Images of bustling malls are reminiscent of Rockwell illustrations—a bygone era where shopping plazas were the center of consumerism and socialization within many communities.
However, the emergence of e-commerce and the steady growth of Amazon’s online buying model, coupled with the discount dominance of juggernaut retailer Walmart, forever altered the retail landscape.
Shopping malls, anchored by such retail behemoths as JCPenney and Sears, gradually lost the ability to match the price and convenience of their online and big box competitors.
Anchor stores eventually became the last holdouts of once sprawling and prosperous shopping centers—until they too fell victim to the retail apocalypse.
Yet, like a phoenix rising from the ashes, these empty shells where commerce reigned are now seeing a new life and purpose as distribution centers.
It’s widely reported that the pandemic accelerated the growth and adoption of e-commerce. Consumers made online grocery ordering routine, relying on delivery and curbside pickup to social distance safely.
JLL, a leading commercial real estate services company, anticipates online grocery ordering to continue post-pandemic. The company projects “the growth of cold storage facilities alone to grow as much as 100 million square feet by 2025 to keep up with overall demand.”
Similarly, retailers like Amazon, Walmart, Target, and others also experienced increased e-commerce traffic, with big-box stores expanding omnichannel offerings such as curbside pickup and ship from store.
What does the acceleration of e-commerce adoption mean for the future? According to Nasdaq, studies indicate that by 2040, as much as 95% of purchases will occur through e-commerce platforms.
While the pandemic ignited a surge in e-commerce, it also exposed a demand for distribution centers closer to the customer to fulfill same-day and two-day delivery expectations. Amazon experienced a host of pandemic-related supply chain challenges from stockouts to delivery delays.
To narrow the competitive gap with omnichannel offerings of brick and mortar retailers perfecting their own e-commerce strategies, Amazon is exploring converting former and existing JCPenney and Sears shopping mall anchor stores into distribution hubs.
The Wall Street Journal had this to say about Amazon’s potential partnership with Simon Property Group Inc., the largest owner of U.S. malls, “A hookup between Simon and Amazon would show how retail and logistics—especially delivery for the critical last mile—are converging more rapidly.”
The square footage of an anchor store could provide 100,000 square feet of e-commerce fulfillment and distribution space. Amazon’s retail-to-DC conversion strategy aligns with the demand forecast for needed square footage to accommodate e-commerce growth.
JLL says in its report, Industrial Real Estate Demand on the Rise in the U.S., “Given our projections for e-commerce growth through 2025, an additional $900 billion in sales would equate to a demand for over 1 billion square feet of industrial real estate by 2025.”
Amazon’s move to convert mall space into distribution hubs is part of its evolution as a company, says Forbes. Most Amazon fulfillment and distribution centers are located in industrial parks miles away from residential and shopping areas.
Sean Maharaj, managing director in AArete’s transportation logistics and retail practices, explains the company’s move to convert shopping malls into warehouses strengthens its supply chain and provides a physical locale close to residential customers for same- or next-day delivery.
Ultimately, however, Maharaj says, “It’s yet another example of its creative, disruptive and innovative mindset. The advantage play comes in many forms, but most importantly, pushing customer experience to new limits.”
It also reveals that while Amazon may be the digital retail leader, it lacks omnichannel distribution dominance. Eli Finkelshteyn, CEO and co-founder of Constructor.io., says in Forbes that there’s two races being run. In lane one, Walmart is ramping up its e-commerce presence to compete with Amazon technologically. In lane two, Amazon needs to reach the logistical know-how of Walmart’s brick-and-mortar operations.
“Currently, Walmart is pressing its physical presence advantages and new e-commerce abilities with programs like curb-side pickup, and Amazon knows it needs to gobble up physical locations quickly to catch up,” says Finkelshteyn.
While the focus of the retail-to-DC conversion trend is on Amazon, it’s a distribution strategy that any retailer or e-tailer can pursue and leverage.
If you’re considering retail-to-DC conversion, it’s important to know that not every department store or anchor location is created equal. Here are a few areas to evaluate:
What is the cost per square foot for an anchor mall space? In many cases, department store floor space can come at a discount compared to traditional warehouse square footage. Compare the square-foot cost to surrounding businesses and warehouses in the area.
How many inbound/outbound bays are available? Depending on the supply/variety of SKUs stored and deliveries planned per day, there could be traffic congestion with only a few bays.
Is the space multistory? It may be challenging to accommodate automation, such as automated storage and retrieval systems (ASRS), in a distribution space with multiple levels.
Lastly, there is zoning regulations. Depending on the area, city planners may welcome a new employer but there may also be a requirement for some retail frontage.
In an article for NAIOP, Curtis D. Spencer, president of IMS Worldwide, Inc., an expert in logistics and industrial development, says converting a retail space into a fulfillment or distribution center makes sense for properties in land-constrained markets.
“If my local mall in suburban Houston were to become obsolete, developers would never be interested in converting it to warehouse space. They would simply walk across the street and buy vacant land for $5 a foot and start fresh,” says Spencer.
“An obsolete mall in suburban Philadelphia, however, would likely have all the infrastructure in place for a last-mile delivery facility—adequate parking for trucks, a ceiling probably 25-feet high, and perhaps air conditioning.”
Having the appropriate infrastructure is critical. As the JLL report indicates, e-commerce fulfillment and distribution centers are unique when compared to traditional distribution facilities. Besides more SKUs, larger labor force, and bigger property space, there’s also more automation deployed.
To automate a department store-sized fulfillment and distribution space, SSI SCHAEFER provides a host of ASRS solutions and shuttle systems for fast moving inventory. Two examples include its Miniload and Carrier systems.
Miniload system. When space is a premium in a converted retail space, a Miniload system provides automated storage and retrieval for a variety of item shapes and sizes. Whether you’re using containers, cartons, or trays, achieve higher throughput and efficiency for your e-commerce fulfillment and distribution operation.
Carrier system. The speed of fulfillment in an e-commerce warehouse means having a system designed for agility and adaptability. Ideal for a range of retail items weighing up to 7 pounds / 3 kilograms, the Carrier system is a modular pocket conveyor with the ability to process orders of different sizes and destinations simultaneously—sequencing orders when desired for unloading and shipment.
A converted retail space can also serve as a distribution center and a local pickup location with a “click and collect” model. This can expand an e-tailer’s omnichannel distribution options, providing quick delivery for residential orders while generating foot traffic to surrounding businesses. It also serves the storefront requirement that most city planners look for in a business model.
Shlomo Chopp, managing partner for Case Equity Partners, created an innovative concept called ShopFulfill—shopping fulfillment centers that focus on physical location, vast product selection, and fast delivery.
“Shoppers can touch and feel the items to their heart’s content to ensure they like it before they buy, explained Chopp.
“Anything the shopper does not want to buy is returned to the warehouse by robotics. The key is providing shoppers with optionality and flexibility that results in e-commerce no longer standing as a competitor to brick and mortar, but each enabling the other.”
Retailers now have more options for omnichannel distribution by capitalizing on commercial real estate. With the right property and automation, companies can seal the delivery gap while expanding on the customer experience.