In an era where online retail has exploded, consumers are eagerly awaiting those three little words: “Out for delivery.” More than 57% of people in the US purchased goods online at least once a week in 2022, with sales reaching a record $1.05 trillion. However, for retailers, getting products into the hands of customers quickly is crucial. Last-mile coverage has become an opportunity for brands to establish loyalty and differentiate themselves in the marketplace, with 71% of logistics experts anticipating occupier demand for e-commerce logistics floorspace to increase by over 20% in the next three years, according to JLL’s Future of Global Logistics Real Estate report.
Real estate plays a critical role in developing an effective last-mile strategy, with well-placed industrial facilities being crucial to supporting consistent service and brand reliability, curbing inflated logistics costs, and providing financial stability. As the average cost of a single last-mile delivery tops $6, commercial real estate and supply chain leaders are paying close attention to the nuances of location that can secure cost savings.
One strategy for meeting customer expectations and developing a winning fulfillment and distribution strategy is to place logistics facilities as close as possible to customers. When distribution facilities are located within population centers, delivery schedules are more manageable, and access to highways, rail and air transportation is more direct. Retailers can reduce costly repeat trips into the urban core and the associated bridge and toll fees. Additionally, the proximity to the consumer provides access to dense urban labor pools, which can ease or eliminate labor shortages.
Creative site selection is also an option, with some distributors looking beyond traditional warehouses for space. For example, retailers can repurpose underutilized properties, such as vacant big-box retail, movie theaters, and obsolete industrial properties, if the zoning allows it. Adaptive reuse can be a successful strategy, although it is not common. Retailers can also take advantage of vertical warehouse construction, which is common in Europe and Asia. The vertical format replaces sprawling industrial properties with a multi-story format that can utilize the smaller land parcels available in dense urban locations. The smart vertical footprint is just as functional as a single-story building and can typically accommodate a 53-foot tractor-trailer on upper levels.
As last-mile delivery costs have increased steeply in the last year, cutting costs ruthlessly is essential. Transportation, labor, and inventory make up 80% of total retail operating costs, and since 2019, freight prices have doubled, with transatlantic shipping costs increasing by 240%. Retailers should consider long-term leases, typically 10 years or more, especially when making significant capital investments in warehouse automation or other specialized equipment, as they represent an opportunity for retailers to stabilize their balance sheets and hedge against pricing volatility.
By developing innovative location strategies, retailers can close the last-mile delivery gap, consistently meet fast delivery expectations, and win the last-mile race. This approach can help drive revenue, increase conversions, gain customer loyalty, and establish a competitive advantage. As the retail landscape continues to evolve, paying close attention to last-mile facility strategies will remain crucial for success.
