Technology is transforming retailing and its associated supply chain. As bricks-and-mortar retailers expand into offering online and those originally only pure play take physical showrooms, the reality of omnichannel retailing is well and truly upon us.
Research consultancy LCP recently reported 73% of retailers already had or were in the process of making the move to omnichannel. The explosion in digital technology with smart phones and tablets only accelerates the ability of customers to buy and take receipt of products how, when and where they like.
The bigger issue now for long-term investors in warehousing, such as SEGRO, is how to stay ahead of technology and ensure longevity of the underlying real estate. Not so much a debate on ‘bricks and clicks’ anymore but more about ‘tech and spec’.
With the challenge of last-mile home delivery, will the new parcel delivery centres morph naturally into the click & collect replenishment warehouses of the future?
Click & collect is the major growth area for retailing - revenue from this source doubled in the UK between 2012 and 2014. Home delivery isn’t going to go away any time soon, but retailers like to push click & collect with the emphasis on collection being instore. It’s cheaper, easier to handle through the supply chain and generates additional footfall. But that’s not really the convenience customers are looking for - hence the increasing proliferation of pick-up points.
Deloitte predicts that the number of collection points in Europe will reach 500,000 this year, a 20% annual rise. At this scale, click & collect suddenly presents the same issues as home delivery - lots of small packages and a multitude of different locations, all needing frequent replenishment. It is difficult to look past the requirement for a localised supply-chain network and the urban shed for that.
As technology advances, maybe you won’t need a warehouse at all, simply an airfield to launch delivery drones. While DHL and Amazon are trialling the format, research from Deloitte concludes that the cost (circa £15,000 for a 2kg payload), range, safety, security requirements and sheer practicality will make drones niche. Therefore, vans will continue to be everywhere, as will the urban logistics warehouses where the vans are loaded.
But how many white vans can our roads take? Electric, driverless delivery vehicles will be the solution, but not yet. Transport Minister Claire Perry said last month she wanted Britain to be at the forefront of driverless technology and there is a widespread expectation that drivers will become passengers in their own cars by 2030.
But for commercial application, the practicalities cut in again. Do we see the use of hybrid vehicles increasing? Yes. Will multi-customer consolidation centres and city hubs be promoted to reduce congestion and emissions? Quite probably. But the end of the urban shed? No chance. We’re still going to need warehouses within the suburban ring of cities to make it all possible.
The technology of automation and robotics is also having an impact, with both Amazon and Tesco active in this field. Interestingly though, a generic, well-specified building in the right location remains in vogue and in high demand - witness online grocer and automation leader Ocado’s recent letting at our scheme in Park Royal.
What about the technology of 3D printing? Already being widely used in the automotive and medical industries, this could lead to more local production over the next decade. There will be intellectual property issues, but it would be another good use for clean, smaller units located close to customers’ homes.
Technology evolves daily and the property industry’s thinking about its application will evolve. In the sheds world, it all feels very positive. It is certainly difficult to see the downside.
Andy Gulliford is chief operating officer at SEGRO