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Virtual Consumer Experience Forcing Revolutionary Changes to the Supply Chain

HERNDON, VA – The global consumer shift toward electronic-commerce (e-commerce), mobile device supported commerce (m-commerce), and social media supported commerce (s-commerce) is changing how the retail and warehouse industries operate. This trend affects every aspect of the industry, including the physical location of warehouses, distribution centers and retail stores, according to a report issued by the NAIOP Research Foundation and the International Council of Shopping Centers (ICSC).

The report, The New Borderless Marketplace: Repositioning Retail and Warehouse Properties for Tomorrow, provides:

  • A perspective on the emerging growth of and consumer shift toward e-commerce, m-commerce and s-commerce and how it affects the retail and warehouse industries.
  • Insights into the inter-relationships and demands that exist between e-commerce, logistics, distribution and warehousing and how they work together to reach the consumer.
  • The required modifications to the logistics strategy and physical location of retailers and their distribution centers.
  • The changes needed for traditional retailers to remain competitive in the industry and to support the emerging e-commerce and m-commerce demands.

The traditional, physical storefront has been evolving in recent years because of better inventory management and control, more coordinated logistics and advancements in payment systems. Retail stores are also becoming places where online customers can opt for a store-pick-up rather than a home delivery. However, these options must also be integrated within the retailer's supply chain and distribution strategy and reflect the flexibility of the retailer to fulfill the order and deliver as promised to their customer.

"The rise in alternative commerce is changing the way consumers interact with retailers," said Thomas J. Bisacquino, president and CEO of NAIOP. "The retail and warehouse industries are going to have to adjust their logistics and operations in order to remain parallel with or possibly stay ahead of this alternative commerce curve."

"The new borderless marketplace creates challenges and opportunities for the retail real estate industry," said Michael P. Kercheval, president and CEO of ICSC. "Tomorrow's real estate decisions will have to embrace more than just location; it will be about innovative multi-channel distribution."

Co-sponsored by the NAIOP Research Foundation and ICSC and prepared by Curtis Spencer and Steve Schellenberg with IMS Worldwide Inc. in Webster, Texas, the full report is available for complimentary download on our website and at www.icsc.org.

Virtual Retail Impact

According to the report, in 2011, about one-third of Americans owned an Internet-enabled Smartphone, and 25 percent of users indicate they would like to use their mobile phone to pay at the point of sale. With more Smartphone adoption, the use of and comfort with mobile commerce will likely increase transactions over time. The report explains how these expected changes in commerce will have a profound impact on global supply chains and the delivery of products between manufacturing centers and individual consumers.

In addition, the report supports a projection by Deloitte Research, within five years the current percentage of sales closed at physical stores versus alternative sales channels will drop to 76 percent from 91 percent today. That organization also concluded that "brick and mortar" stores in the future will require a smaller footprint.

Supply Chain Changes

The traditional supply chain that was used by the retail industry for many years consisted of a single or multiple distribution center network that supported regional-store replenishment. In order to support the emerging e-commerce, m-commerce, and s-commerce demands, retailers today must deploy a new approach to supply chains that support moving goods from distribution centers directly to consumer sites. While some retailers will choose to completely outsource their e/m/s commerce fulfillment to third-party specialists, others will reconfigure parts of their current distribution system networks in order to support a multi-channel or blending fulfillment strategy.

The decision to outsource the entire e/m/s-commerce distribution platform or to retain part or all of both channels of fulfillment is largely a function of the proximity to ground or air hubs for UPS, FedEx or the postal service. Close proximity to a transportation hub allows for longer daily order fulfillment cycles and is likely to reduce shipping costs.

Conclusion

The report concludes that e-commerce, m-commerce and s-commerce are all on the rise. As the traditional storefront changes before the consumer's eyes, the physical locations of stores and warehouses will need to change to meet the challenges of this new virtual world.

The evolving storefront will need to be a complete integration of a retailer's physical and virtual locations. To make purchases easy, retailers will need to ensure the process of searching, purchasing, receiving and even returning a product is made simple. This will most likely include the ability to purchase online and return in-store. Since there is a high demand for having products readily available, retailers will need to reevaluate the locations of their distribution centers. New cost-effective strategies will also need to be implemented. These may include reconfiguration of retail properties and/or distribution centers or outsourcing logistics to third-party vendors. Lastly, retailers must embrace a borderless strategy. As this report indicates, the use of e-commerce, m-commerce and s-commerce is only increasing. Retailers with a borderless approach to business will enhance their opportunities and stay ahead of the competition.

* Numerous citations are credited within the full report, available for download under Research or at www.icsc.org.

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About the NAIOP Research Foundation: The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the work of individuals and organizations engaged in real estate development, investment and operations. The Foundation’s core purpose is to provide these individuals and organizations with the highest level of research information on how real properties, especially office, industrial, retail and mixed-use properties, impact and benefit communities throughout North America. For more information on how to contribute or for complimentary research reports, visit www.naioprf.org.

MEDIA CONTACT:
Kathryn Hamilton
703-904-7100
hamilton@naiop.org