At CRE.Converge Virtual 2020, a panel of experts shared the new challenges faced by the industrial market, specifically e-commerce, and how they are adapting supply chains to help their tenants/clients address these massive disruptions.
Moderator Cameron Trefry, LEED AP, principal with Ware Malcomb, led the discussion, which included panelists Chuck Graefen, senior director distribution support, KeHe Distributors; Adon Panattoni, Chief Executive Officer, Panattoni Development Company; and Matt Powers, executive vice president retail and e-commerce distribution, JLL.
Shifting Consumer Habits
Trefry started by asking the panelists what they are seeing in consumer buying habits and the impact on the omnichannel experience.
“What we’ve seen over the years is an extreme change when you’re talking about what distribution networks look like,” said Powers. Ten years ago, most retailers had a dedicated distribution network in place. The standard has been set for next-day, same-day service, and for companies to maintain market share, they have to meet that demand.
Over the last 10 years, many of the big retailers have made great plans for meeting increasing e-commerce demand. However, “As good as the plans were that those companies made, those companies are at volumes three or four times what they’d usually see on certain items,” Graefen said. “In February, March and April, we saw incredible volumes. You couldn’t forecast anything in March and April.” While things have leveled off a little bit, Graefen said they’re still seeing twice the normal volume for certain items, causing his company to adjust constantly.
“COVID has accelerated [companies’] 5-10 year plans to 2-3 year plans,” Powers agreed.
And while some retailers see their brick-and-mortar store footprint as an opportunity for a last-mile hub, the panelists pointed out that those stores are built only to house in-store inventory, not significant amounts of stock. “So just because you have a store in downtown Chicago, you don’t have a fulfillment center in downtown Chicago,” Powers said.
Some Obstacles Remain
“One challenge is that the industry is changing so quickly, and even our tenants’ requirements are changing quickly,” said Panattoni. “You’re trying to get in front of opportunities as a developer/investor… An 8-acre site you think would work a few years ago now doesn’t work anymore.”
Another challenge for industrial developers and investors has been securing the community support needed for a successful project.
“People have the retail blinders on and when they hear about a distribution center… they think of a 1970s-era truck terminal with crazy traffic,” said Powers. The speakers agreed there is an opportunity for the development and brokerage community to convince those in political office they are bringing in an overall benefit to their communities. “I’ve seen positive headway in a lot of communities, but it’s going to take a concerted effort,” Powers said.
“Retention is the number-one challenge in our company,” Graefen said. “That’s part of why we’re investing so much into automation. We’re also modifying the amenities in our buildings to making them more modern to today’s workforce.”
Panattoni agreed: “A labor study has become a part of our process, no question.”
Powers said that sometimes he’s seen companies overlook labor costs. “If you’re trying to capture market share and service the consumer ASAP, you’re willing to eat those labor costs.”
All parties agreed that perhaps the bigger problem is labor availability. Everything is moot if a tenant can’t get the labor in place. Some companies are hiring third-party labor experts to make sure the markets will have employees with skill levels they’re looking for.
Building with E-commerce in Mind
“Retail is never going to go away, but this trend is causing companies like us to build new buildings and plan new sites, specifically with e-commerce in mind,” said Graefen. “Automation is probably the number one thing we’re putting into facilities.”
“Really in the last year we’ve started focusing on our projects being e-commerce ready,” Panattoni said. “It became something on our due-diligence checklist, not just something we talked about. We’re asking: Are we e-commerce competitive?”
Another critical factor is entitlements, Panattoni said, not only how many trucks can come to site, but when they can come to site and at what times. “All of that plays into what can be a successful e-commerce facility.”
What can help ensure retailers’ success in the new evolving e-commerce landscape?
The most successful companies will have a presence in both places, Powers said – a physical footprint and online. “I think the path is to satisfy the customer, and sometimes customers want to go into a store, and sometimes they don’t.”
And the customer is always right.
Brielle Scott is Senior Communications Manager at NAIOP.