect, but also for returns, especially during peak season. I think we've all experienced being in some shop and you want to return an item. You're already not happy about returning the item in the first place, but then you also find a 30 minute queue. I don't think anyone is very happy about that, right? So yeah, probably the workers at the store. Yeah, yeah, definitely.

[00:14:04] And I guess the clear benefit for retailers is that aside from kind of the labor savings and the ability to automate something that is a fairly kind of, you know, something that can be automated, I suppose, and save customers time and improve that overall experience. But I guess the other obvious benefit is that if customers are coming in to return a product, they're probably going to pick something else up when they're in the store.

[00:14:31] So there's that incremental purchase opportunity for retailers as well. So, super, super. Sorry, go ahead. Sorry, in order to mention that. So one of the challenges scaling the locker networks very, very fast is to obtain locations. And many times this is placed inside the stores or any kind of other private real estate.

[00:14:55] And this is one of the key drivers why they're actually very interested in deploying one of the lockers in their area is to drive the foot traffic. So while we're scaling the locker networks, I actually think it benefits many, many parties, pretty much every party involved in the process. So just to kind of go back to cost, because I think cost and sustainability are often very closely linked. And I know there is this ongoing debate in the industry about what's actually, from a consumer's point of view, what's actually more sustainable?

[00:15:25] Is it better to go into the store and buy something or is it better to order it online? And I know there are like a gazillion factors here, density being a huge one, as you touched on earlier. But I'd love to know how smart lockers play into all of this. You know, obviously fewer miles being driven, fewer failed attempts, fewer emissions. How do you help retailers to reduce their carbon footprint? Yeah, pretty much with everything you've mentioned.

[00:15:52] Once the density is right, we call it that you need to have a locker in your sleeper's distance. So definitely something that doesn't need you to pick up a car. And once you achieve that density, it obviously gets greener, to say this way. So less miles driven. You don't need to repeat no additional attempts to deliver a parcel. Instead of going to 50 places, you can just drop the 50 parcels in one spot. All of this reduces the miles driven and it reduces the CO2 emissions.

[00:16:21] Yeah. And is there anything you can share around returns? Because you did touch on it earlier. I just wonder, because especially in fashion where we have this sort of buy to try mentality where, you know, it's normal behavior to buy five pairs of jeans and return sort of three or four of them. That's a whole separate topic, maybe for another podcast. But it does exist. It's how we're shopping today. How important are returns to your lockers?

[00:16:48] I would say in some markets, this is actually a key for the initial adoption of lockers. So very, very important. It's a little bit maybe our laziness to order all these items and then just return half of them. But it's also a little bit of legislation in many countries that just gives you an opportunity to return pretty much every item in a certain period of time. We're observing this trend. I think I've read every fifth item is already being returned on average across the globe.

[00:17:15] So what we're doing with our lockers is when you return an item, essentially all of these items are picked up by one carrier. So we're looking for ways how to optimize this capacity and utilization of lockers. So we're developing an additional product line that is called a Dropbox, which essentially is just a locker with one door and it's only available for returns, for example. So definitely a big trend needs optimization, just like the last mile. We call that the first mile, obviously.

[00:17:44] Yeah, yeah. And I guess there's so many sort of holes to plug, I guess, when it comes to e-commerce. There's so many ways that retailers can get better at improving the experience for customers, but also becoming more operationally efficient. And because, I mean, the reality is we're only going to continue to shop online.

[00:18:06] And when we start to think about the future and how AI is going to drive adoption as well, I think it's going to power a whole new wave of e-commerce adoption, especially when we look at food and fashion. So, you know, retailers can't ignore it. You know, you've got to find better and more economical ways of serving the customer. And just to get your thoughts on the future, I wonder what the opportunities, if there are opportunities for smart lockers to become part of the retail media ecosystem.

[00:18:35] So not just delivery infrastructure, but do you think smart lockers could become a new physical consumer touchpoint? Yeah, absolutely. We've seen them being deployed in many different stores, especially for the click and collect purpose. There's been some very notorious pilots even done in the past. I think Walmart has piloted like a pickup locker before in their stores. And I think there's many stores that are actually doing this more in silence. So it's definitely happening.

[00:19:04] This automated handover is very useful for final users, but also workers at the store. And actually, our first B2B project back in the years, it's actually been a locker in a shopping mall. And you could actually order here in Portugal from any store in the shopping mall. And they would deliver this in one point in a locker. So if you were passing by or something, you could just stop by very conveniently on a parking spot, pick up your item and move forward. Oh, wow.

[00:19:34] That's very cool. Yeah, it was very convenient. It was a perfect first project per se for us. But I think this bigger need is even for returns. Yeah. When you want a return. Yeah. For sure. No, it is. It's a perennial problem in retail, isn't it? It's just I think, you know, again, we're probably veering off topic a little bit.

[00:19:56] But I think if anyone can solve the sizing and fit issue and that I think would, you know, help to improve the horrific returns rates that we still see in the industry, especially in fashion. But back to lockers. I have just a couple more questions for you, Mija. So I'd love to know when it comes to, you know, you mentioned Vinted Go. So I'd love to know what separates a successful smart locker rollout from a failed one.

[00:20:22] So I guess another way to ask that question is for any retailers that are tuning in today, what are the things that they should be considering when it comes to deploying lockers? When it comes to the last mile play, the biggest kind of success driver we've seen is to deploy enough lockers in a certain area and to provide the right density. I think I've clarified before that if the density is not right, the adoption is also going to be small.

[00:20:49] And in early days when maybe couriers didn't have enough positive case studies to learn from, they were mainly trying to cover a geographical area that was too vast and they couldn't really provide the right density and convenience for the user. And adoption was low. The same thing happens if you try to pilot a locker network with only a couple or five or ten lockers, right? Today, what we're observing is that the pilot projects are starting with hundreds of lockers already.

[00:21:16] So they understand that if you want to really test it, you need to do it with the right number and the right density. When it comes to retailers, I think the situation there is a little bit different. I think they can be less nervous and sensitive about the density because they will always put it in their store. And this click and collect and the return is always going to work even with a few lockers within that store, I believe. Because a customer would already go there.

[00:21:43] They would like to return an item, but they would hate to see a completely packed return desk for which they need to wait 30 minutes. You want your customer these 30 minutes to spend inside the store looking for new things, then wait for your return and leaving disappointed, not having any more time.

[00:22:02] Yeah, that's probably the worst case scenario for retailers is to add friction to something when customers are at a point where they want to get in and get out as quickly as possible. If it's something like a return, they want to get that done as quickly as possible so they can, as you say, maybe shop and buy something else. Yeah.

[00:22:20] And then just, I guess as a kind of final question for you, when we think about the future, like, do you think that smart lockers, you know, could they eventually become as common as like ATMs or, you know, public transport? Is it just going to become part of our, especially in urban areas, is it just going to become part of our everyday living? Yeah, 100%. And you already do in some countries.

[00:22:43] We just maybe live in countries where this is not so mainstream, but you can think of ATMs, vending machines, and lockers are just going to be part of infrastructure. A few years from now, we're going to look at them and it's just going to be another object on the street. You won't even remember times when lockers did not exist. Thank you for listening to Retail Disrupted.

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