“Customers don’t want to shop; they want things that help them live a better life to magically appear,” said Ben Conwell, senior managing director and eCommerce Advisory Group Lead with Cushman & Wakefield, quoting Dan Makowski, Walmart’s vice president of design. Conwell spoke about new approaches to fulfillment and the impact of omnichannel retail on industrial real estate at NAIOP’s CRE.Insights: The Last Mile conference this week in Seattle.
Online retail growth has exploded – total online retail sales in 2017 reached $453 billion, up 16.2 percent year-over-year. In fact, e-commerce is growing at a rate up to five times higher than traditional retail. This means that the rules of fulfillment have changed – and so has space demand. Speedy delivery expectations mean inventory needs to be closer to consumers. This is a big boon for industrial real estate: fulfillment centers lead as the most common product delivered in the last six years.
Across the board, e-commerce growth is healthy, but overall e-commerce trends are no match for Amazon’s total growth. Amazon still takes the largest (and growing) share of the pie, with Walmart as a solid number two. Retailers who invest in their online presence – like Williams-Sonoma, Restoration Hardware and J.Crew – are seeing online sales growth even as their brick-and-mortar locations falter.
But there’s still power in a physical store – it’s not an either/or proposition, said Conwell. Shoppers expect the relationship between online and in-person retail to be seamless, so retailers must leverage both their store footprint and their online presence. There will always be need for well-curated, well-located retail. Even initial online-only retailers like Rent the Runway, Warby Parker and Boll & Branch are establishing physical stores, helping them reach new buyers and increase brand recognition.
Walmart is building the most compelling complement to the physical store network, and they are a formidable competitor for Amazon. To keep product close to consumers, the company is converting recently closed Sam’s Club big box space into fulfillment centers.
A Deloitte study says that free shipping remains more important to 90 percent of online shoppers than fast shipping when additional fees are involved. Holiday rush included: 65 percent of shoppers expect to be able to order after December 17 and still get free shipping. This is good news for the U.S. Postal Service, which does more e-commerce delivery than anyone else. USPS is nearly exclusively delivering Amazon purchases on Sundays, as well as offering next-day delivery options in limited markets, where the company’s delivery person picks up purchases directly at a local retailer and delivers them to the customer’s home.
About one-third of online purchases end up being returns. This is an important component to consumers: 92 percent of surveyed online shoppers will buy something again if returns process is deemed easy, and 78 percent expect free return shipping. Notably, 62 percent say they are more likely to shop online if they can return items in-store.
Poised for growth in online sales: Furniture (including mattress sales) and pharmacy. CVS is working hard to fulfill the latter before Amazon, which is rumored to be exploring the pharmacy business.
Conwell closed with his biggest trends to watch in 2018:
- Fulfillment center designs are changing rapidly with new technologies, which have important ramifications for investors.
- Mergers and acquisitions – deals and rumors of deals have an impact.
- Leveraging store footprint – omni-channnel is ubiquitous, and retailers with brick-and-mortar space have a significant strategic advantage.
- Urban everything – keys are proximity to urban density, which helps with instant gratification for the consumer. Labor, labor, labor is now proximity, proximity, proximity.