Omni-channel Retail + Warehousing  =  Rethousing “A new subclass of real estate”

Omni-channel Retail + Warehousing  =  Rethousing  “A new subclass of real estate”
06/08/2018 , by , in EXPERT ZONE

And as people change their behaviors, marketers, salespeople, and customer support reps will need to react. Instead of thinking of a desktop experience, a mobile experience, a tablet experience, and an Apple Watch experience, we’ll need to pursue one, holistic approach — an Omni-channel experience that customers can use whenever they need it.

 From Location, Location, Location, “the new mantra” in real estate is Logistics, Logistics,Logistics!!

There was a time when industrial real estate was related mostly to heavy manufacturing as well as light assembly, truck terminals, general purpose warehouses and last but not the least distribution centers. Industrial real estate might not be the sexiest product type, but right now it is and would keep creating decent numbers thanks to the make in India thrust by the government. The category of industrial real estate which is red hot thanks to the rapid growth of e-commerce and the changing habits of today’s consumers, which in turn has been driving demand for space is distribution centers. In retail real estate in addition to“location, location, location”, the new mantra is “logistics, logistics, logistics.” There is seemingly no end to investor interest in the real estate facilities needed for the efficient and time-sensitive storage and movement of goods between source and end-user and there are good reasons for that. There are basically three categories of logistic real estates.

Urban Warehouses –Demand for urban warehouse will rise as proximity to customer base becomes paramount

Regional Hubs          -Need for efficiencies and volume will maintain demand

Multi Modal            –Greater coverage and supply chain efficiencies make multi-modal hubs appealing

 

A lot of it has to do with e-commerce. Penetration rates for online retailing across the globe vary between market, depending on country, computer usage and culture, and a common factor is the requirement for state-of-the-art storage and distribution facilities and systems that are able to handle the flow of product from factory or field to retailer, and from retailer to customer and back. But the further common factor that excites most is that those online penetration rates are still rising and will continue to rise across a broader range of products — this is not a static market but almost a real estate investor’s dream come true. “Logistics is moving from being an ugly duckling to a beautiful swan,”

India is expected to become one of the biggest and fastest e-commerce markets, driven by rapid increase in internet users and changing market trends. Indian e-commerce sales are expected to reach US$ 120 billion by 2020 from US$ 30 billion in FY2016. India’s retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015, driven by income growth, urbanization and attitudinal shifts. This is happening in the logistics sectors as well. The matrix of logistics sector is changing due to the increasing focus on e-commerce logistics and express logistics. The domestic e-commerce industry is growing at 35- 40 percent CAGR which has resulted in large players introducing a dedicated e-commerce logistics business. The internet, e-commerce, mobile communications and urbanization are driving a revolution in retail, and, as a result, changing the nature of the warehouse as we know it.

The growth of e-commerce logistics is directly linked to the fortunes of the online retail industry. It is estimated that online retail will be an $18-billion industry in India in 2018 and e-commerce logistics will be a $2-billion industry in 2019. This number will only grow when online retail becomes, a $220 billion market in 2030.

It’s a Store!It’s a Site! It’s a Warehouse!

In retail, logistics used to be back of mind. Warehouses and distribution centers were planted in remote locations, where costs for land, labor and taxes were low. Thanks to the demands of e-commerce, which is still in its infancy in terms of growth, last century’s warehouses—out-of-the way, passive, cookie-cutter boxes—have evolved into this century’s technology-rich logistics facilities. For a growing number of companies, be they online retail giants, start-ups or brick-and-mortar chains building out e-commerce capabilities, logistics facilities already perform many of the functions of a store or a cash and carry facility and a fulfillment center. An example being Walmart’s India initiative “Best Price “, which also acts as a fulfillment center for the online venture bestprice.in all under the same roof.

Not too long ago, Europe’s number one sports retailer, Decathlon, repurposed all of their warehouses so that they are now used for both physical stores and e-commerce, and the warehouses work together to ensure that customers receive their orders within a target delivery time of two or three days

 

The Importance of “The Last Mile” in Retail & E-Commerce

There’s been a big spike in the development of massive distribution centers and a mad rush by e-commerce players and retailers for well-located “last-mile” fulfillment centers located near population centers to meet consumers’ needs for fast product delivery. The Last Mile is essentially the last leg of the product’s trip before it arrives on the consumer’s doorstep.

This new “retail model” requires distribution centers that are compatible with online purchases, complete with state-of-the-art technology, high ceilings, loading docks, easy access to highways and most importantly located near population centers. The development of these modern facilities continues as Amazon, one of the biggest players in the game demands it and soon would Walmart, which has turned on its e-commerce game with acquisition of Flipkart. However, in India Walmart has been a nonstarter even in its core business of brick and motor retailing and now wholesaling, getting into e commerce is a whole new ball game.

 

 The Concept of Click and Knock

E-commerce retailers use numerous methods of inventory management, order selection, packaging and shipment for delivery or customer pickup. The overall time frame and costs associated with the “click” (on a computer or other device) and the “knock” (on the door at the delivery destination) correlates directly to the distance between the location where inventory is stored and where an item is delivered to a customer. Amazon in America can sometimes receive an order, “pick” the product, package and ship it within 20 minutes from “click to ship.”  They haven’t reached that efficiency in India yet but they are making strides in the direction. Only the other day I realized I was out of my favorite cereal, I ordered it late in the night, it was at my doorstep first thing in the morning in a nicely taped brown box with environmentally friendlyair pillows filling up the voids so the cereal box does not get damaged.

The challenge of compressing the time frame between “click” and “knock” requires a seamless and well-executed effort among the following three elements:

  • Information Technology, for order management and payment processing.
  • Operations, for order picking and packaging.
  • Site Selection, to ensure that logistics networks can support the delivery promise. 
All stakeholders in the e-commerce process — manufacturers, retailers, IT providers, third-party logistics and transportation providers, distribution and fulfillment center operators and others — work together to create an effective delivery strategy to ensure customers receive their orders at the expected time and cost. A buyer must be assured, at the time he or she makes the “click,” that the “knock” will come as promised. 
Retailer strategies are focused on aligning their inventory, facilities, technology, transportation and delivery services so that transactions, payment and delivery occur seamlessly. All of these strategies center around increasing market share, growth and domination in the evolving and challenging retail industry. 
There is constant demand to compress the “click to knock” cycle, so many companies move inventory to local storage facilities in order to offer same-day and next-day delivery. “Getting local” with inventory is critical to the success of the e-retailer and continues to be a requirement for a successful, web-based fulfillment program. 
Getting local also means that the retailer must have a real estate strategy which balances the cost of new space, more inventory, advanced order- management technology, faster shipping response times and lower shipping costs. These tensions must be addressed as part of any implementation strategy for an e-retail program.

There are several players who are gung ho about industrial real estate and want a piece of the pie.  The warehousing and logistics sector, which attracted investments of more than a billion dollars in 2017, is gearing up for the next round which is expected to witness higher interest in building businesses around steady rental income.

At the top of the list is Canada’s Brookfield Asset Management Inc., which is evaluating opportunities to invest in logistics parks. Amongst others are Hiranandani communities, Lodha group, Mahindra lifespace as well as the Embassy industrial parks are allaggressively seeking new properties. However majority of players In India are still from the unorganized sector basically converting farmlands into warehousing spaces.

The Human Challenge

In spite of immense growth, I strongly feel e-commerce infrastructure is still undeveloped, especially in the infill locations that facilitate last-mile delivery. It’s only the beginning of the process through which retailers will scale up their operations and continue to experiment with a range of e-commerce concepts, strategies and supply chain arrangements.The biggest challenge here again would be lack of experienced manpower who are specialist in both retail (both brick and motor and E-commerce) and warehousing. The only talent if any one sees is from the International property consulting companies which again is confined to warehousing part and the retailing part scores a near zero. As usual the practice would be trial and error.

I see the beginnings of a new class of real estate dedicated to e-commerce, brick & motor retailing, cash and carry and warehousing “Rethousing” the new kid on the block has arrived and is here to stay!!

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