Growth

The new warehouse:  Smarter, bigger, closer to the customer

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

When you think of a distribution warehouse, the picture that usually comes to mind is a dreary shed as big as a football field in a grimy industrial area. Inside, it’s hot, dusty and staffed by just a small handful of people who enjoy few of the amenities that their office worker counterparts do.

To say that warehouses are now becoming glamorous is probably a bit of an overstatement, but the growth of e-commerce is providing the impetus for them to shed (so to speak) their shabby old image.

Outsourcing of logistics is still a trend, despite some high-profile retailers deciding to do it themselves. As Mark Courtney, research director at Colliers International in Brisbane, told me: “Outsourcing provides the twin benefits of devolving responsibilities to logistics professionals while freeing up occupiers to focus on their core business.”

Colliers found that industrial developers are headed to add more than 1.6 million sq. metres of large-format industrial property (ie. warehouses sized 5,000 sq. metres and above) in Australia by the end of the year, with no signs of a slowdown.

Some of the most important tenants for the new warehouses, or ‘bulk distribution centres’ as they are often called, are logistics providers that operate fulfilment for e-commerce retailers, omnichannel retailers and other businesses.

Warehouse depot with packaged up items

Warehouses get a facelift

With e- and m-commerce growing consistently at a much faster rate than the overall retail sector, the boom in the industrial property market is unsurprising.

There are several alternative approaches to warehousing being tried by omnichannel retailers:

  • Integrate warehouse operations with stores, thereby effectively using stores as part of the distribution network. Although some of the very best retailers internationally are making this work, it is still proving to be problematic because of legacy store inventory systems, among other things.
  • Keep e-commerce and store warehouse operations separate. 
  • Operate combination distribution facilities that service both stores and e-commerce customers.

However, in each case the warehouse that is part of the solution will look nothing like the one we have traditionally pictured in our minds.

Bigger is better

The new distribution centres are much bigger than those of old, with higher ceilings and stronger floors to hold more merchandise. They employ more people and provide them with greater amenity, including A-grade offices.According to Colliers International, the average footprint of new distribution centres over 5,000 sq. metres has increased from 10,468 sq. metres in 2010 to 13,972 sq. metres in 2014. In Melbourne, the average size is pushing 20,000 sq. metres and Sydney is not far behind. The larger warehouses can accommodate the operations of multiple clients that share resources, rather than each occupying a single, smaller facility. This means efficiency gains and reduced costs.The centres are not only larger but also more technologically sophisticated, with guided vehicles, RFID (radio frequency identification) technology and other bells and whistles to streamline operations and make them more efficient.Key tenants in these new warehouses are often logistics companies like DB Schenker that provide fulfilment services for multiple outsourcers, such as e-retailers. 

Fulfilment services may work for some, but not all

Adam Jacobs, co-founder of online retailer The Iconic, outsourced its distribution capability for the first six months of the company’s life but it didn’t work out. After moving warehouse four times, Jacobs told me in a recent interview: “We rented our own warehouse, we hired our own people, built our own infrastructure and systems and processes, and today it is the absolute core of our competitive advantage within the market.”Still, for many smaller operators, outsourcing logistics in a shared environment is easily the most attractive option and possibly the only one given the costliness of the alternatives.

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