With 92 percent of retailers selling online, 68 percent maintaining brick-and-mortar stores, and 64 percent utilizing catalogs, retailers are embracing a multi-channel approach to meet buyer expectations and battle for market share, according to Jones Lang LaSalle’s latest report, Retail 3.0: the evolution of multi-channel retail distribution. In addition, nearly 80 percent of retailers state that online sales have increased in the past five years with some reporting increases of 25 percent or more. This has forced retailers to change the traditional distribution network for their e-commerce models.
“With multi-channel selling comes a major focus on retail distribution, and how to get from ship to shore to store or your door as quickly and as efficiently as possible,” said Kris Bjorson, head of Jones Lang LaSalle’s Retail/e-commerce Distribution Group. “Traditional retailers must support the delivery of merchandise and manage both in-store and online inventories and shipments at a frenetic pace against the backdrop of intense competition from pure e-commerce rivals.”
“Blending new shopping channels has forced retailers to simultaneously add complexity and flexibility into their supply chains while striving for greater efficiencies,” he continued. “They have to reconsider their store footprints and total inventory levels. We’re seeing that in each sector one retailer is evolving e-commerce faster than others. They are adding to their e-commerce infrastructure while trying to optimize their store footprints.”
New Distribution Networks
Retail chains are finding it more cost-effective to increase online logistics operations rather than open more traditional stores, which requires a different kind of distribution model. Therefore, retailers are evolving their regional distribution networks with the addition of e-commerce distribution centers, according to the report.
Traditional warehouses that support stores require less investment and machinery and fewer staff. The new e-commerce distribution centers, which involve direct order fulfillment, can cost three times as much and involve three times as many employees.
“Considering proximity to key customers, tax incentives, sales tax and the availability of local labor are vital to retailers when searching for the right location for their e-commerce distribution centers,” said Bjorson.
The global spread of technology into multi-channel retailing has also opened up new markets in both developed and developing countries. While online sales are growing in the United States and abroad, China and Hong Kong are leading the way.
“China’s consumers are fast embracing e- and m-commerce and are spending the most money online,” said Bjorson. “Yet as fast as the technology is expanding commerce, the logistics infrastructure for retailers is still emerging.”
The inability of domestic logistics service providers to fulfill high volumes of customer parcel shipping at low costs and within a reasonable delivery timeframe dramatically impacts the direct-to-customer channel, the report suggests. Retailers have had to establish their own distribution networks or rely on outsourced express shippers. There is an opportunistic gap in the market for third-party logistics companies and investment in industrial real estate infrastructure.
For the past two decades, U.S. companies have been shifting production to markets with lower labor costs. However, as energy costs rise and labor becomes more expensive in Asian markets, companies are increasing near-shoring and on-shoring. Firms that want to use all-water options but cannot tolerate the lengthy shipping times from Asia are shifting some operations to near-shoring destinations such as Mexico or Central and South America and even back to the United States. With production closer to home and demand, retailers can respond more quickly to trends and changes in buying patterns.