The Changing World of Trade
By Cushman & Wakefield
The retail sector today is undergoing rapid change, as it becomes more global, urban and specialized due to the rise of online shopping, mobile technology and changes in consumer spending patterns. The effects of customer demand on real estate include changing location strategies and increasing investments in reducing operating expenses. To meet the demands being driven by e-commerce, technology and transportation costs, companies are actively streamlining their fulfillment processes – improving logistics to maximize efficiencies in inventory, service time and delivery – which is driving demand for high-quality space.
“Seismic changes in retail requirements are putting new pressures on shippers who are expanding to developing economies while concurrently struggling to adapt to the challenges of high-demand retailing in increasingly dense cities,” said John Morris, Cushman & Wakefield’s Industrial Services Lead Americas. “In response to these challenges, logistics efficiencies, location and transportation strategies, as well as improvements in technology management, are having major impacts on distribution channels and real estate sectors alike - essentially re-writing the rule book on how goods are delivered to consumers, worldwide,” continued Steven Watt, Head of Pan-European Industrial & Logistics for Cushman & Wakefield.
John Strachan, Head of Global Retail at Cushman & Wakefield added: “The fundamental changes in retail since the recession in 2007 have altered customer behavior and created a new set of demands. Where the physical store was previously the primary point of distribution, now it may be the internet. For supply chain executives, it means that they face a new set of challenges - integrating their fulfillment operations across channels to reduce cycle time and meet the needs of an increasingly demanding consumer.”
Winning Strategies
Winning strategies will demand flexibility and diversity, collaboration, automation, technology – and a keen balance of scale and scope, most likely through consolidation and vertical integration.
Supply chain flexibility will require regionalization consisting of a network of smaller urban locations and large distribution centers to accommodate the growing trend towards same day fulfillment, which will likely benefit some of the better-positioned tier II markets. Outsourcing to third party logistics companies, 3PLs, can contribute capacity and expertise without significant fixed cost investments. However, companies need to strongly consider controlling their own real estate, with cost reduction and technology continuing to drive location decisions and design parameters.
Logistics will rely more on improvements in the productivity of capital, utilizing order management and distribution automation technologies. In some markets, labor shortages and costs are making these investments an urgent necessity.
Note: Supply Chain Digest suggests that companies interested in gaining exposure to the most up-to-date logistics and material handling automation technologies visit MODEX 2014 (March 17 – 20, 2014 in Atlanta) & ProMat 2015 (March 23 – 26, 2015, in Chicago).
The required investments in technology and real estate will continue to put pressure on margins across all industries, with companies seeking economies of scope and scale. Scale will be attained primarily through consolidation. Scope can be attained by vertical integration, which is expected to drive greater demand for space. Today’s most advanced distribution facilities offer clearances of about 35 feet, energy-efficient lighting and green building materials.
Note: Supply Chain Digest suggests that DCs be equipped with very flat floors for higher mobile equipment productivity as well as an ESFR (Early Suppression Fast Response) ceiling mounted fire sprinkler system for more flexibility in the arrangement of storage racks and other bolt-to-the-floor equipment.
An interactive version of the full report “The Changing World of Trade” and a related video are available at the following links:
http://www.cushmanwakefield.com/en/research-and-insight/2013/changing-world-of-trade/
http://www.viddler.com/embed/12e1175b/?f=1&autoplay=1&player=simple&secret=25643904&loop=0&nologo=1&hd=0