New retail to force shift in commercial property
The rise of omnichannel retail will increasingly force distribution centres away from traditional urban fringe areas and closer to city centres as shoppers demand faster and cheaper delivery.
That’s according to a new research by global real estate giant CBRE, which has highlighted the divergence of retail and logistics in the modern world.
It is predicted that the blistering pace of online spending growth in Australia will require a further 350,000 square metres of distribution space to be created annually over the next few years.
This, researchers said, will force company’s to rapidly change legacy logistics networks as demand for faster and cheaper delivery comes into focus.
Online shopping is currently around nine per cent of total retail trade in Australia, but this figure is expected to grow to twelve per cent in 2022 – bringing annual spending to around $4.1 billion annually over the next four years.
“With transport accounting for at least 50 per cent of total supply chain cost – compared to 5 per cent for occupancy – the right location for both distribution and last-mile delivery is imperative,” CBRE’s head of supply chain in the Pacific, Christine Miller, said.
“In the US, the rise of omnichannel retail has driven the development of last-mile distribution nearby major populations.
Faster network speeds and less congestion during peak times, due to the 5G network being rolled out in the next few years, will be key in driving the approximately 80 per cent of Australians with a smartphone online as the barriers between customer and business fade further.
While local shoppers are currently willing to tolerate slower delivery times, CBRE said expectations are changing and that before long it will be a competitive imperative to offer delivery in two days or less.
A raft of local retailers have been investing in faster delivery over the last 18 months, including online players like The Iconic and Showpo, as well as multichannel retailers like Cue Clothing and Accent Group.
Changing media landscape “requires an entire business transformation, not just a new website”
However, many businesses are struggling to make significant profits while also offering fast delivery, and investing in the infrastructure required to facilitate it.
“The last-mile component of delivery equates to 28 per cent of a product’s total transportation cost,” CBRE said in its report.
“Significant costs mean that 22 per cent of bricks and mortar retailers choose not to sell online due to concerns of managing delivery and returns.”
There has been ongoing disagreement in the industry over same-day delivery and whether it is worth the price of admission. While retailers like Cue have invested in three-hour services, others like Petbarn have decided that offering such a service for free would be uneconomical.
But customers are increasingly looking to penalise businesses for missing the mark. CBRE found that 59 per cent of consumers would stop shopping with a retailer if their delivery was late.
This illustrates the importance of accurate delivery windows, which are more prevalent in international markets like the UK.
Locally, companies like Winning Group are investing in artificial intelligence technologies that can narrow down delivery windows to within 30 minutes.