Logistics and industrial markets racing to adapt to changing retail patterns

In the past few weeks I have been closely monitoring articles posted by our retail research team relating to global trends reshaping the retail sector. These articles form part of a major global research piece entitled, ‘Redefining Retail Places’, whichhighlights, amongst other things, how customer experience and service is moving into the spotlight of physical retail spaces. This is exciting for me both as a customer and from a professional point of view as changing consumer behaviour and altered retail business models will have consequences for logistics operations.

In addition to the direct retail trends that my colleagues so vividly describe, there are other drivers to consider ranging from urbanization to sustainability, that do not impact on retail alone but also on … yes you guessed it … logistics and industrial! Whilst we can expect the implications on the logistics and industrial markets to be huge, evidence in the market suggests that the emerging distribution models are largely untested and that increasing supply chain complexity is adding further uncertainty. As such, what are the lessons for the logistics and industrial market from evolving retail patterns? Undoubtedly, to make the transition to a seamless customer retail experience, distribution models more than the retail concepts themselves, will be an important component of success. But whilst companies might have identified the trends and challenges they need to account for in order to offer a seamless, efficient and sustainable retail offer, the majority are having a hard time transforming this into future proof distribution models. As a result, todays supply chain realignment is merely playing catch-up with the fast evolving retail concepts rather than providing mitigation against further change.

A recent survey carried out by JLL in co-operation with CoreNet Global confirms a continued significant pressure on companies to further align distribution models. Major concerns cited were pressure from rising transport costs and the need for shorter order lead times. The latter is heightened by a retailer war for same-day delivery and other distribution concepts for online orders to win over customers.

Expanding click & collect concepts, services like my parcel where the customer can chose the time and place of delivery, options for delivery boxes installed at customers’ homes and trends like pop-up shops further add to the complexity of distribution and in particular last mile delivery. But the majority of new distribution models are only at an early stage. As best practice is missing execution is often based on trial and error. Furthermore, many of the challenges that companies need to tackle are out of their own hands, including degrading transport infrastructure and urban congestion with action – and finance – largely remaining with governmental bodies.

Providing adequate real estate might seem a daunting task considering that even those within the distribution sector struggle to fully comprehend how to implement future needs into their supply chains. The good news for the real estate sector is, most distribution models explored today – and likely most that will emerge over the next few years – will not require hugely specialized facilities. Evidence suggests that most concepts can be run out of todays’ standard modern functional facilities. The success of these buildings will not depend largely on building specification but location criteria that enables cost efficient, timely and sustainable distribution and delivery.

Important exceptions will be those operations based on a large labour force. For companies operating out of mega-sheds with 24/7 operation schedules – and real estate developers providing these facilities – it is time to consider the workplace environment of labour-intensive warehouse facilities. Going forward, these mega-sheds are likely to lose their ‘warehouse’ image and turn into a new, different workplace environment.

The opportunities for real estate are plenty.

  1. Established markets should continue to prosper; provided they can offer adequate real estate supply and transport infrastructure. Nevertheless, all will have to evolve further to remain competitive.
  2. New logistics clusters will emerge where markets can offer the benefit of multi-modal transport thus at the crossroads of road, rail and water (including both seaports and inland ports) – speeding up delivery time and reducing overall transport costs.
  3. The new class of mega-sheds will evolve further as the need to provide adequate workplace conditions to attract and retain a motivated workforce.

For more information on the trends and challenges driving logistics and industrial markets check out our recent occupier survey.