This is a contributed op-ed written by James Beale, operations manager at Invicta Pallet Racking
Where warehouses used to be in rural or brownfield areas, the demands of same-day delivery are pushing them further towards major cities. With space at a premium, how are online giants making the most of inner-city warehouse spaces — and how can traditional retail compete?
If you wanted a big warehouse — or a big store — you traditionally put it somewhere fairly rural. As long as it had strong enough transport links, goods could be shipped from a central location and reach most areas within a day or two, well within most people’s expectations. For mega-stores, meanwhile, people would happily congregate at a business park or an Ikea outside of the town where they lived, as there was no other way to view (or buy) this range of stock.
As online shopping has begun to dominate the retail landscape however, these two apex predators have been forced into the same space. E-commerce giants are now vying to be as close to their customers as possible in order to achieve the best delivery times, while traditional retailers are moving away from out-of-town locations. But what exactly has driven this change, and is there really room for both types of business to coexist?
Until recent years, Amazon’s major USP was the sheer range of goods it offered, and the simple convenience of getting them delivered to your home at a reasonable rate. With the ramping up of its international operations — and a growing portfolio of digital services — the company needed to provide a serious incentive to tie people down to subscriptions. Amazon Prime’s one-day and same-day delivery filled this gap, providing value for regular customers and also using the company’s logistics prowess to deliver faster than their major competitors.
Retailers like Ikea meanwhile have always relied on the breadth of products they could offer in-person and the appeal of looking at something before you buy it. The space to build their facilities was far cheaper outside major population centers, and a small supply chain (among other factors) allowed the items to be priced competitively. Other businesses with large retail park locations relied on a cluster of huge stores to attract customers, drawing them away from high streets and city centers.
These two approaches more or less coexisted for many years, while eating into the role of smaller stores in towns and cities. Yet recent signs indicate there may be a shifting of the balance. As immediacy and experiential shopping become more prized, both e-commerce companies and large retailers are looking to bring their products closer to people. For the likes of Amazon, this means both city warehouses and retail locations, while for the retailers, it means downsizing to more convenient and better performing urban stores.
Upscale and downsize
While there are numerous ways to get more out of existing warehouse space, this is no longer enough for companies like Amazon. With the resources to endlessly expand its out-of-town warehouse space, the issue is not how much space it has to store items, but where they are being stored. The increasing concentration of Prime members in cities makes them a prime target for schemes like Amazon Fresh and same-day delivery — both of which require warehouses close to urban areas.
Amazon has rolled out new city fulfillment centers based on a model it pioneered in New York City. Its New York site is 20% smaller than its usual fulfillment centers, yet it can handle 50% more inventory than a regular warehouse, with twice as many robots as human employees. These small autonomous shuttles deliver items from shelves to employees for packing, allowing racking to be extremely densely packed, and reducing the number of steps taken by employees. Most inventory is also presorted elsewhere, reducing the space needed to receive items.
In addition to using the space inside a warehouse more efficiently, the physical design and use of inner-city warehouses is also changing. Amazon recently leased space in a three-tier facility in Seattle, which is thought to be the first of its kind in the U.S. While many warehouses feature multiple levels of storage and work areas, the Seattle warehouse is the first to feature ramps that connect to each floor, allowing delivery trucks to access each area directly.
Old Ikea, new idea
For older retailers, the question is very much one of saving space. Whether or not the value or popularity of out-of-town retail parks and warehouse stores is diminishing — and there’s evidence to suggest that it is — the simple fact is that these huge spaces are expensive. Despite the astronomical cost of rent in many cities, some retailers believe there’s potential to sell far more stock from key lines while also saving money on wasted space and extra staff, making city locations a viable proposition.
While Ikea’s out-of-town locations continue to perform well, the company is undertaking a massive overhaul of its business model. Online revenues are up 43%, while the company is also conscious of the fact that many people in city locations do not own cars due to public transport, but still want to try before they buy. As such, Ikea is investing in what they call ‘planning studios’ in cities around the world, as well as smaller, themed stores. New locations in New York and Tokyo will focus on furniture suited to smaller living spaces.
Traditional retail parks, which contain those mammoth out-of-town stores, are also looking to change with the times. The 1980s and 90s design of retail parks, which sought to maximize floor plans and parking at the expense of aesthetics, are being redesigned, in favor of a more enjoyable shopping experience. Modern retail parks now isolate themselves from parking areas and nearby roads, with tree-lined approaches and the feeling of being in a small, cobbled street town - complete with a town square for live performances and pop-ups.
The changing retail landscape is still dominated by online shopping, and this still poses a threat to brick-and-mortar businesses. However, the fact that the two are competing in the same spaces rather than on different planes can be seen as a sign of progress. The desire for convenience is drawing businesses closer to consumers and causing them to rethink the shopping experience.
As space becomes more of an issue, this will only cause businesses to look for further efficiencies, and find even better ways to store and receive products.
This story was first published in our weekly newsletter, Supply Chain Dive: Operations. Sign up here.