As online orders continue to rise, retailers need to find creative ways to fulfill orders quickly and profitably. Adding more warehouse space can be costly and may not be the most cost effective solution for online fulfillment. Savvy retailers are leveraging a combination of ship from store, dark stores and vendor drop ship. With less customer traffic in stores, and in some cases stores being closed to the public, leveraging local store inventory makes a lot of sense for curbside pick-up or delivery. Creative supply chain solutions are the answer.

Now that online is accelerating, there is no doubt that more fulfillment space is needed. However it is a question of where and how this space is configured. Sure, big commercial distribution centers will be required in many cases. However retailers are increasingly looking at micro-fulfillment centers located in existing stores. We will likely see a blend of the two to service increased demand.

There is an entire industry dedicated to maximizing the cube and the footprint of distribution facilities – the materials handling industry. If they are truly distribution centers, no, I don’t think they will need to continually expand their DCs.

I worked in this space a long time ago but, even then, we were bringing the work to the workers, maximizing the cube, and creating efficiencies with technology.

There is lots of empty warehouse space and retail store space out there to lease. There will be a boom in the commercial real estate market for a while. The caution is, what happens when consumers are comfortable shopping again? I believe consumers will return to store shopping and the social aspects of the shopping experience.

So we are over stored and under DCed. That sure makes it sound like e-commerce is less efficient than brick-and-mortar stores from a space point of view. And I think e-commerce is less efficient when the retailer has to do the picking, packing, (free) shipping and returns instead of the customer. Less efficient = more expensive/less profitable. Retail is most assuredly between a rock and a hard place.

There is really no scenario where the need for online fulfillment square footage plateaus any time soon. Traditional online fulfillment has been growing in the mid- to high-teens for years and pre-COVID-19 most forecasts had it continuing at 13-15 percent for the next five years. Clearly the pandemic is causing a more near-term spike in e-commerce due to store closings and consumer fear. As some consumers discover the convenience of online shopping some acceleration of trends is happening. The degree to which that persists has mostly to do with the timing, efficacy and adoption of a vaccine. So that could be early next year or much, much longer. 18-20 percent growth for the next year is probably a good baseline, with significant moderation depending upon whether we get our arms around COVID-19. One other important trend is the increasing use of stores to do online fulfillment and the building of more stand-alone micro-fulfillment centers, particularly for grocery. In the case of ship from store, this will mean that traditional fulfillment space will not grow as… Read more »

It’s not a simple fix to convert today’s distribution center — designed to move store-ready shipments from receiving to outbound trailers without much storage or handling in between — into an Amazon-style warehouse. But multiple national chains probably find themselves with too many DCs in their portfolios, and not enough e-commerce warehouses.

The long-term trend toward e-commerce fulfillment seems irreversible, even without the extra incentive of a pandemic. It’s going to be worth the investment, because the DCs built for store fulfillment won’t be kept busy enough. At the same time, ship-from-store becomes an increasingly important tactic.

Solution-driven fulfillment strategies and an innovation imperative will be key to success for retailers as they attempt to keep up with the increased digital commerce demands. Investing in additional warehouse space is a costly investment so the hybrid fulfillment option, where the physical stores could be leveraged for same-day shipping, BOPIS, curbside pickup, etc. will help retailers drive transformational vs. incremental growth.

It will be key for retailers to leverage all of their assets, including their physical stores, data and analytical insights, supply chain, logistics, digital, and their current organizational and operational processes in order to pivot their operations. We are dealing with a consumer who is extremely comfortable shopping via digital channels and is not 100 percent dependent on the physical stores for all their needs.

The growth in online is happening now – at a rate much faster than anticipated 12 months ago. New space, operations (such as micro-fulfillment) and methods are clearly going to be needed. With so much physical space being removed, it seems appropriate to re-use this space for online fulfillment. It was rumored that Amazon was looking at J.C. Penney for access to their real-estate – all placed very well to fulfill online demands from local population centers. This approach makes so much sense – you can imagine blended locations of areas previously 100 percent mall now consisting of stores, fulfillment centers and pick-up points.

I’m a fan of micro-fulfillment centers and the utilization of urban-based properties that are otherwise not being used. Retailers need to reduce transit time and associated shipping costs by placing fast-moving merchandise in the neighborhoods they serve. The demand for more efficient, streamlined, and robotic-based order filling will only grow.

The distinct change is an increase in online grocery – which will demand shifts in warehousing from dry to powered cold warehousing. Per a 2019 CBRE report, the costs for such warehouses are typically 40 percent more. In addition, actual real estate purchases won’t be the first actions taken by retailers and suppliers. Instead, retailers will verticalize their existing warehouses and modify storage formats inside their warehouses for denser racking such as a shift to VNA (very narrow aisle) tools. Suppliers have many options here and can select to make existing warehouses capable of holding far more than they hold today (sometimes at the cost of warehouse productivity). The cycle will be long however before moving to costly new leases and either new facilities or converted real estate – that may cost even more to manage trucks and typical warehouse traffic.

Demand for fulfillment space will keep rising, as more consumers shop online more often. Last year, e-commerce accounted for 16 percent of total retail sales, so there’s room for growth, especially with COVID-19 as a catalyst for digital change.

Online shoppers value speed and convenience, including fast delivery and BOPIS. Transforming mall anchors and existing stores for micro-fulfillment will help retailers serve urban consumers faster. Getting closer to consumers is the only way Walmart and Amazon can guarantee one-hour delivery.

Although the spikes being seen by retailers during the pandemic may plateau a bit in the future, new behaviors have been established with consumers and how orders are fulfilled will forever be changed. Retailers have to optimize for a new mix of in-store fulfillment, DC-based fulfillment, and other in-between options. Cost is a major factor in optimizing the mix. I expect we will see significant gains in micro-fulfillment capabilities as most retailers simply can’t absorb the costs of building many new DCs. Collaboration with mall owners will also be key to optimizing space and real estate for this future mix. Stores will also have an important role to play, as Target has demonstrated with its ship from store execution.

It’s not surprising to see such distribution real estate predictions, particularly when forecasts for malls and offices are more dire. The challenge will be to creatively address these needs which will continue to grow but at a decreasing rate. Other panelists have articulated a variety of solutions short of simply adding more square feet of fulfillment space. I recommend those investing in more warehouse-type space to proceed with caution.

Demand for online fulfillment will continue to grow, and retailers will need to be increasingly flexible in order to keep up. There are so many variables including a need for fast delivery/fulfillment times, minimize shipping costs, efficiency, and of course having the right products in the right place at the right time. Chain retailers will need to use a hybrid solution of traditional fulfillment centers, micro-fulfillment and drop-shipping for shipping orders and stores for BOPIS and curbside pickup. The lines between stores and fulfillment centers will only get blurrier.

While a lot of retail has moved online over the past few months, these are not new sales but rather sales transferred from the stores. So why is there a need for so much more space? A number of retailers will go out of business or need less space so ultimately they should start to even out the space requirement. Some retail space in shopping malls may well be turned over to dark stores and click and collect centers. People say the rents are too high but property owners will start to take whatever they can get for this space as retailers back out.

It may not happen at the same time but space will become available. It is a change of use and not new space that is needed.

This space issue is just one more another example of the inefficiencies inherent in e-commerce. Smart retailers will continue to invest in strategies that keep their stores open and relevant to shoppers, even within the constraints of this current crisis. One way to keep stores relevant and minimize the need for additional DC space is to optimize, advertise, and proselytize the important role of the store in the new shopping journey. When the modern store is functioning at its best, it becomes a true brand hub, showcasing truly localized assortments while also providing information, education, entertainment, quick (and safe) fulfillment and returns handling options. However if we fail to convert more people into store shoppers once again, the looming crisis in commercial real estate created by the pandemic-fueled work-from-home movement will provide ample square footage for all those big, inefficient and expensive distribution centers.

I live a block away from a major shopping corridor and at least 40 percent of our stores are shuttered. There should be plenty of space for micro-fulfillment centers…

Well they already have the space: their stores. Target delivers over 80 percent of their e-commerce from their stores — I’d take a close look at that model as Cornell has claimed that they took 90 percent of the cost of e-commerce out by doing that. As a matter of fact, look for two things in the very near future: 1.) like Target, retailers will fulfill from stores as much as possible and 2.) some of those stores will be “dark” (not shoppable). The future got accelerated and “store as fulfillment center” just got moved up to high priority.

If a bright logistics expert (who was unfamiliar with how retailers set up stores/DCs/fulfillment centers today) was given a challenge to model a distribution network that most efficiently meets today’s consumer behaviors, it would look nothing like it does today.

Online retail lacks profit partially because the product acquisition, placement and “movement model” is too expensive. Look at last mile delivery — all those trucks dropping product off at homes and picking up nothing at all, returning empty. Fulfillment centers (stores) in high rent, traffic-congested locations. I think retailers need to model a multi-echelon, rapid fill but low cost distribution network, set that as a target environment, and then move towards that model one “micro-fulfillment ship-from-store center at a time.

It’s always a risky practice to forecast the future based on short-term recent events. The shift to digital retail has certainly accelerated ahead of expectation in the past 6 months, but the increase in consumer trial does not mean the rate of growth will continue in perpetuity. There could even be a back-track of some online shopper behavior once the pandemic eases. This puts surviving retailers in a quandary. Should they equip for sustained headlong expansion in online order fulfillment? Or should they take less aggressive steps? No doubt, there are ample opportunities to re-purpose excess retail square footage into fulfillment facilities. Larger retailers may employ a combination of methods to get this done: They may install micro-fulfillment centers in the back rooms of existing large stores while reducing showroom space. They may convert some existing retail locations in to “dark” stores designated exclusively to local fulfillment. They may take over large existing retail spaces, including shuttered mall anchors that are well-located, and install equipment to maximize fulfillment efficiency. They may construct new bespoke fulfillment… Read more »

This is a difficult reply to a simple, direct question. The amount of retail space available reflects the direct need for products, both online and on-ground. How retailers approach this is the crux of omnichannel retail, and really the future shift of retail. The Covid problem is not going anywhere for at least 3-5 years, if ever, and the exposure and lessons we have learned will stay with us forever. People who are active for these next 3-5 years, in both retail as well as the new work environment will adapt, and their demands will reflect this, in new ways, in new environments.