• Supply Chain
  • Commercial Real Estate
  • the Internet of Things

E-Commerce Growth Opens Opportunities in Smart Warehousing

Daniel Talero
Jun 23, 2020

supply chain

The retail sector is seeing accelerated change as a result of the coronavirus outbreak. With in-store purchasing on hold for many retailers, a greater emphasis on e-commerce and fulfillment has emerged. The shift to more online sales has also exposed a need for smarter warehouses and new thinking about logistics.

Before the pandemic, supply chains that relied on just-in-time methods had the advantage of reducing warehouse volumes. However, that strategy is faltering with fewer goods available to ship while demand has spiked from online orders. US online sales were up a whopping 68% year-over-year in April 2020 alone. The shift to online retail requires a restructuring of logistics. This is particularly true in urban centers where warehouse space is at a premium and for consumers conditioned by Amazon to expect next-day deliveries.

Retailers Respond to New Challenges

Some companies are adding warehouse capacity through colocation to meet these new challenges. Target was already part of a pre-pandemic trend of blurring traditional stores as fulfillment centers, enabling customers to order online and later retrieve goods at a local retail outlet. Target is expanding this strategy, launching an ambitious plan to make stores double as retail establishments and online fulfillment centers, leveraging existing store space throughout its network for managing inventory. This approach has the benefit of saving on warehouse costs but adds complexity, retraining, and space redesign costs at the store level.

Other retailers may look to newer methods and technologies to upgrade supply chains rather than colocate. For example, 6 River Systems offers an Internet of Things connected robotic solution, which is deployed by Office Depot. Collaborative robots support the retailer’s e-commerce and retail store replenishment processes by helping prioritize work and reduce the amount of walking employees have to do.

New as a service or third-party logistics (3PL) players are also emerging to meet the need for expanded capacity. Flexe, for instance, functions with an Uber-type model. It connects clients to its 3PL solution and to its company partners’ excess capacity, providing Flexe partners with a new revenue stream. While better suited to startups and companies lacking distribution assets, large retail clients can also use Flexe’s solution to support their e-commerce fulfillment.

Unexpected Opportunity from the Coronavirus Outbreak

This shifting e-commerce fulfillment market presents a significant opportunity for real estate managers to refurbish warehouse space. For example, plans to retrofit a facility are appealing due to low interest rates and the CARES Act provisions that allow for bonus depreciation of assets when qualified improvements are made. This is an ideal time for companies to assess the value of smart warehousing solutions. For more information related to logistics, see the Guidehouse Insights report, Energy as a Service for Logistics and Light Manufacturing.