E-commerce and urban warehousing: A cost-saving opportunity in last mile logistics - by Nadine Cino

July 04, 2017 - Owners Developers & Managers
Nadine Cino,
Tyga Box

So—you want to sell something?

Although many question “is retail dead?” in light of massive retail store closings (2,280 have been announced so far this year, compared to 1,153 in same period 2016 according to Bloomberg), what is clear is that retail is ceding ground to e-commerce.  Rents are softening and the number of vacant storefronts is rising. The implications of increasing e-commerce sales compels the evaluation of alternative infrastructures and distribution models in order to accommodate and capitalize on this shift in shopping behavior. 

Consider the myriad ways in which the convergence of diverse, seemingly disparate trends can be orchestrated in such a way as to maximize portfolio value to urban landlords and create new opportunities for servicing the e-commerce shopping model by developing urban warehouses which minimize the cost of the “last mile” and address the operational shifts needed to support e-commerce transactions ongoingly.

Some of the trends, I believe, are worthy of consideration and in no specific order of priority are: a) automation of warehouse functions, b) increasing use of robots, c) possible growth of delivery drones, d) continued growth of e-commerce; e) e-commerce free shipping and return policies, f) returns restocking issues, g) energy conservation (building level), h) fuel conservation (logistics level), i) projected increases in urban population density, j) need for cost-effective, resource-efficient distribution systems design, k) AI, l) IoT, m) VR and n) big data analytics. 

So—you want to sell something?

Current return rates of online products is alarming. According to an Invesp infographic on online return rates statistics, at least 30% of all products ordered online are returned compared to only 8.89% bought in brick-and-mortar shops.

About 49% of retailers offer free return shipping, and the reasons for returns are: a) 20% damaged product, b) 22% product looks different, c) 23% received wrong item and d) 35% other reasons.

And there is more info to know about when it comes to free shipping: a) 92% of consumers will buy something again if returns are easy, b) 79% of consumers want free return shipping, c) 67% of shippers check the returns page before making a purchase, d) 58% want a hassle-free “no questions asked” return policy, e) 47% want an easy-to-print return label, f) 62% of shoppers are more likely to shop online if they can return an item in-store and g) 27% of shoppers would purchase an item that costs more than $1,000 if offered free returns as compared to 10% who would purchase otherwise. 1 

So—you want to sell and return something?

The economics of last mile delivery are driven by two factors: a) route density and b) drop size. The traditional definition is: “density is the number of drop offs per delivery route and drop size is the number of parcels per drop off.” By making multiple deliveries over a short distance or time period, the cost per delivery will be low. If multiple parcels are dropped off at the same location, the cost per parcel will be low.   The economics of returns from e-commerce transactions follows the same logic, hence, it stands to reason that amongst the most efficient ways to maximize “last mile logistics” is to locate warehouses in urban areas and reduce route distance.

With returns currently constituting 30% of items transported by the “last mile,” perhaps we want to start thinking about drop offs and pickups on the same route, and perhaps rename “delivery route” to “transaction route.” We could also consider the value of incentivizing customers who return items in the same packaging to help reduce packaging waste. As a side thought, perhaps urban warehouses represent an opportunity to help make e-commerce more sustainable, because currently, the packaging waste is equally staggering to the return waste! 

By definition, being located in an urban area, urban warehouses will be reduced in footprint, perhaps half that of a traditional industrial warehouse. Hypothetically speaking, an urban warehouse would be 70,000 s/f vs 180,000 s/f for an industrial warehouse. The reduced footprint of an urban warehouse can translate into lower land costs for the tenant, and can perhaps become a competitive advantage for addressing the returns issue.  

For landlords, by working with urban warehouse tenants to maximize the usable storage volume out of the gross volume of the lower portion of building, they can enjoy the benefits of filling the higher floors with office tenants willing to pay for the higher floors/better views, and thereby maximizing their revenues and profitability.

Footnotes:

1. http://www.business2community.com/infographics/e-commerce-product-return-statistics-trends-infographic-01505394#Hv5R8Zby8wZZmAef.97

Nadine Cino LEED AP, is CEO and co-inventor of both TygaTrax and TygaBox, New York, N.Y.

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