Americans Spending Changes May Lead to More Warehouses

By  //  October 8, 2020

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As the Coronavirus pandemic remains rampant and brick-and-mortar stores remain closed, more and more consumers are looking to e-commerce sites to fulfill their shopping needs.

Consumers are buying everything from electronics to groceries and vehicles, and the trend does not appear to be slowing down. With online sales peaking, companies like Amazon that are engaged in e-commerce are looking to acquire more warehouse space to accommodate the increase in inventory.

The Retail Landscape

Even before the Coronavirus, shopping habits have been moving away from physical retailers and towards online retailers. Unparalleled convenience and same-day shipping have captivated consumers for the last several years. In 2019 alone, e-commerce sales reached $602 Billion, a 14.9% increase from 2018 according to digitalcommerce360.

And since stay-at-home orders have been put in place in nearly every state in the country, many consumers have transitioned into buying their products solely online. Brick-and-mortar retailers are certainly feeling the effects of the virus as thousands of stores across the United States are closing permanently, leaving landlords with vacancies to be rented.

Inventory and Warehouses

As the demand for online shopping increases, so does e-commerce retailers’ demand for warehouse space. The Wall Street Journal reported that from April to May of this year, industrial real-estate activity is up 43% from the previous 30-day period.

This includes renewals and new leases. Online retailers have needed to rapidly expand the amount of inventory they hold as demand surges to prevent more stock-outs, as seen with toilet paper and hand sanitizer shortages earlier this year. Previously, many of these retailers relied on the “just-in-time” inventory management strategy, which reduces the amount of safety stock they must hold through more accurate demand forecasting.

Under normal circumstances, this strategy is very effective at reducing inventory and warehousing costs. However, “just-in-time” strategies are not able to handle unexpected events, like Coronavirus, so these retailers are making adjustments.

Companies are also looking to modernize their distribution operations through securing vacancies near population centers as trends suggest online shopping will only increase in years to come. The current landscape presents an opportune time for e-commerce businesses to acquire more warehouse space as brick-and-mortars are having to close their doors.

Online Retailers are Looking towards Shopping Malls

Shopping malls are being hit especially hard in this environment. Jan Kniffen, a former department store executive, predicts that one-third of malls in America will be shut down by 2021. With these closures, other experts are suggesting warehouses might be the solution in filling these vacancies.

Already, some malls have been converted into logistic hubs; a failing Sam’s Club in Memphis, Tennessee has been converted into a Sam’s Club fulfillment center for online orders. Malls are optimal targets to replace with warehouses for two primary reasons: They are in close proximity to highly populated areas and they offer lots of square footage for inventory space.

Prologis, the largest owner of industrial space in the United States, estimates that, on average, e-commerce retailers need three times the warehouse space as typical brick-and-mortar retailers to generate the same amount of revenue.

This is because online retailers tend to stock a larger variety of products which need more space to be held, and warehouses are going to need more warehouse workers. A flex worker company, like Hapigig, is a solution that many warehouse managers are turning to. With warehouses being located closer to higher populated areas will allow even shorter delivery times, cutting costs, and increasing customer satisfaction.

It will certainly be interesting to see what the future of retailing will hold. Although the pandemic is not permanent, its effects on consumer shopping habits and commercial real estate in the U.S. surely will be. As e-commerce continues to grow, transitions from brick-and-mortar to online retailers will soon become the norm.