As the clicks and bricks went head-to-head in retail’s all-important holiday season, the “clicks” had already won the 2013 race to build new warehouse and distribution facilities. Winning the overall retail race is quickly becoming about being first from dock to doorstep and satiating customer’s hunger for insta-delivery. This means having the right infrastructure, particularly supporting facilities, in place.
With a 20.6% increase in online sales over last year, 2013’s Cyber Monday became the biggest online shopping day in history, according to the IBM 2013 Holiday Benchmark Report. Juxtapose this against brick-and-mortar stores, where Black Friday retail sales decreased 13.2% from 2012, according to ShopperTrak.
Couple these figures with the media blitz surrounding the potential for drone delivery, and there is no doubt that retailers’ delivery commitments will remain a key competitive differentiator. The question is how can both traditional and pure e-commerce retailers better equip themselves to accommodate customers' delivery expectations?
Armed with our new research, we continue our discussion of retail distribution property strategy and introduce the real estate model that is emerging to support an all-new omnichannel logistics paradigm in 2014 and beyond.
An omnichannel strategy creates a seamless consumer experience across bricks-and-mortar, Web and mobile shopping — as opposed to managing each channel independently. Achieving this goal is more than integrating front-end customer-visible systems like websites and mobile shopping apps, it also entails updating and integrating logistics real estate so that each location supports the retailer's ability to meet evolving customer demand. The result: customers order and receive packages when and where they want them.
Indeed, the business case for investing in omnichannel strategy is already becoming clear. A leading discount retailer recently announced development of two new mega-fulfillment centers — one exceeding 1 million sq. ft. — after seeing earlier investment in e-commerce pay off to the tune of a 20.3% rise in Web sales from 2011-2012, according to JLL's Big Box report. It expects e-commerce earnings to ring in at $10 billion this year. Meanwhile, a major department store chain, which posted a 41% growth online in the same time frame, is integrating online and store channels, having announced in February its intention to expand online order fulfillment to 500 stores by end of year. The retailer expects this will allow faster, even same-day fulfillment, as well as give the customer the option to click-and-collect in store.
Retail Logistics Trends: Property game changers through the ages
This is not the first time retail logistics have triggered a seismic change in retailers' property portfolios. In fact, the 1980s were the first decade to usher in a new era in retail logistics real estate. Centralization of goods, wherein retailers took control by operating their own distribution centers to fill their shops as needed, had large new warehouse facilities popping up nationwide.
In the 1990s, the warehousing landscape became even more complex, with an influx in global sourcing triggering the need for an additional facility design dedicated to processing imports.
Now, once again, there is a new real estate asset class in town. With e-commerce activity erupting in the 2000s, and heating up ever since, the associated retail logistics challenges are driving a need for even more specialized types of facilities.
In 2014 and beyond, bulk processing will no longer be king and the individualized delivery model will reign supreme. The supporting real estate plays a key role in driving efficiency, which ultimately optimizes consumer experience.
With the new onus on retailers to process, pick, package and deliver individual items to countless customers’ homes (including gift wrap as an option), all in a single day's work, today's dock-to-doorstep logistics challenges may be enough to make retail executives long for the single-pallet-bearing, truck-based model of yesteryear. But updating facility strategy will make the transition possible.
Six New Facilities Support New Omni-channel Paradigm
One fluid distribution system with more specialized facility space appears to give retailers the upper hand for faster delivery. Today’s facilities include:
2014: The Year of Same-Day Delivery?
This year could be the year that retailers are able to integrate channels and supply chain locations to make same-day delivery achievable. It won’t happen with every retailer or with every product — but generally, we see many more retailers and e-tailers with plans drawn in their supply chains to make this goal potentially achievable.
Question: How will it happen? Answer: Through e-commerce, taking market share and driving supply chain adjustments. The numbers don’t lie: total B2C U.S. e-commerce sales could reach approximately $4.4 billion in 2014, based on projections that sales are expected to grow annually by 11.4% through 2017. With 81% of the country's population already online, and the drive toward increased consumer convenience heating up, we expect to see retailers playing catch-up next year to capitalize on the very real opportunity associated with omnichannel, specifically by reassessing their supply chains, physical distribution networks and fulfillment systems.
This year, we also expect to see an uptick not only in development of these specialized buildings, but also an increased push for click-and-collect options, user-friendly return options and cross-border e-commerce — all which will help retailers give customers the power to shop how, when and wherever they want.
Kris Bjorson is head of retail ecommerce distribution at Jones Lang LaSalle, a professional services and investment management firm that specializes in real estate. With annual revenues of $3.9 billion and operations in 70 countries, Jones Lang LaSalle provides services to a property portfolio encompassing 2.6 billion square feet and manages $46.7 billion of real estate assets. Contact Kris at firstname.lastname@example.org or visit www.jll.com.