‘Just in time’ logistics – which allowed retailers to shrink their city shop stock-rooms in order to boost selling space, in favour of distribution centres outside cities – changed the relationship between retail and industrial property. Now, e-commerce is changing it again.
A new global report from JLL, ‘More than the last mile’, explores how the growth of e-commerce has increased complexity for retailers due to the fragmentation of delivery options – such as home delivery and ‘click-and-collect’ – and the fight to deliver purchases more quickly to customers. “Add in the fact that customers are not prepared to pay for the true costs of delivery, and it is unsurprising that e-commerce is causing profitability problems for retailers and financial difficulties for some major parcel carriers providing last-mile deliveries on their behalf,” the report says. “Both retailers and parcel carriers have been demanding more space in cities to satisfy escalating online demand, with same-day delivery especially requiring the retailer to hold local stock close to customers.”
As a result, the changing relationship between the Australian industrial and retail sectors is having a major impact. Retailers are being increasingly challenged around how they use their distribution centre networks, explains Michael Fenton – Head of Industrial for Australia at JLL.
“Traditionally warehouses would only have to deal with moving large orders to the store. Now they have to also move medium-and small-sized orders to both central distribution points and households directly. Many warehouses are not equipped to deal with this diversity – it requires different types of storage, different truck movements, different racking systems and more,” Fenton says.
“The balance will shift to locating big logistics centres on the periphery of metro areas, with smaller centres being built within city limits to reach a specific customer base. Same-day delivery requires a sophisticated distribution network, and that ultimately comes back to technology,” he adds.
However, there’s another factor increasing pressure on the sector – the re-zoning of industrial land closer to city cores for other uses, particularly residential. This is already having an impact in Australia’s biggest cities.
“It’s been really evident in Sydney and Melbourne, and as a result, has increased the cost of logistics because of the growing distance between the warehouse and the customer. With additional residential development also comes traffic congestion and therefore slower delivery times, requiring new transport networks to cater for the demand .”
While Fenton believes industrial assets close to city centres will increase in value for this reason, the savings that logistics companies can achieve in terms of reduced delivery times for their customer base will be the strong selling point.
But while the interaction between retail and industrial is changing rapidly, in many ways, there are other areas where change will be more gradual. This includes the rise of the ‘dark store’ concept; facilities established by larger retailers in metro areas to service e-commerce deliveries, typically lacking a traditional store-front and significant branding.
While major Australian retailers are beginning to roll out dark stores primarily for food and grocery deliveries, focusing on densely populated areas, this is unlikely to result in a significantly reduced traditional retail footprint, according to Jacob Swan, National Director of Retail Investments for JLL.
“Australian retail is well insulated against this threat as a result of our significantly reduced physical retail floor space-to-population ratio, when compared with the likes of the United States,” Swan says.
New technologies such as drone delivery will also be one of the changes seen more gradually, due to factors including Australian aviation regulations and the sheer physical size of the country. To work effectively in Australia, drones would need to be based within a kilometre of the distribution centre, and this is unlikely. It is more likely to have an impact in heavily built up areas with lots of traffic, such as Jakarta or Sao Paolo.
Swan agrees. “As far as the retail dynamic is concerned, drone technology won’t have much more of an impact than what is already occurring, domestically and internationally. Drones are still seen as a fad at this stage, although many retailers will adapt to the benefits of drone delivery in the future.”
Automated technologies however are one element that are likely to impact the relationship between industrial and retail in a meaningful way, and sooner.
“Retailers have had to adapt and invest heavily in technology in order to meet the demands of the customer. Industrial and retail will become even more intrinsically linked as this continues. Front end systems will have to seamlessly speak to the back-end distribution technology in order to provide a streamlined service,” Fenton says.
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