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The Boeing Everett Factory in Everett, Washington, is the largest warehouse — and building — in the world, measuring a whopping 4.3 million square feet. This is necessary given that the warehouse is responsible for assembling Boeing’s 787 Dreamliner.
But today, many e-commerce companies are increasingly finding that size isn’t everything when it comes to warehousing.
In fact, demand for smaller warehouse space — which is harder to come by than larger-sized warehouses because of low vacancy rates — has gone up so much in recent years that the rental rates for buildings under 120,000 square feet have risen twice as much compared to larger warehouses.
For e-commerce companies, one of the key benefits of renting smaller warehouses is the option to open customer fulfillment centers in population-dense urban areas, which means faster delivery times, fresher produce, and more personalized customer service.
Adopting an on-demand warehouse model presents an opportunity for retailers to rival their biggest competitor, Amazon, whose efficient and reliable Prime delivery service has long set the e-commerce giant apart from the rest of the pack in the U.S. In 2019, Amazon, which operates 175 fulfillment centers worldwide, announced an $800 million investment to provide free one-day delivery to its Prime members. In China, JD.com offers an even more impressive service, with 57% of orders arriving within just 12 hours.
Embracing the Micro-warehouse Model
U.S. retailers are working hard to meet the customer expectations set by Amazon by establishing their own, smaller fulfillment centers and investing in new technology.
Walmart, for example, has adapted to the rise of e-commerce by effectively transforming its stores into mini-warehouses. This was an intelligent move, given that around 90% of the U.S. population is within 10 miles of one of Walmart’s 4,700 stores. The company also incentivized its employees to make deliveries on their way home from work. In May 2019 Walmart announced it would be rolling out a free — for orders over $35 — next-day delivery service in Phoenix, Las Vegas, and California, with plans to expand the service rapidly.
Idaho-based grocery company, Albertsons, recently launched a number of $3 million, 10,000 square feet fulfillment centers to improve its e-commerce services. The company now offers a two-hour delivery service for certain products, via a partnership with Instacart, a tech company offering same-day grocery delivery and pick-up service, or same-day delivery directly from Albertsons.
What Does the Future Hold for E-commerce Warehousing?
Trends in e-commerce will impact the function and popularity of small warehouses, just as small warehouses will shape e-commerce.
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Increased customization: The rise of micro-warehousing and local fulfillment centers are likely to drive better product customization. This means customers will be able to order tailor-made items — specifying size, functionality, and design features — that can be quickly assembled and delivered once an order is placed.
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Automation: Not only will the automation of warehouse processes significantly improve accuracy and efficiency, but companies will also save significantly on labor costs, which typically account for 65% of a warehouse’s operational spending. Automated warehouses will see robots identifying, collecting, sorting, and packaging products to get them ready for delivery. Walmart is due to open a distribution center in Shafter, California, in 2020 equipped with automation technology, which will be able to transfer products 40% faster than its traditional warehouses.
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Acquisitions and partnerships: As e-commerce demand increases, companies will look to partner with tech companies, on-demand warehousing start-ups, and third-party vendors to maintain and improve customer service. Target, for example, acquired transportation company Grand Junction in a move that contributed to the launch of its same-day delivery program, Restock. Walmart has acquired as many as 15 e-commerce start-ups in the last nine years and has used Flexe, a marketplace connecting warehouse operators with e-commerce businesses, to rent temporary warehouse space during its busiest periods. This latter approach is a great option for both large and small companies that are reluctant to commit to long-term, binding rental contracts. Another start-up called Deliverr provides Amazon-like fulfillment for e-commerce businesses by partnering them with under-utilized warehouses.
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AI: Artificial Intelligence will enable companies to provide effective delivery services using small fulfillment centers by analyzing data on the types, and quantity, of products sold in different locations and providing actionable insights. For example, the most commonly purchased items will be made most accessible, products that are commonly bought together will be stored together, and so on.
As of mid-2019, e-commerce only accounted for 10% of all retail spend but, given that online grocery sales alone rose by 15% in the same year, this figure is likely to increase — and fast.
Indeed, it’s predicted that the number of digital buyers will grow to 2.14 billion by 2021, which means e-commerce retailers will need to continue making major changes to their business models to both take advantage of this growing market, and outpace their competitors. Identifying how to best use small warehouses is critical.
Image Credit: Image courtesy of bluedog studio / Shutterstock
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