Digital Disruption: E-commerce changing the urban-industrial landscape

Transcription

1 VIEWPOINT CANADA RESEARCH APRIL 2016 Canada Industrial Digital Disruption: E-commerce changing the urban-industrial landscape

2 Christian Denny National Industrial Research Analyst E-commerce is proving that change is just a click away. The rise in distribution activity has led to a reexamination of existing retail and industrial properties, especially in the Last Mile, the final stage of delivery between transit and consumer which accounts for up to 75.0% of the total supply chain cost. Although still in its infancy in Canada, a successful e-commerce fulfillment platform is rapidly becoming a vital aspect of retailer success as a growing number of consumers make purchases online. Last Mile, the final stage in the transportation of goods from manufacturer to consumers, which accounts for 75.0% of total supply chain costs Retailers are looking to reduce parcel delivery times to urban markets by strategically implementing smaller and more localized distribution centers in or near the fringe of the urban market. This solution has recently been noted in Toronto and Vancouver where distribution spaces between 50, ,000 sq. ft. and km from the urban core have been used as localized distribution centers to provide same day delivery services in urban markets. According to Forresters Research, e-commerce sales in Canada accounted for 7.0% of the total retail sales in 2015 and expected to increase to 10.0%, or $39.9 billion by As a result, improved supply chain strategies are essential to accommodating the growth in e-commerce fulfillment. According to an Ipsos study, Canadians spend an average of $ on purchases online. Figure 1: Canada Online Retail Sales $45 18% $40 16% $39.90 $35 $36.10 $30 $ % $25.60 $20 $15 12% $32.50 $25 8% $22.30 $ % 6% $10 4% $5 2% $- 0% (CAD $ billions) Year-on-year growth Share of total retail sales* Source: Forresters Research,

3 Figure 2: Urban Population (by Generation as of 2015) Vancouver Calgary Edmonton Ottawa Toronto Montreal 39.0% 2000-Present Millenials 47.2% 37.4% 38.2% 38.3% 33.3% Generation-X Baby Boomers Greatest Generation Source: Environics Analytics, DEMOGRAPHICS Research suggests that millennials (defined as born between ) with a post-secondary education and employed full-time are the most likely participants of e-commerce activity. Nearly all the major urban Canadian markets are expected to see double digit population increases by 2020 as a considerable amount of millennials flock to the urban core. These groups are primarily attracted by a live-work balance, convenience to public transit, accessibility to work, and nearby amenities including restaurants and coffee shops. take up to nine days and is often an inefficient method of distributing goods to urban areas. Shipping goods via local fulfillment centers within the km range often takes less than a day to deliver in an environment where the focus is operational efficiencies and speed-to-market. In an era where millennials in Canada s six largest markets encompass a considerable total of the population, it is imperative to establish a supply chain that reflects the growing demographics of a new generation and its impact on brick-and-mortar and online sales. Retailers are looking to increase speed-to-market in order to meet consumer requirements and further optimize the supply chain so that it is a competitive advantage. Traditional e-commerce fulfillment strategies are based on a national or regional distribution hub where the delivery of a parcel can 3

4 BUILDING CHARACTERISTICS Last Mile distribution models begin with a regional fulfillment center along key transportation networks. Regional distribution facilities are typically 300,000 sq. ft. or larger, high-tech, with clear heights of 30 or higher and ample parking for employees. Regional distribution facilities are often near transportation infrastructure that connects to nearby highways, seaports, airports, and rail intermodal yards. The building characteristics of urban distribution centers often differ, but location is the major requirement users seek out as accessibility in and out of the urban area is the major driver for these types of facilities transportation infrastructure is relevant during the site selection process but not to the same degree as a regional distribution center. Typically space ranges between 50, ,000 sq. ft., though often can reach up to 200,000 sq. ft. if necessary. Urban buildings often have a range of clear heights, though clear heights often do not necessarily impact the decision unlike larger distribution centers. Overall, location trumps building quality especially in places where the target customer is clustered in a small number of places and users will compromise on the building (to a point) for the best possible access to their customers. The lack of small bay inventory on the market is generating an increase in value for smaller facilities with the right specifications as users are often willing to look at all types of inventory including older inventory and inventory with lower clear heights this trend will create opportunities for small bay facilities, and further increase the demand for sites with nearby access to highways and urban populations. Currently in the Greater Toronto Area markets including Etobicoke and Scarborough are gaining interest, while in Vancouver, Delta and Burnaby have are gaining interest in the market. Figure 3: Last Mile Distribution Model Regional Distribution Facilities Requirements/Characteristics: Typically 300,000 sq. ft. or larger High-tech features 30 clear heights Near transportation infrastructure and intermodal yards Ample parking for employees Urban Distribution Centres Requirements/Characteristics: Typically 50, ,000 sq. ft. Location is the major requirement A range of clear heights is acceptable Location trumps building quality in order to access target customers Omni-Channel Delivery Strategies Crowd-sourced delivery services In-store fulfillment / Click and Collect Locker pick-up Source: CBRE Research, Q

5 OMNI-CHANNEL DISTRIBUTION A number of experimental delivery strategies have been met with some success in Canada and the United States, including crowd-sourced delivery services, in-store fulfillment (click-and-collect), and locker pick-up. Together these services connect as omni-channel distribution strategy that situates the retailer in close proximity to the customer and reduces the costs involved in the Last Mile. From a consumer perspective, omni-channel distribution is the option to browse, purchase, or receive goods via brick-and-mortar, online, or combination of the two with no discrepancy between product and availability. From a retailer perspective, omni-channel distribution is ensuring goods delivered in a timely and cost effective manner. Omni-channel distribution methods seek to reduce the cost and complexity in the last mile by distributing goods from urban warehouses, while others remove the last mile entirely and encourage consumers to pick up goods purchased online at localized brick-and-mortar checkpoints. With a combination of emerging technology, increased e-commerce activity, and a densifying urban population, there is an opportunity for retailers to roll out Last Mile delivery and omnichannel methods as a cost-effective strategy for faster and more efficient parcel delivery in Canada. There is no question that the Last Mile model will evolve and have positive implications for the urbanindustrial landscape as e-commerce continues to progress in Canada. Figure 4: Evolution of the Last Mile EVOLUTION OF THE LAST MILE Source: CBRE Research, Q

6 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Contacts Christian Denny National Industrial Research Analyst Office: Toronto Downtown 145 King St. West, Suite 600 Toronto, ON M5H 1J8 Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.