By Margy Sweeney, Akrete
E-commerce is changing supply chains and retail distribution strategies at a rapid pace. But are warehouses and distribution centers evolving as quickly as consumers’ delivery preferences? Warehouse developers, retailers and their distribution partners are finding creative ways to optimize the product journey, from manufacturer to distribution and finally, across the ‘last mile’ to consumers.
Market Position gathered an expert panel on this topic that includes perspectives from Rick Daly, president, Darwin Realty; David Liebman, managing broker, Merit Partners LLC; and Rich Thompson, managing director, Americas Leader – Supply Chain & Logistics Solutions, JLL.
Margy Sweeney, Akrete: How can developers of e-commerce or omni-channel distribution facilities stay competitive in this fast-changing retail environment?
Rich Thompson, JLL: E-commerce sales continue to grow each year, so developing adaptive, technologically savvy, omni-channel supply chain capabilities is essential to staying competitive. Location, of course, is critical, along with the ability—both by using high-tech distribution systems and by putting the right overall fulfillment network in place—to offer consumers speedy delivery and convenience.
Rick Daly, Darwin: For high-velocity warehousing, developers need to plan facilities with 32-foot or higher clear-height ceilings, 130-foot or larger truck courts and a more-than-typical number of parking spaces for labor-intensive warehouse operations. These facilities also should have high power capacity to feed conveyor systems and other automated material handling equipment. Location itself plays an important part in terms of access to major highways. For example, we see a large appetite for infill sites in the Chicago market, and there is a lack of state-of-the-art, high-cube product with high-velocity loading specs.
David Liebman, SIOR, Merit: For industrial companies, technology plays an increasingly important role every year; it’s a critical part of staying in the game—and winning it. Industrial building owners that recognize the importance of increased connectivity, optimal wiring and other technology infrastructure options necessary for today’s business users are better positioned than those with outdated or less sophisticated product. Repurposing building space, such as rooms that previously contained servers and cooling systems transitioned to third-party data centers, gives building owners the opportunity to integrate new technology or software into the business to streamline it. Evolving is a natural process, and finding rooms (literally) for improvement can change the entire landscape of how an industrial business runs.
Sweeney: What are some creative ways real estate can make it easier for retailers and e-commerce companies to handle increased demand during certain times of the year, like the holidays?
Liebman: Warehousing is not as simple as it used to be. There are now more ways to be competitive without taking away shelf space. For instance, technologies for scanning bar codes help a warehouse operator keep a close watch on the inventory, get rid of overstock, and inform the business when it should bring in more product. Also, incorporating a powerful warehouse management system (WMS) that tracks inventory within and outside of the building is directly related to the success of a both the company’s supply chain and the profitability of its distribution business—and has become the norm.
Thompson: From the supply chain perspective, Black Friday, Cyber Monday, and Singles Day are retailer developed shopping days which were created to help smooth out demand during the busy holiday shopping season. Stretching out the delivery calendar is important to the e-commerce companies and parcel delivery companies such as FedEx and UPS to avoid overcapacity and ensure timely delivery of packages.
Sweeney: What do retail and e-commerce tenants want from a new distribution facility?
Liebman: Business owners looking for industrial space increasingly have highly specific connectivity, electrical, sortation and plumbing requirements for their business. They don’t just prefer highly connected and infrastructure-rich buildings—they can’t do without them.
Daly: Tenants yearn for clean spaces that are very functional for use, while also secure. They also like the stability of knowing what future operational costs will be; including not only rent, but also real estate taxes and maintenance costs for operating the facility. Distribution facility tenants have similar concerns with cost, but they are more concerned in high-velocity/heavily truck-loaded warehouses of exterior building, loading packages and exterior truck court maintenance and replacement costs.
Thompson: One of the most important considerations for e-commerce tenants when looking for sites for new fulfillment operations is labor. The requirement for full and part-time (seasonal) labor can be 10 times that of a traditional retail distribution center for the same size facility.
Sweeney: How will the build environment shape the future of e-commerce?
Thompson: Retailers are getting creative in their ‘Last Mile’ strategies. Some are creating ‘dark stores’ which are non-customer-facing mini-fulfillment centers in retail locations used for package sorting and for final deliveries. Some retailers are blurring the line between storefront and distribution centers by using dead-zone retail spaces for seasonal “pick-up” or “pop-up” locations throughout urban areas. Alternative shippers like Deliv and UberRUSH are becoming more relevant, delivering from dock-to-doorstep.
Daly: E-commerce users will continue to retrofit existing facilities as necessary in mature markets to service very dense populations and cut delivery times. Other e-commerce companies will either work within new speculative boxes in surrounding markets, or build facilities to suit their exact needs. Additionally, e-commerce distribution demand is driven by density of population as well as proximity to expressways and rail services that will deliver regionally for same-day or reduced-time delivery. For these reasons, users will continue to have demand for these types of e-commerce centers in Chicago, in particular.