In the sixth of a series of reports on the impact of COVID-19 on the supply chain, the warehouse developers at Prologis say the virus crisis has accelerated the growth of online sales as a percent of total retail, resulting in heavy demand for warehouse space for e-fulfillment.
Supply Chain Digest Says... |
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Prologis now predicts ecommerce will rise to 20% or total retail sales in 2020, versus an estimate of 16.9% early in the year before the virus outbreak in the US. On-line sales are now increasing at about 25% per quarter year-over-year, versus about 15% before the crisis. Prologis also predicts that online's share will grow to 27% of all retail by 2024.
This is key for logistics professionals, because it shifts demand from traditional in-store space to distribution centers, and for a variety of reasons, according to Prologis, ecommerce requires more than 3 times the logistics space of brick-and-mortar store per dollar of sales.
Prologis says its analysis of the 30 top US retailers showed they had 9% growth in their logistics footprints during 2019, compared with 6-7% annual growth during the prior five years, driven primarily by rapidly rising ecommerce volumes.
It's not clear exactly how the numbers were calculated, but Prologis says the net efficiency of distribution centers for ecommerce is 1174 square feet per $1 billion in sales, versus just 334 for brick and mortar, as shown in the graphic from the report below
Prologis notes the ratio between efulfillment and stores logistics space efficiency has remained relatively the same for five years, contrary to predictions in the past that efulfillment would soon use space more efficiently – it's not happening.
Little Impact from Retail Bankruptcies and Store Closing on Demand for Space
The news has been full of stories on retailers going altogether such as Pier 1 or shuttering even more stores, such as JC Penney.
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The Prologis report says those changes will have minimal impact on demand for distribution space because the retailers that have recently announced bankruptcies represent a very small portion of logistics demand, and their distribution centers are located farther from population centers than market winners are on average.
Utilization of US industrial space – mostly warehouses - increased to 84.0% from 83.1% in April, up 0.9%, but still about 1.5% below its pre-Covid-19 level. The combination of improving activity for a portion of customers along with building inventories for customers with closed storefronts is likely putting upward pressure on this number even as activity falls on net. Supporting this trend, Prologis says, is that the retail segment reported the highest utilization rate, at 84.6% in May.
"The window for customers to act on easing logistics real estate market conditions could be short," Prologis concludes.
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