Multichannel Retail Is Remaking Distribution Networks
Last month’s holiday season brought the seasonal retail push. Coast to coast, goods moved at peak volumes, as they do more or less every year. But the radical change brought to retail by online shopping technology has, more than ever, redrawn the landscape in all areas of retail, from customer-facing to logistics and everywhere in between.
A recent Jones Lang LaSalle report put the number of retailers selling online at 92 percent, with 68 percent operating brick-and-mortar retail stores. The past five years have seen increases in online sales for 80 percent of retailers, and some of those are pegged at 25 percent increases.
The pre-internet retail distribution network is undergoing a significant reorganization as e-commerce and its younger sibling m-commerce (mobile) are commanding ever greater shares of the pie. The bedrock retail conception of store location itself is breaking down. Shopping is increasingly located in every customer’s pocket, hours of business now 24/7. The retail business depends less and less upon square footage as time goes on.
The translation in square footage almost certainly means two things: first, for some, it will mean smaller physical stores. Retailers will want to pay less for space to avoid supporting the consumer behavior of “showrooming” where the shopper visits the expensively kept, heated, lit and staffed store merely to try out products, then order the product from the lowest-priced online retailer.
The major operations tactic used by retailers to combat showrooming is to have customers order online to then come to the store for pickup. According to Forbes, 7 out of the top ten retailers provide in-store pickup for e-commerce orders. Completing purchases in the store means ending the customer’s impulse to research prices; retailers successful at this get that way by maintaining consistent pricing in e-commerce and mobile channels.
More Logistics Centers, And A Drive To Separate Real Estate Costs
The retail ecosystem, while likely to lose customer-facing square footage in the coming years, still must handle product inventory for fulfillment. This has set the stage for the sharply rising market in third party logistics (3PL) facilities.
The 3PL proposition as a pure real estate deal is not easy to find. Commercial practitioners are often called upon to have logistics experience, because real estate costs are often bundled with logistics agreements in comprehensive service agreements for major clients using 200,000 sq. ft. and higher 3PL facilities.
But while lease negotiations for 3PL providers are often combined or “bundled” with logistics and management agreements, the prevailing retail e-commerce trend is raising demand for service from such facilities. Development of new facilities takes time, but operators and clients don’t want to wait. Operators are looking for ways to unbundle such deals in order to gain the flexibility to service a range of clients under one 3PL roof.
Commercial practitioners working the retail sector would do well to notice that any general decline in customer-facing square footage strongly suggests a matching rise in 3PL demand.