How International E-Commerce Has Changed Industrial Real Estate
Behind every online purchase, the supply chain from retailer to consumer follows a dense international web of retailers and logistics companies all with the same goal: to speed up delivery and anticipate product demand. From urban warehouses to international distribution facilities, online retailers have altered global industrial real estate in an age where consumers are promised anything and everything, instantly and seamlessly.
GLP is a leading logistics facility provider, maintaining dominant networks in China, Japan, the U.S. and Brazil. This makes understanding international e-commerce a crucial part of keeping its facilities competitive. For GLP CEO Ming Z. Mei, studying how retail patterns change is critical. “[Retailers] employ multiple strategies to target different channels of their product," Mei said. "They would need to have bulk distribution facilities for a national, traditional retail network. Then for their online retail, they need to be closer to their population base for last-mile fulfillment.”
E-commerce has led to a borderless, multi-directional marketplace, with online retailers influencing demand in the East for Western-made products. “Consumers in China can directly buy goods that are made in the U.S.,” Mei said. Industrial spaces equipped to handle the increase in international trade have grown in necessity. “There is demand in China for what we call ‘bonded facilities.’ These are the customs-regulated facilities, and you need to have a bonded facility in both locations if you want to ship goods from one country to another.”
China has emerged as a leader in e-commerce, influencing other countries to adapt to remain competitive. “A lot of this is relatively new to the U.S., but China is a trendsetter on the e-commerce side as it has been at the forefront for quite a while. Many of the retailers we are working with in other markets are now playing catch-up and that is a huge opportunity,” said Chuck Sullivan, president and COO of GLP’s U.S. operations. These are patterns that have shifted over time, in an effort to improve customer service. “First the trend was overnight delivery, then same-day delivery, now customers want to receive their deliveries within several hours.” Omnichannel is one way to meet a retailer’s service goals.
“Where do the goods come from? Does it come from a store? Does it come from a warehouse? Does the customer pick it up at the store? Does it go from the store to the customer’s office?" Sullivan said. "All of those questions are effectively complicating the supply chain, and that is good for our business. A complicated supply chain typically means the customer will need more warehouse space.”
Delivery times in both the U.S. and abroad are impacted by a shrinking supply of warehouses, forcing retailers to acquire multiple properties near urban centers. “These e-commerce facilities maintain their bigger box as a sorting facility, but what they are actually having to do is acquire a smaller warehouse or multiple smaller warehouses around these major markets,” Sullivan said. A lack of both space and modern logistic facilities has become a global problem, as e-commerce demands more goods on hand for faster delivery. This will continue to increase in importance and complexity as customers demand faster delivery times, such as next-day and same-day deliveries.
An increasing number of foreign entities are investing in industrial assets. “Industrial real estate continues to offer a very stable, strong cash flow that is predictable. So that fits the requirements for a lot of the pensions, insurance and sovereign wealth funds,” Mei said.
And what of the fate of brick-and-mortar retailers? Mei said Chinese online retail giants are augmenting their doorstep delivery with physical stores. “We are also seeing online giants making huge investments in what we call ‘traditional retailers,’” he said. “They provide an offline experience. We are also seeing traditional offline retailers moving online.”
Mei expects the gap between online and offline retail experiences will soon close, as online shopping becomes the norm. “Four or five years from now, we probably will not hear the term 'e-commerce' anymore,” Mei said. “That is because it will just be another channel of everyone’s retail strategy, so it is no longer unique.” Whether that prediction comes true or not, there is no denying e-commerce's lasting impact on industrial CRE.
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