What does the future hold for supply chains, warehousing, and the role of the store?
E-commerce has been a source of disruption for two decades, although it has only really begun to impact on occupier and investor demand over the past few years.
We are now beginning to see what ‘future-fit’ retail and logistics real estate looks like – what type of retail and logistics real estate will be resilient and deliver solid long-term performance for investors. Global capital is primed to invest in both sectors, with a pricing inflection point in retail a likely trigger for a selective investment feeding frenzy.
Different investors have different approaches to risk and returns – as highlighted by core, value-add and opportunistic approaches. The outlook for rental growth – often a key consideration – reflects local demand and supply factors, but there are specific and identifiable stock attributes that will drive enhanced rental growth for retail real estate
and logistics real estate respectively.
All retail markets have their own characteristics and market dynamics at both a ‘macro’ and ‘micro’ level. Consumer shopping preferences and convenient and/ or dominant retail places will vary by catchment, and each individual investment opportunity will need to be assessed in its own right. The focus needs to be on identifying opportunities that benefit from changing consumer demands and retailer needs. These opportunities should ultimately deliver robust returns, while also balancing risk.
In addition to these attributes, successful retail stock selection is also highly dependent on investors being able to recognise the optimum role and value of the store in real estate strategies. For retailers, the value of a store goes beyond product distribution and encompasses both marketing and customer experience. They also face an increasingly competitive online space where the cost of customer acquisition is going up and up.
In the fast-changing retail sector, success has never been more dependent on the supply chain. Omni-channel is adding new layers of complexity to retail logistics: it’s no longer just getting products onto shelves, but making them available anytime and anywhere. So how can retailers and investors thrive in an omni-channel world?
"Retailers no longer only have to get product to store. The complexity of supply changes is mirroring the complexity of consumer demands. Physical retail has a key role to play."
Omni Channel Supply
Chain Complexity
Bricks-and-Mortar Supply Chain:
Omni-Channel Supply Chain:
Modes of Transport:
Source: JLL (2019)
So How Can Retailers
and Investors Thrive in an Omni-Channel World?
"Ultimately, the entire supply chain will be digitalised; e-commerce is just a part of this process. But that doesn’t necessarily mean the death of the physical store."
With consumers increasingly shopping online, buying decisions often rest on how quickly and efficiently retailers can get goods out of the warehouse and into their hands. Yet it comes at a financial cost; pressure from e-commerce competitors only adds to the squeeze on retailer margins. As omni-channel retail evolves and consumer expectations around delivery increase, supply chain and logistics management will be crucial differentiators for retailers. Increasingly sophisticated technology and big data are helping to forecast demand, manage inventory, reduce costs and provide superior customer service. Ultimately, the entire supply chain will be digitalised; e-commerce is just a part of this process.
The role of the physical store is shifting to provide an experience that cannot be recreated online, letting customers interact with products, people and the brand itself. The right space in the right location will continue to attract consumers and generate returns for retailers and investors. Furthermore, physical stores have an increasingly vital role in click-and-collect and returns – acting as mini distribution hubs in critical inner city and at key retail locations.
There is a risk that investors are not looking at the whole picture as Europe’s retail industry enters a period of adjustment. It is a new era for retail and logistics and we need more spaces that fit the wider context of this new landscape. Investors need to respond to digitalisation; flexibility will be key. For retail investors, this means rethinking how they value stores and repurposing surplus retail space into alternative uses. For logistics investors, it is about exploring new urban models to better service last-mile delivery and working with the retail and consumer environment they serve.
Today’s consumers expect retailers and their partners not only to make their supply chains more sustainable, both in terms of ethics and the environment, but to demonstrate that they have done so. Circular models and conscious consumption efforts are set to become increasingly more popular and if adopted early offer real opportunities for financial reward alongside environmental gain.
Comments