Studies have shown that shoppers of all ages are buying more online than in stores than ever before. So how are retailers addressing these shopping and buying habits? David Hudson and Chris Sultemeier, two leaders from Duke Realty, tackled this topic at I.CON West 2019, NAIOP’s industrial conference held this week in Southern California.
Consumers today fully expect to have the ability to shop and engage with a retailer across multiple channels. Three experiences build the multichannel experience for the retailer: 1) giving consumers the ability to buy in a physical store; 2) enabling orders to be placed online; and 3) following and engaging on social media. Studies show that if a retailer can connect with a consumer through all three channels, the value of that consumer (who is typically younger and wealthier) is much greater for the retailer; in fact, the average value of a consumer who engages with a retailer across all three channels is four times the value of one who engages through just one channel. This loyalty – and repeat customer – is key to a retailer’s success.
This multichannel drive alone has launched a whole new realm of careers. Every retailer is constantly monitoring both social media and what it can do to reinforce the shopping experience. They are employing individuals and teams focused on growing engagement across social networks. These online influencers have a growing level of importance for retailers because they have access to a large audience and can persuade others by virtue of their authenticity and reach.
For the shopper, their expectation for a seamless omnichannel experience is driving retailers to think in new ways, and that means physical store operations are changing. Sultemeier has an extensive history in logistics with Walmart; he said that in 2016 Walmart averaged $1 million per week in in-store pickup, where orders were placed online and picked up in the store. This service is particularly popular for temperature-controlled and fresh grocery items.
Walmart realized the capacity for growth here and capitalized on it: one year ago, it averaged $100 million per week for the same type of sale. It fueled numerous changes in the store footprint, including considering how orders are picked from shelves, where the consumer parks and enters the store to retrieve their purchase, and how purchases could be delivered directly to the consumer’s car.
From a supply chain standpoint, it’s all about speed. Lots of supply chains are built on capacity, but speed – or helping the time-starved consumer and serving their needs faster – is critical. This can’t be completely solved by automation; it’s more of a combination of technology and labor. A fully automated fulfillment center (one with robots and technology only, no humans) would be a nearly impossible investment to recoup. Trained employees paired with automation and mechanization is a great balance, said Sultemeier, also noting that the decision to take a fulfillment center to a fully automated one is a social decision for a company, given the repercussions lost employment would have on the community where it’s located.
Building costs are a small portion of the total operating budget, accounting for an average of 5%, which is far behind the costs of transportation and labor. Sultemeier said that transportation costs may be lower for fulfillment centers in urban locations, but will remain the lion’s share of operating expenses.
The cost of getting goods through the last mile are still extreme, and retailers are testing new models all the time to be more efficient and lower costs. Sultemeier reviewed Walmart’s past strategies, which included everything from using ride-sharing resources like Lyft and Uber drivers, to paying Walmart associates to make deliveries on their way home, to exploring customer-to-customer delivery in exchange for a shopping discount. None of these have proven fruitful, so the search for the perfect solution goes on. Interestingly, Sultemeier noted that if the retailer was making the delivery, customers expected delivery to be free (thanks to Amazon Prime for fueling that expectation). But if the customer could select a ride-sharing service or other delivery method, they wouldn’t mind paying a small delivery fee.
One of the biggest challenges for omnichannel retail is the reverse logistics; handling all those returns is tough, and it seems nobody has the process figured out. Walmart had six return centers, where goods came in and were processed, and then either resold through a secondary wholesaler, shipped back to the original supplier, or destroyed. A new strategy that is emerging is one where physical retailers are accepting returns from pure online retailers. Kohl’s is a recent example of this, as its stores now accept Amazon returns. This is a win-win for these retail stores, who connect their brands to the largest online retailers, leverage the volume of returns to improve their own networks, receive payment from the online retailer to handle this service, and ultimately get a shopper to walk through the doors of their own stores, which could lead to more sales for them.
As the omnichannel experience continues to grow and transform, it’s clear to see that retailers will take advantage of every opportunity to connect with shoppers and ultimately get closer to the consumer. This is the advantage for commercial real estate – creating spaces and building facilities that meet this growing demand.
Kathryn Hamilton is Vice President for Marketing and Communications at NAIOP Corporate.