Property Strategy for Multi-Channel Retail

Published in Property Week magazine on the 15th February 2013

A think-tank comprising experts from Total Logistics, Colliers International, Davis Langdon and architect UMC, has been considering the best property strategy for the future of multi-channel retail. 

The Christmas trading figures confirmed the extent to which the internet has transformed retailing. Although like-for-like sales crept up by just 0.3% in December 2012, compared with the same month the previous year, online sales rocketed by 17.8%.

High street operators that have embraced e-tail such as John Lewis and Next came out on top, and online-only retailer Asos reported growth of 34% in December. Meanwhile, Morrisons, which has no internet presence, lost ground to Tesco and Sainsbury’s and immediately announced it would develop an online platform.

The growth in e-tail is expected to be good news for logistics property: shops are being replaced by sheds. The market is excited about the opportunities presented by “urban logistics” - the process of delivering thousands of online orders to doorsteps in towns and cities - but has yet to feel the impact in terms of new construction.

“A lot of retailers have been serving burgeoning online sales from their existing facilities, but last Christmas may have been the tipping point when they realised they need a proper infrastructure to grow their business,” predicts Gareth Osborn, Segro’s director for the Thames Valley and the regions.

Developers and consultants are beginning to explore where the most profitable opportunities will arise for the property market.  Much of the supply of existing buildings has been taken up.

Some online retailers and distributors require facilities with a very specific design and low site coverage, which are challenging for institutions to find. As a result, they often prefer to buy land and bypass the development industry.

A thinktank formed by Colliers International, together with consultant Total Logistics, Davis Langdon and architect UMC, has a way for the property market to get involved in this process. They believe this proposal will appeal to multi-channel retailers while remaining acceptable to property companies and institutions.

Their concept for a small and medium-sized enterprise (SME) multi-channel building is aimed at retailers with both high street stores and a growing online business that they are conducting from shops or outdated and unsuitable distribution sheds.

At 200,000-300,000 sq ft in size, it is designed for 12 metre-high, narrow-aisle, high-density racking and features a mezzanine floor to provide storage space for a large number of product lines.

It has fewer loading docks than a speculatively developed shed and more entry level doors for small vans, but it can also be adapted to put in further doors for more conventional use.

The larger picking staff numbers required to fulfil internet orders means it allows for more worker facilities and car parking space. The yard is a standard 50-metre depth acceptable to institutional investors.

The building needs to be near a parcel carrier facility and labour supply, preferably on a bus route, but need not lie within the Midlands “golden triangle” - the logistics industry’s traditional heartland.

“Of the online retailers, the non-food SME has most growth potential for the property business,” argues Colliers director Steve Mitchell. He claims the same model could be applied to adapt an existing building, giving it an extra 10 to 15 years of life as an internet fulfilment centre and perhaps attracting a better-quality tenant.

The thinktank has also designed a model for a food retailer “dark store” - a supermarket within a shed where internet grocery orders are picked, similar to those set up around London by Tesco.

An additional source of demand will come from the parcel carriers  that deliver goods on behalf of retailers. GeoPost, which trades as DPD in the UK, is seeking to expand its network to provide increased e-commerce capacity. The company wants a 30-acre site to create a 250,000 sq ft hub in the Midlands and eight pre-let 37,000 sq ft satellite centres.

Meanwhile, Royal Mail wants to expand seven of its existing centres to 100,000 sq ft, as well as create two new facilities. Parcel Force, Yodel and City Link are among other operators seeking more space.  Developers and investors will find themselves in competition for suitable land.

“If you can control key sites around major conurbations, you’ll have a good supply of enquiries,” predicts Jonathan Holland, a fund manager at Legal & General Property’s Industrial Property Investment Fund.

However, the sheds market would be well advised not to put all its eggs in one e-basket. Another big Christmas shopping success story with sales growth of 25% was Primark - a retailer that has no online presence at all.

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