Bring Stores more Fully into the Supply Chain, CBRE Says

There have been some tough times in brick and mortar retail, notably lots of closures of physical stores in the face of in many cases mandated closings during the pandemic, excerbated by acceleration of the existing move to ecommerce in 2020.

But 2021 was a better year for brick and mortar stores. In fact, in Q2 last year, all retail sales growth was 5.2%, besting ecommerce growth of just 3.1%, according to data from the US Census Bureau.

Supply Chain Digest Says...   Incorporating existing stores into the supply chain for customer pick-up could help reduce fulfillment costs – and give customers more options. What do you say? Click here to send us your comments   Click here to see reader feedback

In Q3, the last quarter for which data is available, total retail sales were actually down 1.1% - but that was less than the fall of 3.3% for ecommerce revenue.

“The foundation for a retail reawakening already is in place. Now retailers and landlords just need to build on it,” says commercial real estate firm CBRE, in a recent research report.

That report says there are three key questions retailers have to answer for brick and mortar success.

What data and new technology will lead to successful store optimization? Data has played a key role in making decisions about such as where new stores should be located, how many stores should coexist in a given market and what square footage should encompass optimal footprints for many years, but today’s data goes far beyond compiling population stats, consumer spending and traffic counts, CBRE says.

The report adds that the data will still answer the traditional questions, but that data is now expanding to account for factors such as co-tenancy and tenant mix, the proper combination of which gives retailers a heightened chance for success.

And as ecommerce continues to expand, a retailer might decide to cut down on the number of brick-and-mortar stores in a given area and instead add fulfillment centers there or nearby to support their expanding on-line customer base, CBRE say.

Many retailers may decide to incorporate fulfillment into their existing store as well. But this decision, CBRE notes, requires considering new logistics data points such as drive times, transportation infrastructure and targeted inventory replenishment.

Those retailers that can best master the new data will have the best chance for success, CBRE says.

What type of properties should occupiers target? It is clear that the traditional retail footprint is changing, with a powerful trend away from mall shopping existing for years, CBRE notes.

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It adds that smart landlords are already repositioning mall properties to add other types of tenants that can help drive traffic and daytime population beneficial to existing retail tenants.

CBRE cites healthcare providers as a key example of this new type of tenant in recent years, as outpatient centers, chiropractic practices and more have helped backfill space in well-located retail centers.

Going still further, the report notes that for malls, “the potential could be even greater as we see opportunities for residential activity - whether through traditional multifamily or senior housing - to take hold.”

CBRE adds that “As retailers look to expand, dynamic mixed-use properties could be the most desirable locations.

How can the store become a real part of the supply chain? CBRE notes that while standalone, last-mile fulfillment centers will be a part of the delivery solution, the game changer comes with integrating fulfillment into existing stores.

By developing a true brick-and-mortar retail location that caters to both on-line and physical store channels, retailers will be solving for two problems, CBRE observers: giving their best customers all the dynamic options that they want, and optimizing their supply chains to recoup the most profit possible.

The high cost of home delivery erodes profits for retailers. Incorporating existing stores into the supply chain for customer pick-up could help reduce fulfillment costs – and give customers more options.

In 2021, CBRE advanced what it called a hybrid model retail store, which would include both front-of-the-house, consumer-facing retail and a back-of-the-house micro fulfillment center.

“This model will give retailers personal interaction with their consumers, while also developing a more efficient ecommerce delivery and return model,” CBRE says.

It concludes by stating that “It’s encouraging that many retailers, as well as private equity firms, see a robust future for brick-and-mortar retail.”

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