E-tailers require 3x more logistics space than brick-and-mortar retailers

The shift from in-store to online retailing is creating a favourable mix for logistics space suppliers, according to a new report by US logistics giant Prologis.

While e-commerce is contributing to shrinking retail footprints for certain formats, the report found that it has increased the demand for logistics real estate. ‘E-commerce retailers use logistics real estate in ways that require more space. Many activities that were typically carried out within stores are now consolidated into logistics facilities. As a consequence, e-commerce customers require more logistics space than traditional activities.’

As new supply chains emerge, retailers may need to substitute logistics space for retail storefronts and may need less retail real estate in aggregate, the report concluded. But they may need more logistics space – three times or more – amid the mix shift. ‘The global shift toward e-commerce is changing how the retail and logistics industries operate. This trend affects all aspects of the retail industry, including the strategic location of fulfilment centres and total real estate footprint.’

The study – entitled ‘Inside the Global Supply Chain – E-commerce and a New Demand Model for Logistics Real Estate’ – points out that online sales are growing 20% annually and are expected to reach $750 bn globally this year. ‘This growth is an important new driver of demand for logistics real estate as traditional distribution activities (to store) transition to fulfilment centres (direct to customer). As e-commerce retailers seek to drive profitability, to differentiate their offerings and to improve time to market, logistics facilities are increasingly viewed as revenue drivers.’

While e-commerce only represents 10% of all new leasing around the world, this percentage has doubled during the past three years. Moreover, forecasters such as Goldman Sachs anticipate that online sales will continue to rise at double-digit rates for the foreseeable future. ‘High industry growth suggests that distributors will increasingly favour facilities proximate to their end customers,’ the report said.

A retailer’s decision to shift from in-store to online is driven by a customer service perspective, but significant real estate cost savings can be an incidental benefit. Logistics rents range between $3-10 per foot per year, while traditional retail rents can be $20-50, with high street retail much more expensive.