The Importance of Location on E-Commerce Success
To some observers, e-commerce startup Jet.com was taking a gamble when it made the decision to double the size of its headquarters in Hoboken, N.J., and commit to a distribution facility the size of more than 12 football fields in southern New Jersey.
However, experts agree that betting on the growth of e-commerce is a sure thing, and Wal-Mart placed that bet. The brick-and-mortar retail giant agreed to acquire Jet.com in August 2016 for more than $3 billion in cash.
This acquisition isn't surprising. More than 171 million consumers made purchases online in 2015, and that number is expected to grow. According to eMarketer, retail e-commerce sales in North America will rise 15.6 percent in 2016, reaching $423.34 billion. Online sales during the holiday season soared to $69 billion in 2015, and are expected to experience double-digit growth percentages for the next five years.
Online retailers — like Jet.com — will help drive the growth of e-commerce. For example, online grocery sales are expected to increase 9.5 percent annually to become a $9.4 billion industry by 2017. Business Insider research provides an even more optimistic view, predicting that between 2013 and 2018, online grocery sales will grow at a compounded annual rate of 21.1 percent.
That's good news for e-commerce companies, as well as traditional retailers planning to expand their presence online. However, opportunities can also present challenges. For many companies, the hurdle will be distribution. How do you satisfy consumer expectations of same-day delivery without the expense or time lag associated with long-distance shipping, especially during the busy holiday season?
Location: The Competitive Advantage
When it comes to same-day delivery capabilities, it's all about location and market access. In fact, in an era where speed-of-delivery can determine a company’s success, location and access to a broad consumer market become critical factors.
E-commerce leader Amazon.com once again raised the bar for delivery speed with its new two-hour Prime Now service. But Prime Now isn't yet available to most online shoppers, and so consumers don't have the expectation of two-hour delivery this holiday season. In fact, a majority of online shoppers polled by Deloitte for its 2016 Holiday Survey consider “fast shipping” to be two days from order to delivery. Meanwhile, the same survey in 2015 reported most consumers thought shipping was "fast" if it took less than five days. It's certain that the demand for lightning-fast delivery will only intensify, placing pressure on the logistical capabilities of all e-commerce companies.
For many companies, the only answer to satisfying consumer demand while keeping distribution costs in check is selecting locations that offer convenient access to a broad consumer market. That's one reason why a growing number of e-commerce companies are choosing locations in densely populated markets, where customers and suppliers can be accessed in hours, not days.
Amazon took this approach. Many of its largest distribution centers are located where the people are — along the U.S. West Coast and Northeast Corridor.
A distribution center in central New Jersey, for example, can reach more than 20 million consumers who collectively have nearly $800 billion in disposable income within a two-hour driving radius, including consumers in the lucrative New York City market. Approximately 40 percent of the U.S. population can be reached within two days. For companies that want to offer their customers low- or no-cost, same-day delivery service without eroding their margins or bottom line, this tactical location certainly makes sense.
It's little wonder that Oakland, California and New Jersey are ranked number one and two respectively on CBRE Research’s list of the world’s fastest-growing logistics markets. In fact, New Jersey industrial leasing activity grew by 24 percent year-over-year in 2015, driven largely by the growth of e-commerce and third-party logistics companies. Industrial leasing in New Jersey this year may be the highest it has been in 16 years, according to Cushman & Wakefield.
A complementary consideration to location is transportation. Access to transportation networks — including interstate and highway systems and cargo rail networks — is essential for optimizing market access. For e-commerce companies that rely on receiving goods from overseas, easy access to seaports and airports will also help ensure product availability meets demand.
One thing is certain: There will be more shoppers online during the 2016 holiday season than there were in 2015. Companies that choose locations that make deliveries to their customers faster and easier will have a strategic advantage in an increasingly competitive e-commerce marketplace.
Michele Brown is president and CEO of Choose New Jersey, Inc., a privately funded 501(c)(3) corporation charged with encouraging and nurturing economic growth throughout New Jersey with a focus on its urban centers.
Michele Brown is President and CEO of Choose New Jersey, Inc., a privately funded 501(c)(3) corporation charged with encouraging and nurturing economic growth throughout New Jersey with a focus on its urban centers. It is a member of the New Jersey Partnership for Action (PFA), which is led by Lt. Governor Kim Guadagno and also includes the New Jersey Business Action Center, the New Jersey Economic Development Authority and the Office of the Secretary of Higher Education.