parcel-delivery-flynig-over-sydney-feature
Image – Canva.
  • Online retail penetration 5 years ahead, compared to a no pandemic scenario
  • Australia is still in online retail infancy however
  • Automation to rule the distribution centre roost

The pandemic has left many retailers reeling, with shopping centre owners also feeling the pinch.

That feeling wasn’t universal in the retail sector though, with online deliveries seeing a significant surge in sales.

Some context

Big online sales are just the beginning” reported The Property Tribune in April, where the online retail award winner was Bunnings. At the time it was not expected, however in hindsight, it made sense when matched against the spike in DIY deities. The company beat the usual winners, Woolworths and Coles.

Earlier this year, it was also reported that following the success of online retailing in 2020, two-thirds of online retailers are increasing their e-commerce budget this year to drive business further.

A part of the online sales scene seeing investment includes omnichannel retail. Whether the consumer is on a mobile, desktop, phone or in-store, the shopping experience is ‘seamless’ (and across multiple channels, or ‘omnichannel’).

Retailers are looking to digitise their stores, create more engaging online experiences, and speed up order fulfilment.

E-commerce will continue to change what happens behind the scenes in industrial and logistics property as well. A CBRE report suggested that in order to accommodate the ongoing growth of online shopping, an additional 500,000sqm of industrial and logistics space will be required annually.

This sub-category of property is running as hot, if not hotter, than the residential market. The Property Tribune reported it was the “most sought-after” property class in April.

CBRE’s James Jorgensen said that vacancy rates for commercial property in some areas were as low as 0.27%.

Supermarket giants have also been investing in the area, Woolworths will soon be welcoming its first ‘dark store’ in Brisbane.

How advanced is Australia’s fare?

A report by Knight Frank has found Australia’s online retail penetration is in its infancy, and rather than a challenge, it is an opportunity.

knight-frank-july-2021-urban-logistics-report-online-market-share
Source – Knight Frank Research.

Online spending frequency isn’t that high either, with only 26.5% of Australians buying online once a week.

knight-frank-july-2021-urban-logistics-report-online-retail-once-a-week-australia-post
Source – Knight Frank Research, Australia Post.

ABS and Australia Post estimates show that more recently, online retail accounts for a slightly higher portion of sales, 10%-16%.

In the report, Knight Frank said that the market penetration would have taken five years to reach current levels without Covid.

knight-frank-july-2021-urban-logistics-report-online-national-figures-yearly
Source – Knight Frank Research, Australian Bureau of Statistics.

With both small retailers and supermarket giants seeing massive growth, how do they fill orders?

Models of distribution

The Knight Frank report included six types of distribution centres, however, one is reverse logistics which is used for returned goods, inward disposal, recycling, etc.

The remaining five include:

  • Traditional distribution centre (DC),
  • Customer fulfilment centre (CFC),
  • Dark store,
  • In-store fulfilment, and
  • Mirco-fulfilment centres (MFC).

A DC will warehouse goods that are redistributed to retailers, wholesalers or sometimes directly to the end customer, and is often located in the outer suburbs, industrial areas or major transport networks.

A CFC is also a warehouse but will often be a third party logistics company filing online orders. These warehouses tend to be closer to urban areas.

According to Knight Frank, a dark store “is a distribution centre or outlet that caters exclusively to online shopping orders.” While it may seem like a warehouse, some traditional retail stores have been converted to cater purely for online fulfilment only. Dark stores are typically close or within the area, it is servicing.

In-store fulfilment is fairly straight forward you have likely seen that in action at your local supermarket.

Finally, an MFC is a “small-scale or compact warehouse facility usually located in accessible urban locations close to the end consumer they are servicing.” It services many modes of online shopping, from delivery to click and collect. MFC’s tend to be located at the back of existing stores in urban areas.

What’s happening now?

Investment. Long term and high tech.

In a very small sample of the wider market, the report showed the supermarkets recently signed a number of 10 to 20-year leases, most with an element of automation.

knight-frank-july-2021-urban-logistics-report-distribution centre-leases
Source – Knight Frank Research. U/D = Undisclosed.

There are considerable challenges in land and facility supply as well, with the sector seeing similar problems to residential: low stock, record-high demand.

In Sydney alone, the report said prime rental growth in South Sydney jumped 30% from 2017 to 2020, land value growth for the same area was up 127%.

A crystal ball moment

The report is forecasting more than 2.2 million square metres of new industrial supply this year, with just under 2 million next year.

Eastern Seaboard Industrial Supply, 2009-2002 sqm

knight-frank-july-2021-urban-logistics-report-industrial-facility-demand
Source – Knight Frank Research.

It isn’t as simple as putting up four walls and a roof; customer demands for fast fulfilment mean automation is a growing need for the sector too.

An Amazon facility being constructed in Sydney has already garnered media attention, with more on the way from other companies including Kogan and Jaycar.

Repurposing assets and meeting demand for last-mile deliveries may also be a focus area. The report said that while the last-mile repurposing trend is so far localised to Sydney, it is food for thought.

One notable mover included Domino’s Pizza, the report said the company was looking to move into spaces vacated by pandemic-battered bakeries and sushi bars.

There could also be demand for ‘dark kitchens’, purely satisfying the food-delivery market.

The Knight Frank report said while there isn’t a one size fits all solution to urban logistics, some of the predictions included:

  • Significant increases in automation, with demand from logistics, supermarkets, and pure-play retailers,
  • MFC growth, also driven by supermarkets.
  • New last-mile delivery options and innovations, and
  • More innovative and efficient use of spaces, whether new sites or conversions of old brick and mortar.
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