There was a recent article talking about the surge in demand for warehouse space in North America in large part due to the explosion in eCommerce. According to the article there will be an additional 1 billion square feet of storage needs by 2025. Impressive numbers. With eCommerce number predictions ranging between 18% to 26% of overall retail over the next 5 years, many are pointing to this upwards curve as the leading indicator of the need for more warehouse space. Where else will you hold all that inventory needed to fulfill the orders?
But not so fast. Yes, there will be a greater need for the warehousing space. However what some we are missing is that not only is online commerce driving the linear flow of inventory, but the way we fulfill orders is itself changing and adapting. With that, where inventory flows is also changing.
- More warehousing…no doubt. There will absolutely be a need for added warehousing space. Not only will we need an influx of warehouse space, but how that space is being utilized will also have to adapt. From assembly, kitting, customization and intaking returns, the warehouse of tomorrow is no longer a simple rest stop for inventory on its way to a customer. So yes, we will have to continue to ramp up the available warehouse space, but how that space is utilized will also have to evolve.
- Stores become more flexible inventory dispersers. Dark stores are all the rage these days and the pandemic has only accelerated a trend that has long been baked into the fulfillment cake. Moving forward, it will be more than dark stores that become an integral part of how we fulfill customer orders. Look for stores to become integral to micro-fulfillment clusters. Rather than relying on mammoth distribution centers to service large swaths of real estate, image networked clusters of localized stores (both dark and normal stores as well as smaller DCs) being able to service demand on a block by block, or street level geography.
- Drop shipping becomes a growing method of fulfillment. Want that product tomorrow? Maybe we need to ship it to you right from the factory. I worked with a large sneaker manufacturer that was manufacturing customized sneakers on the same manufacturing line as their traditional make to stock production. It was interesting that they could manufacture both in the same plant. But then it was fulfilled via traditional methods. What if you dispatch those made to order items directly to the end consumer? Drop ship the custom pair of sneakers? You might incur shipping costs with this strategy, but as you get a better handle on that aspect, being able to fulfill directly from the manufacturer could eliminate some of the strain on other parts of your fulfillment channels.
- Circular economy leads to more fulfillment from the returns. I mentioned above that one aspect warehouses will have to contend with, his how to handle ever growing deluge of inventory coming back. Returns is an ever growing aspect of the supply chain that is a cost center, but should be seen as an opportunity. According to market research firm IHL, global returns are approaching $1 Trillion. 50% of all online apparel is put back into the channel via returns. Why put this inventory back into the stores or distribution channels, why not send them directly to consumers? Think of a eBay coming to the returns channel. You purchased a new Xbox, but you realize that the PS4 is a better route, so you initiate a return. As that return is being processed, another customer orders and Xbox. Rather than you shipping the Xbox to a return facility, imaging being able to ship it directly to that other customer. Retailers and brands could initiate some simple ways to “check” the product – upload pictures of the product, guarantee certain functions still work and the retailer/brand could keep track and financial incentivize the parties. This would reduce the added costs associated with all the touch points needed for returns.
So will we need more warehouse space? Absolutely. But the way retail and the manners in which we fulfill customer needs, are evolving. Evolving in such a manner that we need to think of multiple ways, not simply more warehousing, to satisfy those demands.
The Thinking Frog 