The Evolution of Retail Site Selection
The historical model has been based on the centroid model, based on service to the store. The idea would be, “Hey, we're going to locate our central distribution center around, say, 100 stores,” and really the driver there was transportation, and second would be labor. The transportation savings will lead you to a location, but if you don't have the labor to supply it there, it's not going to be the ideal location. So, what we would do is just try to get that centroid and then based off that, a lot of times you would have the benefit of getting cheap land and be really maximized to deliver to your stores. Now, the driver with e-commerce is customer satisfaction and proximity to a population base, so we're seeing a lot more of a drive into large metro areas.
Creative Approaches to Last Mile Distribution
Well, the “last mile” means a lot of different things to different people. But in general, it's the ability to be able to deliver to the consumer as soon as possible. Some retailers may feel like their last mile can bring them to the consumer within a couple of days. But what we're seeing more and more is for your leading retailers or e-tailers to be able to deliver same day. And so you need a last mile footprint in order to make that happen.
When you think about getting close to the population base, it's not a haven of multiple industrial sites. And maybe what is available are old manufacturing type facilities that may not be ideal. That said, what we once thought might have been functionally obsolete in the metro area can now be retrofitted in order to serve as the last mile type facility. So having docks available and necessary clear height, which doesn't have to be 24-, 28-foot clear. It could be less than that because a lot of these are thought of as flow-through type facilities. You're not really going to store the inventory, you're just bringing it in for to be shipped for the final leg to the consumer's home. But you know, that could satisfy your traditional perspective. We're also seeing parking garages being converted into distribution space. We're seeing what might have traditionally been public storage be retrofitted into storage for retail. And when I say storage, it really isn't long term storage, this is truly flow-through type operations to get to the end user.
U.S. Last Mile vs. International Last Mile Infrastructure
What we've seen in more mega cities and more dense populations of Europe and Asia, they're really more prepared than the U.S. Just for the fact that we're more spread out. I think in a lot of ways, we're for more of a driving type community of people. So I do think there's a lot of best practices that we can learn from what Europe and Asia have put into place for smart cities, logistics and things like that. [For example,] sensors within the traffic lights and lampposts to monitor the traffic, and also trying to optimize delivery times to the end user to not have such a heavy concentration of traffic on the road at once. So that's going to take significant infrastructure improvements to get to that. And I think the conversation is being had right now and in the years to come, I think we've got to do our best as a country to be ahead of that.
Multistory Warehouses and Consumer Needs
Going back to population being a driver where people locate their e-commerce fulfillment locations, [multistory warehouses] lends itself to go into New York. It lends itself to go into Chicago, Seattle, San Francisco. And so those are markets where you're seeing more comfort and exploration around multistory buildings. Seattle has its first three-story building already up and built by Prologis. In Brooklyn and the Bronx there also multistory buildings that are going to be built in the years to come. I think there's exploration, at least in San Francisco, about making something like that happen as well. And the model can be seen in Singapore and Hong Kong, where you have, you know, highly dense metros where going horizontal isn't going to make sense. You have to go vertical, and I think that's why you're seeing the willingness to do that. Consumers and customers are willing to pay more. Retailers are willing to pay more for the customer satisfaction reasons and for transportation savings in these major markets. Never say never, but that said, Dallas isn't an ideal market for that because that land availability is there. And so it would never make sense for the construction expense to build multistory warehouses when you can go horizontal and be in a suburb and still deliver to the city center within a few hours.