Industrial Distribution Networks Evolve to Accommodate E-commerce [REPORT]

0 CommentsBy

By: JC Pelusi, Great Lakes Market Director at JLL

Largely due to emerging markets, B2C e-commerce spend will hit $1.5 trillion in 2014, according to a recent study from eMarketer.

Online shopping is the ultimate convenience. And thanks to evolving distribution center design and strategy, retailers are able to deliver online orders in a timely fashion. So, how have retailers evolved the structure of industrial real estate to meet consumer expectations? Below, JLL researchers recap the evolution of retail logistics over the past 40 years.

See JLL's whitepaper, E-commerce Boom Triggers Transformation in Retail Logistics, for details.
Along with looking back across the last four decades, JLL’s retail team also looks ahead to answer the question on the minds of many in industrial real estate: What’s on the horizon?

According to JLL’s recent whitepaper, E-commerce Boom Triggers Transformation in Retail Logistics, a new class of retail distribution centers has emerged, including a variety of distribution and fulfillment centers, hubs and warehouses. Below we’ve outlined three of the top trends driving change in retail logistics facilities.

3 E-Commerce Trends Impacting Logistics and Distribution Facilities 

1. Instant Service 

The online shopper doesn’t want to wait weeks (or even days) for their order to arrive. As Multichannel Merchant points out, “Consumers want their packages to arrive before the excitement and novelty of their purchase wears off.” To help satisfy this consumer craving, and remain competitive, companies are seeking ways to meet delivery expectations. Take for instance, Amazon. Amazon opened small distribution facilities across the U.S. to successfully provide same-day delivery. The push to deliver instantaneous service requires the right space in the right region. We expect a network of local facilities to continue popping up in big cities with dense populations.

2. Buyer’s Remorse

To maintain a competitive advantage and provide a positive customer experience, businesses must establish an easy return policy. As with any retail transaction, there is always the risk of return in e-commerce. Returns are of course handled within modern e-fulfillment centers, but with the increase in cross-border transactions, there’s new demand for localized centers dedicated to returns. From the JLL report: “The importance of this function is highlighted by the very high rates of return in certain sectors, such as fashion retail.” Actionable Tip: Consider paying for the cost of the return by providing a printed return label.

3. Omni-Channel Customer Experience & Retail Logistics 

Omni-channel shopping enables a consistent experience, whether customers choose to shop in-store or via a digital device. Retailers are looking to integrate all processes, information systems and infrastructure (i.e. the retailer could deliver an order from the store or from a warehouse) to create the best experience possible. One prime example is Macy’s. In JLL’s whitepaper, researchers highlighted a 2013 case study in which the department store announced plans to transform its distribution strategy by fulfilling online orders from more retail stores. The proposal, in essence, would increase the number of stores fulfilling online orders by 60 percent (from 292 stores to 500 stores).

5 New Types of Logistics Facilities Emerge

Warehouses are evolving to better suit specific functions. JLL experts have pinpointed five new types of logistics facilities emerging to meet the demands of e-commerce:

1. Mega e-fulfillment centers: Characterized by very large facilities (500,000-square-feet to 1 million-square-feet) that house stocked items.

2. Parcel hub / sortation center: Items are sorted here and then passed on to local delivery centers.

3. Parcel delivery centers and urban logistics depot: These centers are likely on the edge of major cities for fast shipping options.

4. Return processing center: These facilities are strategically located to return items to e-fulfillment centers.

5. Dot.com warehouse for online food fulfillment: Details will mirror the type of operation, and is likely on the edge of major cities. 

Download JLL’s full whitepaper on global e-commerce and retail logistics for details on emerging building attributes and location elements. Interested in receiving more information about making strategic commercial real estate decisions? Contact me for more information at spaces@am.jll.com.

About the Author

JC Pelusi is an International Director for JLL and works out of the Pittsburgh office.  As the leader for JLL’s Great Lakes region, JC has extensive experience in a variety of areas, including Corporate Account Management and Transaction Services.