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FEATURE ARTICLE

Digital natives drive new distribution channels

A more holisitic retail experience is demanded says JLL's Carl Durrant


BIRMINGHAM, 12th March, 2015 - Rapid urbanisation is transforming the way we live, work and play. By the time you've finished reading this article, another 600 people will have moved to cities somewhere in the world. Birmingham currently holds a population of 2.2 million but by 2033 this is expected to have increased by a further 200,000 and the projections are rising.

The shift from suburbs to cities is bringing swelling numbers of 'digital natives' - people born during or after the introduction and widespread adoption of digital technologies.

These digital natives have come to dominate retail spending and are driving e-commerce and transforming the global retail landscape.

Carl Durrant, industrial and logistics director at JLL's Church Street offices in Birmingham says the influx of these tech savvy retailers into our cities is influencing the way retailers think about their logistic strategies. Online and multi-channel retail, logistics and supply chain management are critical to delivering the best consumer experience and getting this right is a tremendous source of brand value for retailers as he explains.

As e-commerce logistics models develop. Huge changes will be seen in physical distribution networks and their complexities.

E-commerce has already evolved significantly in the past couple of years and in time it will cease to exist and consumers will see the online and instore offer as seamless and one and the same.  In the future not having a fully operational online presence in the marketplace will be inconceivable, if it isn't already.

We are now moving towards Omni-channel retailing.  It provides an almost holistic approach to retailing, looking at the whole person and their needs and desires and addressing every one of them so they can experience products, through all available shopping channels be it mobile internet devices, computers, bricks-and-mortar, television, catalog and so the list goes on. 

The bricks and mortar store is where the products may be collected but in the future they will have been experienced through a range of channels beforehand. Rumors have started circulating that Amazon was weighing up the acquisition of a number of stores.
It’s thought that the retailer wants to use the stores to showcase products like its eBook reader Kindle, in addition to offering pick up and drop off facilities for online customers. Click and Collect, which seamlessly combines clicks and bricks is in its infancy but is set to explode over the next decade. The role of shops and warehouses will become blurred.

The ease and convenience of on-line shopping boosted by the growth of tablets and smartphones is also contributing and consumers are now much more comfortable about putting their credit card numbers into mobile phones, so they could be on the move anywhere and finding out about where they can access their favourite brands.

Getting the consumer and keeping them is the most basic of retail principles and the proliferation of distribution channels and location of these tech savvy shoppers is driving retail supply chains and the distribution networks that support them to evolve and fast, creating increasing demand for a variety of different types of distribution property closer to the more densely populated cities.

To date, the strongest growth in demand has been for mega e-fulfillment centers, parcel hubs and local parcel delivery centers.  UK Mail has taken 230,000 sq ft at Ryton, Coventry and the Alternative Parcel Company has also acquired a new 130,000 sqft HQ at Cannock. In our opinion, this will continue, although we predict growing demand for local urban logistics depots and more demand for online food e-fulfillment centers.

With order delivery time considered a key differentiator among retailers, demand for smaller e-fulfillment centres closer to major population centres to offer same day delivery is key.

In the UK, Amazon recently announced a requirement for around 20 warehouses between 5,000 sq m and 10,000 sq m around the UK’s main urban areas, to accommodate demand for same day delivery. Nearly 400,000 sq ft of new urban logistic centres have been acquired in the past 12 months at places such as Merlin Park, Hurricane Park and Network Park in Birmingham, plus Wednesday, Solihull and Minworth.

Demand for new types of distribution facilities, brings different building specifications compared with more traditional warehouses and distribution centers.

The parcel hubs are typically specialist warehouse facilities designed to facilitate rapid throughflow, as opposed to storage. These networks are organised as hub-and-spoke systems, where the main hub functions as a sorting centre, receiving orders from local spokes, sorting them by end destination and dispatching them to appropriate local spokes for onward delivery.

The demand for these facilities, and the large sortation centres, is increasing significantly in line with the growth in parcel volumes, representing an important opportunity for new development.

In the future we could also see demand for shared user consolidation centres in and around major urban areas to consolidate home deliveries. A number of urban consolidation centres have already been established in various locations across Europe to consolidate deliveries for retail store replenishment, notably to major shopping centres, high streets or airports, although these are still relatively few and far between.

The challenge of providing an excellent customer service for online orders whilst containing costs could encourage retailers to look at shared user consolidation centres for home delivery too.

Multi-channel retail will increasingly evolve into omni-channel retail to provide a fully integrated seamless customer shopping experience. With omni-channel the role of shops and warehouses will become blurred.

Retailers, parcel operators and logistics companies along with developers and investors need to stay ahead of the curve and be responsive to this change in order to optimise their respective strategies and get best value from their logistics real estate from an operational or financial return perspective.