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Two giant retail chains are doubling down on fulfilling delivery orders in stores rather than warehouses as the industrial market continues to cool.
Walgreens is closing an e-commerce warehouse in Illinois, The Wall Street Journal reported, as the retailer focuses on using its store employees to fulfill orders straight off the shelves for quick delivery affiliates like Uber Eats and DoorDash.
Meanwhile, Target, a veteran of in-store fulfillment, is doubling down on that strategy, announcing it will invest $100M in sortation centers located in the back of its stores, the WSJ reported. Target completes 95% of its online orders through store fulfillment and hopes to speed up that process with the investment.
The shift away from warehouses and toward in-store fulfillment has seen momentum in the last year, following an industrial boom during the first few years of the pandemic. Companies like Ulta Beauty, Macy’s and Tillys expanded their in-store fulfillment operations, the WSJ reported in December.
Speed is a key benefit to in-store fulfillment, as consumers are likely much closer to a store than a warehouse. Target has 14 standalone warehouses and nearly 2,000 stores, according to the WSJ. Meanwhile, 78% of Walgreens customers live within 5 miles of its 8,700 stores nationwide.
The bar is high for speed. These retailers have to compete with Amazon’s Prime model, which gets products to members in often a single day. But the world’s largest online retailer is still focused on the warehouse distribution model.
Amazon's expansion of its fulfillment network led to an industrial boom, but the market has begun to cool off this year. In October, the industrial property price index was down 9.3% month-over-month, according to Green Street, while the overall property index was down by roughly a third of that. As the third quarter saw a record 162M SF of new industrial product delivered, absorption fell to an eight-year low of 90M SF.
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