E-Commerce Logistics: Matching Real Estate with Demand
Steve Callaway Managing Director, Head of Global Customer Solutions
San Francisco, United States
The changes transforming the global supply chain today are the biggest I’ve seen in my 20 years in the industry. And it’s still not clear exactly where we will end up. Retailers and manufacturers are experimenting with different service models, looking for the right mix of online and traditional in-store sales, speedy delivery, personal attention and the overall customer experience that consumers now demand.
Those are big challenges. It’s my job to help our customers manage them and capitalize on the opportunities created by the e-commerce evolution. Many of the challenges have a real estate component, so providing more flexible real estate options can enable customers to try new things without putting their companies at risk.
E-commerce has created a direct-to-consumer sales channel, and everyone—from pure online retailers to department stores—is still trying to figure out how to deliver goods over multiple channels, while maintaining a consistent customer experience. How can I have the right product in the right place to get it to customers in two days, maybe in one day, possibly even the same day?
If you are a brick-and-mortar retailer who has spent decades building a distribution network around delivering shrink-wrapped pallets of products to stores, that’s an entirely different model than delivering one pen, one box of Kleenex and one iPad to a home in Chicago. That traditional supply chain needs a complete overhaul.
For one thing, it takes a lot more space—about three times as much—to fulfill small individual orders than it did to ship truckloads of bulk goods to and from a central warehouse. The picking and packing function is much more intensive and takes more space, for example. Online merchants also offer a wider variety of products than they would sell in a store, and they need storage space. And when you’re not carrying any inventory in store locations, you need to keep it all in a distribution center. So, if you’re selling exclusively online, you may not need any retail space, but you need much more distribution space.
The shift to a more industrial real estate setting sometimes presents additional, unexpected wrinkles. For example, a big fulfillment center might be housed in a facility with a million square feet. A traditional warehouse of that size would come with 200 to 300 car parking spaces. But an e-commerce facility requires far more workers and would need 2,000 spaces.
Many traditional retailers are trying to figure out how to use their existing store network more effectively. For example, having customers order online, but pick up purchases in-store, which brings more traffic to the store and may drive additional sales. Or perhaps they can fulfill online orders out of their store inventory. Each option presents an opportunity to try new distribution models, and there are many experiments underway.
To help our customers move their supply chain closer to their own customer, we’re doing a couple of things. First, we’re locating our distribution space near major population centers. This has always been a core investment strategy for Prologis, but today we are looking to even more infill locations.
Second, we’re designing our buildings to better meet customers’ changing needs. That means more parking spaces and room to move trailers in and out from loading docks more efficiently. We’re trying new land-use concepts, like multistory warehouse projects in Seattle and San Francisco. We’re able to put more square footage on the same site as a traditional one-story warehouse without compromising access and delivery efficiency. And we’re building in broadband and security technologies and smart controls to move higher volumes in and out of the building more effectively.
Real estate has never been a particularly flexible business—huge amounts of capital get tied up in multi-year leases that don’t easily expand or contract. As our customers’ business needs are changing rapidly, we strive to provide more flexible options that solve problems and enable new ways of doing business. We know their customers are making new demands every day. Our goal is to make sure their real estate portfolio helps them meet those demands and build stronger businesses in the years to come.
Managing Director, Head of Global Customer Solutions | Prologis
Steve is managing director, head of Global Customer Solutions and responsible for developing, managing and executing Prologis’ relationships with multimarket customers across the globe—relationships that span over 200 million square feet in 21 countries worldwide. He was formerly a principal with both AMB Corporate Real Estate Advisors and Colliers Damner Pike. Steve has been in the real estate industry representing and consulting with major corporate space users on complex lease transactions, acquisition and disposition strategies, and strategic facilities planning since 1985. Previously, he was a consultant at Andersen Consulting. Steve is a licensed real estate broker in the state of California.
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Read the Future of Supply Chain series.