Indust-Retail: The Merging of Retail and Fulfillment (Industrial) Real Estate
We’re producing amazing high school graduates, says Bob Cassilly , county executive in Maryland. “But the jobs we’re building for them are stacking boxes in warehouses.”
According to Peter Grant of The Wall Street Journal (WSJ), warehouse developers are confronting an unexpected problem: not-in-my-backyard community opposition. And this isn’t only a problem in the US. Researchers in the Netherlands shared this year that the public continues to want purchased items to arrive quickly without the logistics industry near their homes.
Why are warehouses coming closer to our communities??
As part of the Innovative Economic Symposium 2020 in Samara, Russia, researchers shared that "the volume and quality of warehouse services directly depend on the development of warehouse infrastructure.”
Bart Bronnenberg wrote in The Economic Journal that decreasing the cost of distribution allows:?
Seth Martindale , senior managing director at CBRE focused on industrial site selection, shared this insight: "People want next-day delivery, but they don’t want to see a distribution center next to them.”?
“People want next-day delivery, but they don’t want a distribution center next to them.”
E-commerce has transformed retail and industrial real estate through demand for speedy delivery of goods to consumers’ homes. Goods are now being stored closer to consumers. Trends in shopping are blurring the line that has historically divided industrial and retail real estate.?
This article will explore the traditional view of industrial and retail real estate, trends in indust-retail (the nexus of industrial and retail), examples, and the relationship between online shopping and the brick-and-mortar store.
TRADITIONAL VIEW OF INDUSTRIAL AND RETAIL REAL ESTATE
At the 2022 World Economic Forum, David Steinbach explained that historically, real estate divided itself neatly into product types. Office, industrial, multi-family, and retail were distinct investment opportunities, and real estate operators needed to stay in their lanes. Today, product types are blending.?
This article specifically examines the blending of retail and industrial product types in real estate.?
Definitions
Virginia Tech defines retail property as commercial establishments offering goods for sale to the public.
NAIOP defines industrial property as buildings used for:?
There are portions of industrial and retail in which the dividing line between them is beginning to fade. Warehousing, fulfillment, and brick-and-mortar stores are particularly prone to this phenomenon.
TRENDS IN INDUST-RETAIL
Many trends are affecting both industrial and retail real estate.
Stores as Fulfillment Hubs
Store owners used to see e-commerce as a threat to their existence. Now, more brick-and-mortar stores are using online shopping to enhance their business, wrote Kate King of WSJ. Shoppers like to see, touch, and try on items before ordering them online.?
And “retailers are increasingly relying on their shops as fulfillment hubs, shipping items ordered online from store stockrooms in addition to warehouses.” Kohl’s fulfills over a third of its online orders in stores, Walmart more than half, and Target nearly all.
Jeff Bettinson , an experienced retail property manager at Cushman & Wakefield, shared in a recent interview that when he was at Valley Fair Mall and Amazon was starting to take over, they thought e-commerce would kill the malls. Instead, retailers began fulfilling orders from the store closest to the consumer. It ended up augmenting the brick-and-mortar locations; people began to buy online and return or exchange the products in-store.?
The Final Mile
According to the Journal of Property Management, unlike other industrial buildings, final mile facilities are located in more urban or residential areas, closer to customers.
They are used primarily by large online retailers, logistics companies, and others who want to ship items quickly.
Smaller, Closer Big Box Stores
Big brands are building smaller stores closer to their customers, per Greg Petro , one of National Retail Foundation’s “25 Most Influential People in Retail.” Work-from-home changed how people shop; they like shorter drives and open-air parking.?
There may be other benefits of having physical stores closer to consumers. According to a research article published in Management Science, there is evidence that customers who visit showrooms will wait longer for products than if they saw the lead time online.
Benjamin L. , senior regional manager of facilities and construction at Lowe's, shared in an interview that supply chain distribution is taking center stage, allowing stores to reduce in-stock demand as a result of customer needs.?
EXAMPLES
Target
Liz Young of WSJ shared that using store aisles as fulfillment centers has streamlined the flow of goods at Target. The retailer’s strategy includes using brick-and-mortar locations for same-day pickup and delivery and holding fewer goods so they have “the right amount of merchandise in the right place.”
They consider all the ways a guest interacts with their inventory, ensuring items are available for ship, pickup, and same-day delivery. Chief Supply Chain & Logistics Officer Gretchen McCarthy doesn't care whether an item is bought in-store or online: “My job is to make sure that we have the inventory wherever it’s going to be fulfilled from.”
Walmart
According to Max Garland , senior reporter at Supply Chain Dive, Walmart has begun adding parcel stations to its stores to improve last-mile delivery efficiency. These mini post offices receive packages from company fulfillment centers. The items are then delivered to customers’ homes.
Parcel stations give customers more time to place online orders on more merchandise for Next Day Delivery, said Jennifer McKeehan , SVP of transportation and delivery. They also make it easier and more efficient for associates to distribute online orders from stores.
Amazon
As reported by Liz Young , how items are placed when they arrive is key. Placing them upfront at facilities closest to customers increases speed and decreases costs, said Udit Madan , VP for worldwide operations at Amazon.
Amazon wants to hold inventory across more locations. The retailer has been opening inbound receiving centers designed to stow large numbers of goods and leasing warehouses in rural areas to use as delivery stations. Rural buildings minimize final-mile costs (the most expensive leg of package delivery).
Amazon also plans to double its same-day fulfillment sites, which stock a narrow assortment of popular items prepared for delivery within hours in large cities. The expansion responds to Walmart filling online orders through its stores. Walmart has stores within 10 miles of 90% of US consumers.?
Abercrombie & Fitch
Kate King revealed that Abercrombie & Fitch Co. designs stores to easily enable shoppers to retrieve items bought online; locked cabinets are located near checkout to hold merchandise for pickup.?
“The customer demands this seamless omnichannel experience where the stores and the digital business are connected,” said Scott Lipesky , chief financial and operating officer.
The rise of e-commerce caused the retailer to close its biggest stores in major cities and open smaller-format stores there; its business shifted to 45% digital by the end of 2023.
ONLINE SHOPPING AND THE BRICK-AND-MORTAR STORE: FRIENDS OR FOES?
Kate King shared that almost 42% of e-commerce orders in 2023 involved stores, compared to 27% in 2015.?
It is expensive and difficult to attract and retain customers without physical stores. And using stores as pickup and drop-off points lowers the cost of online orders.?
The pandemic catalyzed the integration of online and in-store shopping, as retailers had to offer curbside and pickup services, said Neil Saunders , managing director at GlobalData. Now, many consumers expect these options.
Issues
Items bought online and picked up in-store can artificially depress locations’ sales, hurting landlords who track retailers’ performance to set rent rates or collect percentage-of-rent proceeds, said Josh Dinstein, SVP of acquisitions at Continental Realty Corporation.
Grocery stores struggle to profit from online orders, which are labor-intensive and require additional space in the store for the refrigeration of items awaiting pickup.?
Despite the drawbacks of some trends combining retail and industrial, there are many opportunities for companies to grow and improve if they are willing to adapt.
Author Bio
Jacob Neil is studying construction and facilities management with an emphasis in facility and property management at 美国杨百翰大学 . He and his wife, Elle Compton Neil , live in Springville, UT. Jacob loves ocean waves, birds of prey, and soccer. He served a mission for The Church of Jesus Christ of Latter-day Saints in Mexico City from 2017 to 2019 and was raised in Washington State.