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September 18, 2020

For years, mall landlords have been looking for ways to curb their losses in the age of online shopping.

Now they’re betting that e-commerce — the very thing that disrupted their businesses to begin with — will help provide that boost.

Retail owners are increasingly looking at micro-fulfillment centers and logistics nodes that can sit right behind stores. The model puts click-and-collect, in-store shopping, and the fulfillment of online and pick-up orders in one place, located close to where people live.

“Our clients have been increasingly considering micro-fulfillment as a two-birds- with-one-stone approach: landlords need to fill vacant retail space and retailers need to get goods ordered online shipped to customers,” says Naveen Jaggi, President, Retail Advisory Services, JLL, Americas.

The idea isn’t brand new, especially for grocery stores. But COVID-19 has ignited its broader relevance.

In June, eMarketer forecast e-commerce is poised to grow 18 percent in 2020, following a 14.9 percent gain in 2019.

“Shopping centers are located right where people live,” Jaggi says. “They are likely to become an essential part of the supply chain.”

The need for last-mile fulfilment
Consumers now expect a near immediate click-to-door delivery speed, something that requires fulfilment centers be close to home. Neighborhood shopping centers and malls are often already positioned as those sought-after last mile locations, says Craig Meyer, President, Industrial, JLL, Americas. The near-overnight increase in e-commerce due to the emergence of COVID-19 has shown us that being close to the customer is paramount, he adds.

Total e-commerce sales could hit US$1.5 trillion by 2025, which would increase the demand for industrial real estate to an additional 1 billion square feet, according to JLL predictions.

“We have historically attributed as much as 35 percent of industrial leasing to e-commerce, and, currently, as much as 50 percent of our leasing activity can be attributed to e-commerce related operations,” he says.

When it was first introduced decades ago, e-commerce disrupted the retail industry and forever changed the way people shopped and received goods.

Now, Meyer says, “repurposing vacant or ‘dark,’ stores and mall space as micro-fulfillment centers will be an important component in re-imagining the U.S. retail footprint.”

Grocery adoption
The grocery industry operates on low profit margins, and micro-fulfillment is helping stores struggling to fill the surge of online orders in a cost-efficient and timely manner.

Whole Foods recently converted some of its stores to fulfillment-only hubs due to increased demand for online grocery delivery, while other stores have portions dedicated to fulfillment. Several other notable grocery brands like Kroger are exploring micro-fulfillment.

Because online grocery orders were a small part of the overall e-commerce pie going into the pandemic, some grocers — along with other traditional retailers — were caught off guard by the sudden popularity in online ordering, Jaggi says.

“COVID-19 showed how retailers whose business model incorporated a strong e-commerce strategy were at an advantage once the pandemic hit,” he says. “Those who weren’t already invested in this area find themselves searching for innovative ways to do so without the greater investment of large distribution centers. E-commerce and micro-fulfillment might be the answer to what is the best use of tenant space that cannot be replaced with traditional retail.”

Click to find out why supermarkets are rethinking their real estate.

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Naveen Jaggi

President of JLL’s retail brokerage in the Americas.

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