the demand economy · omni-channel strategies and higher services levels, together . the...
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THE DEMAND ECONOMY: THE CHANGING WORLD OF RETAIL & THE IMPACT ON SUPPLY CHAIN STRATEGY & INDUSTRIAL REQUIREMENTS
SEPTEMBER 24, 2013
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 1
INTERMODAL FREIGHT
CONFERENCE OUR APPROACH IN A COMPLEX WORLD Knowledge of Trends Support Portfolio Planning
TOP 12 SUPPLY CHAIN TRENDS: THE “DIRTY DOZEN”
Transportation & Oil Price Rising Near-Shoring Larger Space Interest in
Sustainability
Increasing Labor Challenges Rising E-commerce More Containerized
Imports Trade with
South America
Increases in Inventory Levels More Intermodal Expansion of the
Panama Canal Increasing
3PL Adoption
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 2
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CONFERENCE RETAIL AT A CROSSROADS
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 3
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1. Urbanization
2. Globalization
3. Omnichannel retailing
4. Mass customization
5. Enhanced customer service
FIVE RETAIL TRENDS AFFECTING INDUSTRIAL
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 4
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CONFERENCE URBANIZATION Key Issues - Retail
URBANIZATION
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 5
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RETAIL 1. People are moving back
to the cities
2. Living spaces are smaller
3. Retailers are seeking new markets and customers
RESULT Retailers are adjusting their footprints
URBANIZATION Key Issues - Retail
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 6
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RETURN OF THE POPULATION TO THE URBAN CORE WILL AFFECT STORE FORMATS
URBANIZATION The Reverse Donut
Source: Nielsen PrimeLocation Web
30.01% <= 350%
15.01% <= 30%
0.01% <= 15%
-14.99% <= 0%
-30% <= -15%
ATLANTA, GA—PERCENTAGE POPULATION GROWTH 2000-2010
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 7
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CONFERENCE URBANIZATION New Brick & Mortar Store Formats
RETAILERS ARE CREATING NEW FORMAT STORES AND CHASING NEW CUSTOMER SEGMENTS
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 8
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INDUSTRIAL 1. DCs may be in the “wrong”
place today, i.e. too far out, on average
2. Transportation route miles, congestion, equipment, timing challenges all driving up delivery costs, logistics costs per piece
3. Urban labor challenges, fit AND costs
URBANIZATION Key Issues - Industrial
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 9
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Preferred Industrial Labor Is Generally Concentrated Further From Urban Demand
URBANIZATION Preferred Industrial Labor Locations
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 10
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CONFERENCE URBANIZATION Greater Atlanta Area
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 11
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CONFERENCE MANAGING THE LABOR FORCE….NOT EASY
DRIVER ISSUE
Aging Large scale retirement of Baby Boomers and not enough GenXers, Gen Y to replace experience
Employee Market People are more selective of their field and employer, and there is an employee shortage in many industries
Turnover Tenure rates are crashing. In 1954, the average tenure of an employee with their employer was 19 years. Projected at 18 months in 2015
Generational Change Where to attract new workers and how to manage culture is changing
Urbanization Popularity of urban living, movement away from industrial occupations
Flat World People are THE biggest strategic differentiator between competitors
The wage premium for those with college degrees has leapt 40 percent since 1983.
Percent of persons 25+ attaining a HS diploma and a 4 year undergraduate degree
11.3%
30.9%
Education attainment levels are rising
1970 2012
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 12
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CONFERENCE URBANIZATION One Answer: Automation
Mini-load
Carousel
KIVA Vertical Lift Module
Automation Orders Up 34% In 2012
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 13
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CONFERENCE URBANIZATION Stem Miles Matter
ES3
Too Far From Demand? Less Freight Scale Elevates The Penalty
EMPTY MILES
S A L E
S A L E
S A L E
LTL
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 14
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CONFERENCE URBANIZATION How Much Skinnier Can Transportation Get?
Transportation is already LEAN
1980 2008
Linehaul Revenue Per Mile
Rail Revenue Per Ton/mile
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 15
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CONFERENCE globalization
GLOBALIZATION
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 16
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CONFERENCE GLOBALIZATION Cross Continental Retailer Expansion
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 17
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INDUSTRIAL
1. Transportation costs across long distances
2. Regional sourcing & manufacturing biases
3. Lack of investments in logistics infrastructure in new markets
GLOBALIZATION Key Issues - Industrial
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 18
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CONFERENCE GLOBALIZATION FUEL COSTS: Not just a domestic issue
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 19
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CONFERENCE GLOBALIZATION Limited Infrastructure Exists Now
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CONFERENCE globalization
OMNICHANNEL RETAILING
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 21
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CONFERENCE OMNICHANNEL RETAILING
RETAIL
1. TECHNOLOGY is becoming a bigger part of our lives as consumers
2. SOCIAL MEDIA is creating a new approach to retail stores
3. LOCAL MERCHANTS are adapting with custom offerings and higher customer service levels
Virtual Shopping: Key Issues
CUSHMAN & WAKEFIELD 21
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 22
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0.6% 1.0% 1.2%
1.6% 1.9%
2.2% 2.6%
3.1% 3.6% 3.6%
4.1% 4.5%
4.8%
5.4%
0.0%
2.0%
4.0%
6.0%
8.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NOTE: Q4 SALES SOURCE: U.S. CENSUS BUREAU, CUSHMAN & WAKEFIELD RESEARCH
E-Commerce Sales as Percent of Total Retail Sales
OMNICHANNEL RETAILING Internet Sales Growth
Share of internet and catalog sales in the U.S. is accelerating,
now 25% of GAFO
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 23
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Source: Cushman & Wakefield Research
HOW WE BUY Sales Performance By Channel, 2008 through 2012
-20%
-10%
0%
10%
20%
30%
40%
50%
60% YOY % Change
Amazon.com Sales E-Commerce Sales
US Retail Sales
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 24
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CONFERENCE OMNICHANNEL RETAILING Convergence Of Clicks & Bricks
Evolving multi-channel dynamics increase the importance of a cohesive omni-channel strategy
QR CODE-DRIVEN VIRTUAL SUPERMARKETS
(South Korea Subway Stations)
BRICK & MORTAR MOBILE
AMAZON.COM STORE
BRICK & MORTAR
INTERNET
POP-UP STORE
BRICK & MORTAR
SOCIAL MEDIA
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 25
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CONFERENCE OMNICHANNEL RETAILING Key Issues For Industrial
INDUSTRIAL
1. Eaches level fulfillment, higher handling costs per piece, vs. store replenishment
2. Inventory availability and visibility across multiple channels (systems and working capital)
3. Parcel share rising, loss of freight scale, drives up costs, transportation costs per piece
CUSHMAN & WAKEFIELD 25
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 26
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CONFERENCE OMNICHANNEL RETAILING Higher Service Levels, In More Locations
Will explode inventory requirements. Higher service levels use more inventory. Number of DCs drives inventory as well…..Inventory is needed in every SKU/location combo
Elementary Stock-to-Service Curve
Square Root Rule: If a company needs 100M of Inventory to meet
needs, and they move from a 2 to a 6 DC model, inventory requirements go up 73%
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 27
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CONFERENCE Mass customization
MASS CUSTOMIZATION
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 28
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CONFERENCE MASS CUSTOMIZATION Social Media & M-commerce
Social media is becoming fully integrated with in-store marketing
0% 10% 20% 30% 40%
Louis Vuitton
Chanel
Swarovski
Tiffany & Co.
Dolce & Gabbana
Burberry
2011
2010
Source: Cushman & Wakefield Research, ComScore, Social Essentials UK, L2Thinktank, Burberryplc.com
Burberry – 12.4 M
Chanel – 6.5 M
NY Yankees – 5.4 M
NYT–2.1 M Circ. 1.6M
Vogue –2.8 M Circulation 1.1M
PERCENTAGE WEBSITE TRAFFIC FROM FACEBOOK SELECT LUXURY RETAILERS
RELATIVE SIZE OF AUDIENCE – FACEBOOK “LIKES”
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 29
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MASS CUSTOMIZATION Key Issues
INDUSTRIAL
1. More investments in Value Added Services (VAS), people and technologies, leading to more VAS space, more VAS labor
2. For high VAS SKUs, some postponement strategies
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 30
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CONFERENCE Mass customization
CUSTOMER SERVICE
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 31
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CONFERENCE CUSTOMER SERVICE Salespeople are the New Luxury
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 32
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CONFERENCE SAME DAY Omni-Channel Strategies and Higher Services Levels, TOGETHER
The competition between retailers to offer the most convenience for customers with an anytime, anywhere shopping mentality has led to extended hours, seamless cross-channel experiences and more shipping options such as buying online and picking up in a store. But the gamble some retailers are taking with same-day delivery may not pan out, say several retail supply chain experts.
- Hayley Malcolm, “Retailers Gamble on Same Day Delivery”, USA TODAY
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 33
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INDUSTRIAL
1. Transportation route miles, congestion, equipment, timing challenges driving up delivery costs, costs per piece
2. Urban labor challenges
3. Delivery truck model requires scale and density of orders to manage costs
4. Daily replenishment of higher velocity SKU
CUSTOMER SERVICE Key Issues
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 34
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CONFERENCE CITY ROUTE DELIVERY CHALLENGES At Night?
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 35
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S A L E
S A L E
S A L E
STEM MILES AND ROUTE MILES MATTER Order Scale is a Must-have in Delivery Operations
ES3
Route/ Parcel
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 36
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CONFERENCE e-com dedicated distribution centers
= Walmart2
1 Tracy, CA and Robbinsville, NJ are 2014 openings 2 Currently in market for facilities in Stockton, CA (or Reno NV), Chicago, IL, Dallas, TX and Reno, NV. Signed LOI for facility in Bethlehem, PA, lease pending. 3 Savannah, GA facility is partially dedicated to Target.com fulfillment
= Target3
= Amazon1
Walmart current search: selecting Stockton or Reno
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 37
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Possible Impacts on Industrial Valuations
+Space in developing economies +Space w 3PL tenants +Smaller space near cities +Larger space with good fundaments and high cube +Single loaded buildings +Multitenancy
–Facilities further from urban centers, esp. smaller ones –Low ceiling, older space which impede automation –Industrial markets w labor (real or reputed) challenges –Space with limited cube and cubic flexibility
RETAIL AT A CROSSROADS Affect of Retail Trends on Retail & Industrial and on Values
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 38
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CONFERENCE WHAT DOES THE FUTURE LOOK LIKE? One Idea….
Mega Centers
Automated Case & Piece Handling Facilities
Around Mega Centers
Manufacturers/Ports
Non-Fossil Fuel Powered Store
Delivery Vehicles
Replenishment (Flow Through) Automated DC
in proximity to Population centers
www.commadv.com
KEMP CONRAD, SIOR Principal CUSHMAN & WAKEFIELD | COMMERCIAL ADVISORS, LLC 5101 Wheelis Drive, Suite 300 Memphis, TN 38117 USA Phone: 901-273-2359 Fax: 901-366-4617 [email protected]
PATRICK WALTON Vice President CUSHMAN & WAKEFIELD | COMMERCIAL ADVISORS, LLC 5101 Wheelis Drive, Suite 300 Memphis, TN 38117 USA Phone: 901-362-4311 Fax: 901-366-4617 [email protected]
UNIVERSITY OF MEMPHIS CUSHMAN & WAKEFIELD 39
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CONFERENCE Mass customization
Thank you!