Guest Column: How E-Commerce is Changing the Face of Retail

John Morris, leader of industrial services for the Americas for Cushman & Wakefield, talks about the swift ramp-up in e-commerce and how it is impacting the industrial real estate sector.

E-commerce is changing the face of retail, and by extension changing the way real estate is deployed to support new requirements. Across the supply chain, retailers are trying to find ways to satisfy the new demand paradigm and changing their focus from “pallets to stores” to “boxes to doors.”

The current and expected impact of e-commerce is astonishing. In the U.S., the segment had grown from a tiny fraction to 5 percent of total retail sales by year-end 2012. While 5 percent might not seem like much, that number includes everything in the broad category of retail, including products such as cars and other durable goods.

If you dig deeper and look at e-commerce as a percentage of GAFO (general merchandise, apparel and accessories, furniture and other sales), it has grown to more than 25 percent of the category. This is notable in the real estate world because GAFO is the segment that has the greatest impact on warehouse usage and supply-chain requirements.

In response to this new demand driver, we are seeing a significant amount of current and proposed warehouse projects that are either exclusively or significantly catering to e-fulfillment—both e-commerce-only retailers like Amazon and multi-channel retailers such as Walmart, Target and others seeking to augment their e-commerce business.

Generally speaking, older distribution space is a more difficult fit for e-commerce operations. For one thing, e-comm facilities usually require a minimum of 32-foot clear heights, often eliminating older product from consideration. Some users are starting to show interest in ceiling heights as high as 40 feet or more. Additionally, faster inventory turnover and higher labor requirements associated with e-commerce require higher ratios of dock doors and parking spaces per square foot. Older facilities typically don’t meet these requirements.

But perhaps the key differentiator is these buildings’ ability to accommodate the increased levels of automation required to support a thriving e-comm business. Efficient picking of products and an increased amount of pick faces (the interface between a warehouse worker and a product to be shipped) necessitate an efficient way to bring workers and products closer together.

This can be accomplished by carousels, lift modules and even by robots bringing the product to the warehouse employee. While a significant amount of any warehouse will continue to be allocated to storage, an increasing percentage of this space will start to support efficient processes to get items off the shelves and to the customer’s front door as quickly as possible.

The final factor in flux with the new facilities is location. While location has long been the most prominent driving force in real estate, e-commerce is redefining the meaning of “ideal location” for a fulfillment center. Facilities are moving much closer to urban centers, allowing e-comm retailers to better reach their target markets and most active buyers.

How significant is the trend from a real estate standpoint? Almost every major e-commerce company and many traditional brick-and-mortar retailers are actively and rapidly expanding their e-commerce supply chain. It will be the only way to stay relevant in the new retail landscape.

John Morris is Leader of Industrial Services for the Americas at Cushman & Wakefield Inc.