Over the last decade eCommerce has gone from a curiosity that, at points, seemed to be unsustainable, to a monolith that is growing at a faster rate than in-store retail. In fact, according to Forrester eCommerce sales is projected to reach $550 Billion by the end of this year – that is a nearly 80% increase from 5 years ago.
Meanwhile, overall retail industry sales have been relatively flat, and they look like they will continue to be.
eCommerce Requires More Logistics Space
According to the Prologis report on eCommerce and Logistics Real Estate, there are several reasons for this:
- Need to stock a wider variety of SKUs
- Need to have more buffer stock on hand
- Need more space for processing returned items
- Need for more space due to individual order picking, packing, and shipping directly to consumers
As eCommerce continues to grow, retailers need to expand their distribution networks, build more fulfillment centers, and leverage more 3PL partners. As online retailers begin reach scale, there is a greater focus on keeping their fulfillment centers close to major population centers, which enablse faster delivery – players like Amazon are already doing this.
Classic Models Are No Longer Relevant
The classic model for distribution networks is no longer relevant, as it was formulated based on the needs and wants of the “traditional” consumer, not the modern one. The traditional consumer did their shopping at a brick and mortar location and didn’t expect or mind waiting 3-5 days for delivery. But new processes are emerging as a result of the modern consumer and their desires.
The modern consumer, who shops more online and has expectations about delivery time and experience that are far beyond previous generations’ – same-day delivery and visibility over the entire delivery process in particular.
Relationships Between Retailers and Service Providers Are Changing
In years past, the power balance between business and consumer was heavily in the former’s favor. However, with the digital revolution and the rise of eCommerce, the balance has shifted. Consumers today have the power to affect the way retailers and service providers collaborate to meet their needs and wants.
Same-day delivery might have seemed inconceivable a decade ago, but now that consumer expectations have changed, retailers and service providers have had to work together to streamline, innovate, and optimize in order to meet those expectations.
Traditional Roles of Distribution Centers, Stores, and Transportation Providers Have Changed
As a result of all of these changes the roles of distribution centers, stores, and transportation providers have also changed considerably. Retail stores have become fulfillment centers, in which online orders are picked, packed, and shipped to consumers – sometimes within the same day (ala “same-day delivery”).