COMMENTARY: All eyes on omnichannel

New imperatives are compelling retailers to think about the real estate implications of e-commerce

By: Matt Powers
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Photo: angkanaSU / Shutterstock.com
   We are on the cusp of the Fourth Industrial Revolution, and its effect spans far beyond consumer markets.
   As noted by Klaus Schwab, founder and executive chairman of the World Economic Forum, this revolution is fundamentally different from its predecessors. It is not solely characterized by enhancing consumer technologies; it also holds the key to improving business efficiencies and requires organizations to examine their asset management strategies. And this is already being practiced by retailers, which are on the front line of the revolution.
   The challenge for retailers is twofold.
   First, there are new technologies disrupting their global value chains. But there are also new competitors, e-tailers birthed in the digital revolution, that built their business around those emerging technologies and reinvented the sales and distribution model in a way that gives consumers a quick and high-quality shopping experience that is no longer limited by their physical location.
   JLL research on leasing activity shows just how drastic the disruption has been on the overall retail industry.
   From 2010 to 2016, there has been a nearly 40 percent increase in retailer leasing activity for e-commerce, while traditional leasing activity is down almost 38 percent in that same time span. A recent Wall Street Journal study confirmed that the majority (58 percent) of shoppers made purchases online last year.
   In the fourth quarter of 2016, e-commerce sales accounted for about 10 percent of all non-automobile retail sales, its highest share ever and double its share from a decade ago.
   Even so, 20 percent of consumers still start and end their shopping experience in traditional brick-and-mortar stores, and nearly two in five (38 percent) prefer to research merchandise both in-store and online.
   Retailers who have taken note of this in-store and at-home combination are wisely investing in expansive omnichannel distribution strategies to get the best of both worlds.
   For smart retailers, e-commerce is simply a part of their omnichannel strategy, albeit a part requiring significant change in business practices for established traditional sellers. Needless to say, those who are late to the omnichannel game are trying to catch up.
   But it’s not just retailers that will be left behind by ignoring the impact of e-commerce on traditional supply chains.
   With e-commerce guaranteed to grow into a bigger, more important piece of the omnichannel pie moving forward, downstream changes need to be addressed while time remains. Consumer demands reach all the way from final destination to the origin of goods, including ports. With 70 percent of economic activity accounted for by consumer spending, the omnichannel revolution has the potential to make a bigger splash in the supply chain and logistics industry than the Sears Catalog once did back in the late 1800s.

With e-commerce guaranteed to grow into a bigger, more important piece of the omnichannel pie moving forward, downstream changes need to be addressed while time remains.

   Beyond ensuring that they are capable of handling increased container traffic, it is imperative that ports execute real estate strategies that align with the modern retail environment. Once products arrive, there needs to be facilities nearby to house them before last-mile distribution.
   The access points that allow for the smoothest flow to distribution centers and the shortest transit time to market will prevail.
   The frequency of shipping service is increasing, and expediting this process will soon be a crucial task for shippers and ports in order to thrive. In some cases, ports have the ability to lease nearby land for the construction of distribution centers. In other cases, this is simply not an option.
   Not every port has the excess land to accommodate such a solution, but the omnichannel revolution won’t excuse ports incapable of land banking.
   There are many factors to consider as this omnichannel revolution forces all players in the supply chain to rethink their real estate assets. In order to fully understand—and stay ahead of—market trends as we enter the Fourth Industrial Revolution, seek the input of real estate and logistics experts that know how to adapt to an environment
facing a sea of change.

Matt Powers is executive vice president of the Retail and E-commerce Distribution group at JLL Ports, Airports and Global Infrastructure.