Winning the last-mile race with creative real estate strategies
Innovative location strategies to close the last-mile delivery gap
U.S. consumers are craving those three little words, “Out for delivery.” More than 57% of people purchased goods online once or more per week in 2022, driving a record $1.05 trillion in sales. Thanks to the “Amazon effect,” online retailers must get those products into the hands of the customer fast. Distribution facility locations can make or break customer satisfaction in the last mile to the customer’s doorstep.
Last-mile coverage is an opportunity for your brand to differentiate and establish loyalty as delivery and shipping schedules increasingly inform purchasing decisions. In fact, 71% of logistics experts expect occupier demand for e-commerce logistics floorspace to change by over 20% in the next three years, according to JLL’s Future of Global Logistics Real Estate report. In many cases, consumers expect delivery in two days or less, creating challenges for smaller retailers with less sophisticated infrastructure. As a result, the digital transformation has enabled companies to utilize data-driven technology to identify buyer trends and reach their timely consumer expectations, according to JLL’s report.
Real estate is an important piece of an effective last-mile strategy. Well-placed industrial facilities support consistent service and brand reliability, curb inflated logistics costs and create financial stability. With the price of a single last-mile delivery now topping $6 on average, commercial real estate and supply chain leaders are paying attention to the location nuances that can secure cost savings.
The following strategies can help a retailer develop a winning fulfillment and distribution strategy to meet consumer expectations.
Just as with brick-and-mortar stores, location is critical for e-commerce distribution. As a result, you’ll want to place logistics facilities as close as possible to your customers. Ideally, parcel delivery facilities and warehouse space will be embedded into the last mile and have direct access to travel systems—like highways, rail and air—that link to the larger supply chain.
Proximity to the consumer immediately eases pressure on overwhelmed transportation systems. When distribution facilities are inside population centers, delivery schedules are more manageable and more accessible. Retailers can reduce costly repeat trips into the urban core and the associated bridge and toll fees. Facility location can also ease or eliminate labor shortages by providing access to dense urban labor pools.
The most effective distribution and fulfillment strategies typically combine well-located suburban facilities with urban sites to modernize the fulfillment strategy. The major e-commerce logistics organizations are creating hybrid supply chain models, establishing giant sorting facilities outside the urban core to serve smaller last-mile hubs in the city center that are often supported by an internal delivery service.
Be creative with site selection
With the national industrial vacancy rate at 3.3% and some major logistics hubs reporting historically low sub-2% availability, creative distributors are looking beyond the traditional warehouse for space. One option is to repurpose underutilized properties, which can include vacant big-box retail, movie theaters and office spaces, obsolete and functionally inefficient industrial properties—if the zoning allows. While not common, adaptive reuse can be a successful strategy.
Retailers can also take advantage of vertical warehouse construction. Given the competition for scarce commercial sites in many urban markets, going up is often the only feasible approach to create a strategically located facility in a densely populated area.
Common in Europe and Asia, vertical developments replace 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 typically can accommodate a 53-foot tractor-trailer on upper levels.
For example, Logistics Property Co. is building a 1.2-million-square-foot vertical facility on an 11.5-acre land site at 1237 Division Street in Chicago. The project is the first of its kind in the Chicago area. But JLL’s supply chain and site selection professionals have also helped developers, retailers and their logistics partners secure and develop more than four million square feet in vertical warehouse projects in cities like Vancouver, Seattle and New York. We predict more vertical expansion in those cities with a current construction pipeline of about 12 million square feet.
Cut costs ruthlessly
Last-mile delivery costs have risen steeply in the last year, making a big impact on retailer margins because transportation, labor and inventory comprise 80% of total retail operating costs. Since 2019, freight prices have doubled, and transatlantic shipping costs have increased by 240%. Although costs have begun to stabilize, pricing volatility remains a risk to retailers’ bottom lines.
While real estate accounts for just 5% to 10% of the typical retailer’s operating expenses, it represents an opportunity for retailers to stabilize their balance sheets and hedge against pricing volatility. For that reason, long-term leases—typically 10 years or more—are a wise choice, especially for distributors making significant capital investments in warehouse automation or other specialized equipment.
Winning the last-mile race
Last-mile optimization allows brands to deliver superior customer service. Since 89% of shoppers are more likely to make a repeat purchase after a positive experience, according to Salesforce data, the better a retailer’s last-mile strategy, the greater its competitive advantage. Consistently meeting fast delivery expectations is an important hurdle to overcome in the retailer-consumer dynamic. By paying acute attention to last-mile facility strategies, retailers can drive revenue, increase conversions, gain customer loyalty—and win the last-mile race.