E-commerce has prompted the evolution of most facets of many industries, perhaps none more than commercial real estate.
The fulfillment of online shopping both positively and negatively affects brick-and-mortar facilities.
The NAIOP Commercial Real Estate Development Association Northeast Florida Chapter’s quarterly luncheon Thursday at San Jose Country Club explored the topic.
Panelists included Rick Schart, senior vice president of supply and e-commerce for Stein Mart Inc.; Christian Flowers, CEO of Fulfillment Shipping and Handling Inc.; and Cushman & Wakefield industrial brokers Tyler Newman and Jacob Horsley.
With the continued emergence of e-commerce, heightened customer service expectations and the continued growth of fulfillment giant Amazon.com in the Jacksonville market, the panelists discussed the impact of e-commerce on new and existing warehouse design, logistics operations and how retailers must adapt to contend with growth of online sales.
Moderator Peter Anderson, vice president of Pattillo Industrial Real Estate, began the discussion by reciting some statistics.
He said that while annual retail sales growth averages 3 percent, e-commerce is averaging 14 percent.
Although online shopping accounts for only 8.4 percent of total retail sales, that volume has been doubling every four to five years, he said.
Stein Mart’s strategy
Schart, who was placed in charge of Stein Mart’s e-commerce efforts in 2012 with a launch in 2013, admitted that while the Jacksonville-based retailer was late to the game, tardiness came with advantages.
With an opportunity to learn from the mistakes of other retailers, Stein Mart developed a more nimble fulfillment process, an “omni-channel” strategy that includes direct shipping from a customer’s nearest store if the inventory is available there.
Otherwise, shipping comes from one of the company’s distribution centers in the Atlanta, Dallas and Los Angeles areas. Orders also may be fulfilled by a third-party vendor.
Stein Mart’s shoe department, for example, is effectively an in-store DSW location. Online shoe orders also are filled by DSW.
Returns, Schart added, can be made at the chain’s retail outlets at no charge rather than shipped back to a fulfillment center.
The design of new stores will reflect Stein Mart’s incorporation of e-commerce as a significant aspect of its business model.
“Stores of the future are going to look different,” he said. “They may be smaller, but they will have larger back rooms.”
Those “back rooms” might include a second level with fulfillment warehousing space above the retail space on the lower level.
E-commerce sales accounted for 2.1 percent, 1.7 percent and 1 percent of Stein Mart’s total sales in 2016, 2015 and 2014, respectively.
Reversal of fortunes
New and retrofitted warehouse design also will incorporate use of space above the ground floor, said Flowers, whose Shipping and Handling Inc. at 4344 Philips Highway offers logistics, warehousing and kitting (assembly of multiple items into ready-to-ship kits) services.
The need for larger and more efficient warehousing space is evident as online shopping continues to grow.
“It’s a whole new game and we have to approach it differently from a warehouse standing,” Flowers said. “Space is everything. Now the new warehouses that are designed for e-commerce are six pallets high instead of four pallets high, and they might even be higher than that.”
Having adequate warehouse inventory for quick delivery is crucial in meeting customers’ expectations and to compete with a growing number of fulfillment companies, the panelists agreed.
“More logistics companies will set up,” Flowers said, adding that two- to three-hour delivery will be necessary to compete.
“You will have to have same-day deliveries. Next-day delivery is not going to be good enough five years from now.”
The panelists concurred that online-only retailers such as Amazon subsidize free deliveries to build business, placing traditional retailers entering the e-commerce market at a disadvantage.
Schart said while Stein Mart offers free delivery for orders of more than $75, it’s common for a customer with a $72 order, for example, to add a $4 item to get to $76 and avoid the $8 shipping fee.
“It’s great that you get the $4, but you lose the $8 in shipping,” he said, adding that retailers incorporating e-commerce into their business model must not lose focus on their physical stores.
“That’s why retailers like Stein Mart are thinking more about the (in-store) customer experience,” Schart said. “You’ve got to up your game or we will become a dinosaur.”
“Customers will go to the store for value … and the reason is for the experience itself,” he said. “If you think about the comparison between The Avenues mall and (St. Johns) Town Center, the Town Center is an experience. There is a reason there continues to be growth there rather than at The Avenues because it is a much greater experience.”
Flowers has a different take on the future of struggling malls.
Just as brick-and-mortar stores are turning toward e-commerce, he said the opposite will be true in the future.
“Malls were originally put in based on feasibility studies based on demographics and population,” he said. “I believe there will be a reversal in the fortunes of malls,” he said.
“We will see in five years companies like the ones we have discussed here having brick-and-mortar DC (distribution center) locations. I think you will some changes in the malls coming down the road, and they won’t be dead places. They’re originally put in to be near people.”