The world of retail has radically transformed, with the vertiginous growth of e-commerce, high competitiveness and greater demands for deadlines and service levels. Accompanying this increase, the need for product storage areas has been growing year by year, bringing new complexities to the planning of operations.
According to data published by Forbes, the demand for new storage areas reaches around 25 million square meters per year, numbers that are corroborated by The Economist (with data from JLL), which also points to a similar record number for Europe. Consequently, the levels of vacancy of deposits in the main economies of the world have been reaching their lowest levels (around 4% in the US, also according to JLL). In Brazil, a similar situation begins to emerge. After years of economic crises that generated idleness in warehouses, the excess space is disappearing, with a 2021% vacancy rate in 13 in Rio de Janeiro (the lowest since 2015) and 11,35% in SP, according to Cushman & Wakefield, with demand growth being driven by changes in consumption caused by the pandemic.
This proliferation of new warehouses has caused problems as new developments are built and taking up space in areas with other economic profiles, such as tourist areas, resorts, and industrial regions. In another article by The Economist, “What happens when Amazon comes to town”, it is shown that the arrival of new players in the sector has not always been beneficial for local communities, citing, for example, labor issues as some of the negative consequences.
Figure 1: JLL data (series from 2000 to 2020) point to record demand for new storage areas in the US, Asia-Pacific and Europe. Source: The Economist
Some factors that differentiate today's operations exacerbate the space struggle problem. Pressures for shorter delivery times force companies that work in digital retail to install their operations in regions close to large demand centers, minimizing the real available area that is actually competitive. This generates a decentralization that puts pressure on stock levels, which are also higher due to the greater importance currently given to product availability. Due to these aspects, e-commerce demands about three times the storage space compared to traditional retail. In still developing countries, road infrastructure bottlenecks are also getting worse with the greater concentrated flow of vehicles.
It is difficult to imagine that these trends will slow down in the future, with consumers becoming more and more adept at these types of purchases and more demanding in terms of service. It is up to logistics managers to meet these challenges and find new solutions. The planning of new installations may have to consider this strong demand and guarantee larger spaces in the short term, even if this means a higher level of idleness. Reformulating other existing spaces can also be a solution. Physical retail companies such as Best Buy and Target have transformed up to half of the areas of their large stores into real urban warehouses, encouraging their use with modalities such as the curbside pick-up, in which the consumer receives the product in his car on the street in front of the store.
Figure 2: Chain stores such as Target have been transformed into warehouses to serve digital operations. Source: Wikimedia – Kelly Martin under Creative Commons license — Attribution-ShareAlike 3.0 Unported — CC BY-SA 3.0
It also becomes more critical to optimize the space of existing centers, with solutions such as verticalization, use of mezzanines, structures that allow greater density of products, in addition to reducing the total level of inventories. In the fierce struggle of digital retail, you need to think strategically to find your space.
References:
Developers struggle to meet demand for e-commerce storage. The Economist. 29th Jun. from 2021. – Accessed on 27/05/2022
CNBC.Why Warehouses Are Taking Over The US Youtube, Nov. 29 from 2021. – Accessed on 27/05/2022.
Rio shed market closes 2021 with new deliveries and lowest vacancy rate since 2015. O GLOBO. 10/01/2022. – Accessed on 01/06/2022.
What happens when Amazon comes to town. The Economist. 26th of Mar. from 2022. – Accessed on 27/05/2022.
Covid-19 special report #6: accelerated retail evolution could bolster demand for well-located logistics space. Prologis. 17th Jun. from 2020. – Accessed on 27/05/2022.
NLEBEM, Anthony. Jumia takes e-commerce to rural areas amid infrastructure deficit. Business Day. Sep 15th. from 2021. – Accessed on 27/05/2022.
LOEB, Walter. Retailers Look To Expand Warehouse Capacity, With Some Converting Store Space.Forbes. 4 Apr. from 2022. – Accessed on 27/05/2022.
ARNDT, Andrei. Curbside Pickup: learn what it is and how to apply it to your franchise network. Franchise Center. 11 Apr. from 2022. – Accessed on 27/05/2022.
Fernando Chalréo
He has been working on consulting projects in Logistics and Supply Chain for 5 years, with experience in companies in the consumer goods, retail and food and beverage sectors. Types of projects already carried out: Sales & Operations Planning, Inventory Management, Network Planning, Business Process Review, Logistics Indicators and Transport Management
