Drones and Dark Stores Could Change the Retail Supply Chain
27 May, 2015
Real estate implications of last mile delivery will be profound, predicts JLL retail e-commerce distribution strategists.
The omni-channel marathon is turning into a sprint to win the consumer over in the last mile – but that race is far from over. With the increase in mobile and online shopping, delivery wars have been set and with them, aggressive same-day deliveries that target 1-2 hour delivery windows. But it remains to be seen if consumers will pay extra for it. The heated competition among retailers large and small begs the question: is a retailer’s real estate helping or hindering their last-mile performance?
“For retailers and pure-play e-tailers, getting closer to the end customer involves a heightened focus around cost and service and this means real estate decisions are critical,” said Kris Bjorson, head of JLL’s Retail E-commerce Distribution group. “The stakes are high and the right strategy has a heavy impact on a company’s overall brand identity. In order to achieve competitive advantage and refine the customer experience during the delivery phase, retailers need to refine their real estate strategies.”
Recent research from JLL examines four distribution real estate models:
1) Traditional fulfillment and delivery—still an option
• Shipping-as-usual. Most longstanding retail package delivery systems use traditional parcel carriers to deliver online orders, including companies like FedEx, UPS and DHL. Orders are picked up from a distribution center and routed through parcel hubs and sortation facilities operated by the chosen delivery carrier.
• Outsourcing to a 3PL. Employing a 3PL (third-party logistics company) to handle fulfillment, where the 3PL will manage the inventory, handling, facility and information technology has helped keep retailers focused on their core business.
2) Dense, urban CBD delivery—essential for winning versus the competition
• Branded delivery offerings. Amazon’s evolving services, from Amazon Fresh to its Prime Now quick-delivery service, or Google Express are gaining popularity. However, they are infrastructure-intense. These services often require fleets of vehicles to make deliveries, and small warehouses near dense population centers to minimize transportation costs.
• Uber-fast delivery. Uber is beginning to leverage its platform of drivers to deliver ‘Essentials,’ beginning in Washington D.C.
• Emerging ideas. There are numerous variations, such as eBay Now amongst others, including local or regional courier companies.
3) Ship from stores / store fulfillment—making the most of existing real estate
• Big box, big secondary market play. Large global retailers have the scale, system of stores and volume of SKU’s to reach many customers throughout the country. Using existing real estate to service a new type of customer could translate to significant market share in secondary markets, where the same-day methods in major urban areas do not meet financial goals.
• Dark store, bright future. Dark stores or redundant stores-turned-fulfillment-centers are an emerging concept and real estate category in the United States, providing a pick-up location that becomes the last mile.
4) Aspirational concepts—what the future may look like
• Lockers not yet locked-in. Locker pick-up systems have been employed on a ‘trial and error’ basis with several retailers and online giants. They require heavy infrastructure to fulfill orders quickly from stores or infill fulfillment locations.
• I-spy a drone—in the future. Drones are a news-making delivery strategy, but have yet to pass all regulatory and operational hurdles.
“Getting the right delivery and returns formula is still evolving for many retailers,” said Bjorson. “Looking at real estate, where it is located and how it fits in to the supply chain could make or break a retailers bid to win over customers in the last-mile delivery phase.”
Source: JLL press release
Image: renjith krishnan at Free Digital Photos.net