Many retailers with an existing e-commerce footprint are noticing a strong surge in sales that have helped alleviate – or even outpace – the impact of closed retail locations. Conversely, those solely operating out of brick and mortar stores have put everything on pause and are among the hardest hit by the current situation.
This has moved the entire industry to re-consider how their businesses will need to adapt to survive and, eventually, thrive with the restraints of social distancing.
So whether you are a Big Box retailer, large Corporate brand, or smaller boutique shop operator then you may be asking yourself,
How does this impact short- and long-term space planning?
- Does the e-commerce boom continue post-COVID-19 when brick-and-mortar stores re-opened, or will it regress to previous levels as people begin to shop like before?
- How will Tenants allocate resources to their real estate appropriately with so much uncertainty?
- How are returns – reverse logistics – being handled while stores are closed; will customers be pushed to return “in-store” later on?
- If online orders continue to increase, how does this affect the supply chain?
- And finally, what will happen when stores re-open?
Well, here are some options to consider to reduce risk as much as possible through the transition period as you collect data and observe how things play out.
1) Short-Term Overflow Space:
Many Landlords are now considering short-term deals with Tenants, however, opportunities may be limited and difficult to come by. That being said, additional space in industrial warehouses likely exists with other local businesses that are operating at below capacity. This type of transaction can not only provide the necessary extra bandwidth for in-demand Users but also generate revenue for those who have seen volumes decline. A win-win given the current climate.
2) Partnering with a 3PL:
Outsourcing fulfillment and delivery through a third-party provider can give greater flexibility with short-term or month-to-month arrangements, allowing clients to adjust their needs accordingly and only pay for what they need. The only tradeoffs here may be in having less control of the process and slightly slimmer margins, depending on the complexity and maturity of the supply chain. Overall, this may significantly reduce your real estate risk during the transition and help you forecast costs during all of the uncertainty.
3) Delay Delivery as Much as Possible:
While many retailers typically purchase and store inventory according to forecasted demand, the current situation likely will not produce historical sales volumes. Space is already being constrained due to reverse logistics and additional stock, so retailers may be hesitant to order next season’s product with no guarantees they’ll be able to move them. To remedy this, they may wish to use a ‘just-in-time’ supply chain. Pushing out and delaying fulfillment from the point of origin may slightly increase delivery times yet reduce waste from unsold inventory.
In conclusion, it seems that most retailers are still collecting data and learning as they go through these uncharted waters. Many solutions exist, however, deciding which ones to allocate time and resources to remains a mystery with insufficient data to confidently support decision making. All we can do right now is try to hedge downside risk and leave room to jump on opportunity, such as the eventual re-opening of the economy.
If you find yourself in a position looking to optimize your short- or long-term warehousing and would like guidance on a best-practices approach for your company, then please contact us.
Daniel Smith is the Vice President and Principal of Lee & Associates Toronto, specializing in the acquisition, disposition, and leasing of industrial properties, as well as providing clients such as local and national corporations, landlords, and developers with a full range of real estate services.
ABOUT LEE & ASSOCIATES
Lee & Associates Toronto is a commercial real estate brokerage firm. Established in 2019, the firm provides superior market intelligence in office, industrial, and investment to meet the specialized needs of our clients. For the latest news from Lee & Associates Toronto, visit leetoronto.com.
To get clarity and direction when looking for space or going through a lease renewal, or to discuss any other real estate needs, please contact Daniel at 416.628.8173, email at firstname.lastname@example.org, or visit www.leetoronto.com.