Last year, I wrote how some companies were using Urban Destroying Centers (CDUs) as an alternative to reduce e-commerce delivery times for customers. Following its pioneering vein, Amazon was one of the first companies to adopt this strategy, opening small CDs in large urban centers, such as Manhattan (Noya York).
Reinforcing this trend, Amazon was in the news again last week for confirming the lease of a new three-story warehouse in south Seattle. While this type of facility is already used in Asia and Europe, the Seattle DC is the first multi-story, truck-accessible ramp to open in the United States. Under an agreement with Prologis, developer and owner of the facility, Amazon will occupy approximately 50.000 square meters of the facility, while Home Depot will occupy just under 10.000 square meters.
This year, Amazon announced that it would reduce to just 1 day the standard delivery time for customers subscribing to its Prime plan in the United States, in addition to the possibility of delivery in up to 2 hours of an extensive list of items for subscribers of large centers. To make this possible, the company went after Distribution Centers close to large urban conglomerates, as is the case of this new facility in Seattle.
With at least three multi-story warehouses planned for New York City, the design could gain traction as companies try to balance real estate costs with proximity to customers. This appears to be a step toward a new model for US distribution centers that can reduce delivery times in congested cities.
Finding suitable spaces for the installation of Distribution Centers in large urban centers is increasingly difficult. Thus, in addition to this new alternative of using multistory warehouses, Amazon is also investing in Distribution Centers built in areas formerly occupied by shopping malls. In the state of Ohio, for example, the company has a project to install DCs in places where the Randall Park Mall and Euclid Ssquare Mall used to be.
Shopping centers are in frank decline in the United States. According to a recent report by the Credit Suisse bank, 20% to 25% of American malls are expected to close within 5 years. If confirmed, this would mean the closure of 240 to 300 of the approximately 1.200 malls that exist in the country today. One of the main reasons for this movement is precisely the competition in the electronic market, which is increasingly advantageous in terms of price, agility and product offering.
Faced with so many closed establishments in recent years, some companies have invested in these spaces for the installation of DCs. CBRE, an international consultancy in the area of leasing and property management, counted around 24 projects to transform spaces previously destined for retail into industrial facilities in the period from 2016 to 2019, which means the transformation of more than seven hundred thousand m² of retail in more than one million m² of industrial space.
Figure 1 – Cities in the United States with projects to transform retail sites into industrial sites since 2016
Source: CBRE Research, CBRE Econometric Advisors, CBRE Business Analyst (ESRI), 2019
Among the main reasons for using these idle spaces for this purpose, we can list:
- These are places with a lot of available space, in dimensions compatible with what is needed by large e-commerce companies for the installation of distribution centers;
- Malls are generally located close to large urban conglomerates, which are the focus of the increased level of service sought by virtual retailers recently;
- Proximity of the facilities to major access roads in the city and availability of nearby public transport lines, which facilitates the arrival of employees;
- Water, sewage and gas infrastructure ready.
Restrictions on the circulation of heavy vehicles and urban zoning and the higher cost of land located within large cities may be an initial difficulty for this transformation from retail space to industrial space. However, the greater growth of e-commerce compared to physical retail tends to make this movement perpetuate.
These are some of the initiatives that have been adopted by retail companies to tackle the challenge of last mile. This and other subjects will be discussed in the thematic track “Execution of Omnichannel Strategies”, within the XXV International Supply Chain Forum, to be held between September 23 and 25, 2019 in São Paulo. O head of transport for Amazon in Brazil, Marcio Neves, will also participate in the round table “The Challenges of New Distribution Models and the Impacts of Omnichannel and MarketPlaces for the Last Mile”, together with other professionals specialized in the subject. If this is also a challenge for your company, it is worth checking out what other companies are doing in Brazil and around the world to make their operations more efficient and improve the level of service offered to customers.
References
<https://exame.abril.com.br/economia/um-quarto-dos-shoppings-americanos-fechara-ate-2022-preve-banco/>
Fernanda Monteiro
More than 11 years of experience in training and consultancy projects, focusing on Logistics and Supply Chain. In consultancy, he carried out projects such as Transformational Logistics Plan, Diagnosis of logistics operations, Strategy and Calendarization of Transport Operations, Measuring the Cost of Serving, Market Study, Mapping of Inventory Reduction Opportunities, Review of the S&OP Process, Management Plan Training and Implementation of Commercial Processes in companies such as Nestlé, Raia Drogasil, Ipiranga, Lojas Americanas, B2W, Coca-Cola, Andina, Embraco, Martins Atacado, Loja do Mecânico, Santo Antônio Energia, Ecoporto and Silimed. She is currently one of the teachers of the Inventory Management Course taught every six months by ILOS. She worked on the development and management of Online Courses in Logistics and Supply Chain, Supply Processes, Demand Planning, Inventory Management and Industrial Management. Still in the training area, she was responsible for applying ILOS business games in companies such as Raia Drogasil, Fibria, NEC, Novartis and Moove.
