By Andrew Chung, Innovo Property Group
Across the U.S., there is nearly one billion square feet of total warehouse inventory that is over 50 years old, yet the buying tendencies of customers has drastically changed over the past 10 years alone. Amazon Prime’s two-day shipping benefit was introduced in 2005, influencing customers to the expectation of expedited shipping speeds as the new norm. The window in which customers expect their products has decreased from 8 to 10 days as standard, to same-day and multi-hour delivery as a conventional option. As consumers are shifting their buying habits, retailers must adapt and rethink their fulfillment strategy to efficiently meet demand.
New, urban warehouses are the key to better serve today’s customers and enable retailers to keep up with the demands of the future. Much of today’s available warehouse space is not equipped to compete with modern needs, or located next to the urban core, leaving many retailers and online providers to miss the mark when it comes to supporting the explosive growth in the e-commerce industry and expedited delivery. Modern urban logistics centers have a few key features that make them significantly more effective than existing properties.
Expedited E-Commerce Fulfillment
Urban warehouses provide retailers invaluable proximity to densely populated, affluent areas, with access to deliver more product in a shorter span of time. While the need for warehouse locations in suburban areas has not ceased, additional warehouse spaces in urban locations are essential for those who want to remain competitive, delivering product quickly and efficiently. The urban warehouse rent may be a supplementary expense; however, having space in these heavily-populated areas is more than justified in comparison to exorbitant delivery costs from locations outside of the urban core, and allows for increased operational efficiency. The suburban warehouse is still essential for the major distribution center, but the urban warehouse can be added as a node in the supply chain to drastically reduce logistics costs. The combination of an urban warehouse, and local logistics to provide same-day services are more cost-effective than current two-day delivery options without an urban warehouse, even after factoring in additional urban warehouse costs.
Same-Day And Multi-Hour Delivery
When deciding on a new warehouse location, it is crucial to consider how quickly the company’s team will be able to maximize time and deliver product to the end consumer the fastest. To flourish in today’s competitive marketplace, retailers need to be centrally located to be able to fulfill delivery promises, at a much faster rate than in years’ past. Proximity to bridges, tunnels and highways is essential to deliver same-day quickly to thousands of customers with greater efficiency. With access to an urban warehouse, same-day delivery is possible at a lower cost, allowing for more trips in a shorter time frame. Multi-hour delivery simply is not possible if products are not close to customers – especially when considering and accounting for traffic. Retailers today are learning that multiple trips, even if traditionally considered efficient, for example, from New Jersey to New York City, is time-consuming and much less cost-effective in comparison to the benefits provided by an urban warehouse.
Going Vertical And Modern
In major cities, space is at a premium so warehouses have gone vertical to maximize the land. As the demand for space increases, multi-story facilities are the solution. The need for modern warehouses equipped to handle high velocity e-commerce distribution has greatly increased over the past decade, however only 11 percent of the country’s total warehouse inventory was built within the last 10 years – leaving the majority of available space with out-of-date technology. New, urban warehouses are also at a greater advantage due to modern building specs including higher ceilings, column spacing, floor loads and loading docks on each floor. The ability to load on each floor can support throughput and reduce truck waiting times and having ample loading docks with truck accessibility allows for increased productivity, and the ability to serve more customers with more products much more quickly. However, this also creates the need for ample parking and dock door space, which due to lack of available land, can be extremely hard to find. For example, in New York City, there is virtually no existing available inventory that matches the above, and the high price of land has forced developments to go vertical to compete with the needs of today.
Retailers need to also focus on the efficiency of returned goods, the faster a return is processed, the faster the good becomes available for the next sale. If 30 percent of online orders are expected to be returned, having an urban warehouse can fulfill an exchange faster, and in a more cost-effective manner. Secondly, having an additional location for goods to be returned to within close proximity of the customer is key to diligent throughput.
To compete with the convenience e-commerce affords consumers, traditional brick-and-mortar stores have to adapt. More companies today are offering experiential showroom-type spaces in place of conventional retail stores to drive foot traffic and attract customers. This often means less merchandise on-hand in the store, creating the need for continual replenishment to stores, therefore prompting access to the fulfillment centers is imperative. Having an additional urban warehouse for daily or intra-daily replenishment with expanded inventory in a prime location - close to both stores and consumers - also helps to avoid costly stock-outs. Many retailers today are fulfilling directly from their retail stores; however this can end up costing 18 percent more than fulfilling from a warehouse. The right urban warehouse can fuel a retailer’s omni-channel success by increasing service offerings and reducing overall supply chain costs.
Another major movement in the industry is to offer customized products. Consumers want to be able to personalize their items, and the window of time in which customers expect their delivery – even with a customized product is rapidly shrinking. Urban warehouses can assist in facilitating this by having dedicated space to create the customized product, which may not be available in older properties, as well as quickly shipping direct to consumer or to retail locations for in-store pickup.
Overall Increased Efficiency
Modern warehouses are evolving into multi-functional logistics facilities, which drive down logistics costs as well as better serve both e-commerce and omni-channel retailers. Retailers today should view their warehouse expenditure as cost per unit, rather than price per square foot, as investing in these features means an increase in delivery speed and will pay off in the long run. An aging warehouse facility with antiquated features cannot support an efficient, effective flow of goods. A modern urban warehouse is the key to turnkey retail fulfillment. The future of last mile is in the new urban logistics center, which can help a retailer gain a key advantage in an increasingly competitive marketplace—and keep customers happy with fast deliveries.