The Rising Role of Logistics in Retail Strategy

The success of a retailer has always hinged on its relationship with consumers, driving brand loyalty, repeat store visits and ultimately sales. So retailers have always set strategies that aim to provide optimal service for customers. In today’s increasingly e-commerce-driven and multichannel environment, retailers are shifting their strategies — with the same goal of providing optimal service for customers.

As consumers continue to opt for online purchasing of goods, retail strategy becomes increasingly involved with supply chain management and logistics. Without the face-to-face interaction and merchandise display of brick-and-mortar, a retailer’s ability to retain customers is at the mercy of its logistics elements, including product quality control, inventory levels, timing and expenses.

Continued e-commerce growth is undeniably imminent: e-commerce sales are growing at 10 percent to 12 percent CAGR; retail foot traffic continues to trend down 2 percent to 4 percent; and mobile e-commerce purchases are growing dramatically, with mobile sales expected to account for 54 percent of total e-commerce sales by 2021. Retailers can prepare for the inevitable rise in e-commerce by understanding who their customers are, their purchasing habits and where they're located. Key logistics considerations for retailers include the following:

Fulfillment Strategy

Prioritizing fulfillment strategy is increasingly important for retailers in an omnichannel marketplace. With the understanding of who your customers are, their purchasing habits, and where they're located, you can create a fulfillment strategy to get goods closer to your customers. To meet rising e-commerce demand, fulfillment strategy is paramount, especially in urban markets. An urban warehouse allows you to sell in all channels, and offer multiple delivery options in an increasingly e-commerce-driven retail environment.

Selecting the Right Urban Warehouse

Having an urban warehouse, with ceiling height and loading docks, increases throughput of products that can go through the multiple fulfillment options. Increased ceiling height allows for increased throughput of packages and decreased cost per package, both from a real estate and logistics cost perspective. The urban warehouse metric to use is not dollar per foot, but rather dollar per package. The more packages you can process through the facility, because you have proximity and functional amenities and cubic feet as well as increased loading docks, takes both real estate cost per package and logistics cost per package down.

Due to greater throughput, it's possible to have a cheaper cost per package using an urban warehouse with local logistics rather than a rural warehouse using traditional shipment.

Same-Day Delivery

A fulfillment strategy addressing consumers’ increasing preference for e-commerce is no longer enough. Retailers now need to address consumers’ increasing preference, and even expectation, for same-day delivery. Ninety-six percent of consumers consider “fast delivery” to mean same-day delivery, according to Invesp. Furthermore, 61 percent of consumers want even faster shipping — within one hour to three hours of placing an order.

Having the inventory positioned close to consumers, either with a distribution center or retail store, is an important part of the supply chain which offers the retailer options for same-day or two-hour delivery. Buy online, pick up in-store (BOPIS) or ship from store (SFS) with delivery are all same-day or two-hour options for the customer to receive their order. Having an urban distribution center can serve as an extended back room and keep stores replenished, a critical factor considering that more than $125 billion annually is lost due to out-of-stocks at retail stores.

Modern Logistics Properties

A modern logistics property offers efficiency that old properties cannot. With optimized layout providing favorable circulation, it allows retailers to intake an order and turn it around much more quickly and cost effectively than an older facility. Old logistics properties cannot compete with the high ceilings, which can accommodate modern vertical racking systems, or the impressive loading dock ratio, which increase efficiency by loading directly onto each floor. A modern facility also grants higher operating capacity through automation, potentially robotics, while focusing on the future of work and the available labor force.

Navigating NYC

Logistics in New York City are expensive and complicated, but being strategically located is key to winning in the urban market. Certain areas like the Bronx are much more favorable to get into the city vs. others as there are no bridges or tolls, and you can get in/out of the city with greater ease from there.

More and More Mobile

E-commerce growth has only just begun. E-commerce transactions will increase exponentially as consumers become more mobile and use their smartphones for purchasing. Retailers will be challenged to create new logistics solutions. The key will be evolving the retail supply chain to align with how consumers’ buying habits change over the coming years.

Andrew Chung is CEO of Innovo Property Group (IPG), a premier industrial developer for urban locations involved in more than $1.7 billion of invested equity.