Importance of Warehouse Integration for Retail

The COVID-19 pandemic has amplified the need to get goods to consumers quickly. While e-commerce has played a vital part in that process, noticeable strains, such as delays within the supply chain, have become more evident. In March and April, during the early stages of COVID-19, the expectation for same-day and two day delivery was difficult to meet due to high consumer demand.

The demand for warehouse space is growing as businesses are revamping the supply chain. As noted in a recent CBRE report, “Lease renewals and new leases jumped 43% from April 15 to May 14 from the previous 30-day period.” The importance of having warehouse space was already increasing as “total transactions for the year are 2.8% higher than at this time in 2019 even though activity fell 29% between March 15 and April 14 as lockdowns aimed at halting the spread of the coronavirus extended across the U.S.” The COVID-19–related fallout will only accelerate that demand.

The emergence of online food shopping has been amplified during the pandemic and that trend is expected to continue. However, retailers such as Walmart or Target that sell more than just food, unlike like most supermarkets, already have a distribution structure in place. In fact, many grocers tend to reinvest in their store base instead of having a self distribution structure. As a limited number of grocery chains have fully
functioning distribution, alternative locations may be useful. One way to meet the growing demand for online food shopping is for supermarket chains and food distributors to have secondary warehouse space available to be used as micro-fulfillment centers. Supermarkets may be able to secure big-box facilities that are close to supermarkets as a method to distribute essential goods to their communities more effectively.

Shopping centers are already positioned near the consumer and in many cases offer large spaces to accommodate distribution. The obvious benefit to converting existing retail locations to warehouse space is to serve customers more quickly and become a last mile delivery solution. Conversions from retail to industrial properties across the U.S. have accelerated to meet ecommerce needs.

ICSC’s consumer survey shows 53% of consumers say due to the COVID-19 pandemic, “they are expecting shopping centers and stores to invest in on-site inventory, distribution and pickup options to give them a fuller and more efficient shopping experience” and is most notable in the South region.

It is unclear what pandemic-driven consumer behaviors and expectations will remain as COVID-19 eventually subsides and people resume their daily lives. However, the potential need for more space to accommodate social distancing may result in retailers’ moving to a showrooming model that allows for space but meets the shopper’s desire to touch and feel items prior to making a purchase. With less inventory in store, the need for the immediate availability of goods nearby could increase the presence of localized warehouses.