Retailers will continue to need warehouse space, although some have successfully shifted the need to third parties.

Some retailers of bulk items, such as furniture, appliances and other household items deploy a drop ship strategy that is self-operated and use third party logistics firms (3PLs), but in more robust climes, inventory is turning over and sales floors need replenishment. Appliance and furniture retailers typically utilize a “floor model”-only strategy. Using high-tech communication systems, fulfillment distribution centers are instructed to deliver and restock as items are sold. Most of these same retailers lease some additional warehouse space within the retail shell to store high-volume SKUs, such as hand-carried products that have historically sold well and need immediate replenishment. But the additional space is not likely to be enough to reduce centralized warehousing requirements.

Some discount stores, such as the “dollar stores,” are experiencing steady sales volumes for obvious reasons. Customers are leaning on them as they re-engineer their lifestyles and purchasing habits. Many of these discounters sell SKUs of small items, such as toothpaste, shampoo and soap. These goods need to be replenished often, daily perhaps, and the items need to be stored in a favorable location.

“There will always be a need to store goods prior to their ultimate distribution to retailers,” says Jim Maneri, Senior Vice President of Liberty Property Trust, based in Malvern, PA. “However, many of the large retailers have pushed the obligation/burden of storing those goods (as well as the timeframe of ownership) onto the manufacturer. They do this because they can. The effect, of course, is that these retailers need less warehouse space for their goods even though the amount of warehouse space that is ultimately needed in gross terms has not changed.” 

“Other retailers have chosen to adjust their strategies and create more numerous but slightly smaller warehouses that are located closer to their stores,” Maneri explains. By locating their warehouses and stores more closely, they minimize the need to maintain inventory at the retail location, as goods can be quickly restocked from the geographically favorable warehouses. In so doing, they shift the need to store inventory at the store (at $50 per SF) to that of the warehouse (at $4.50 per SF plus transportation).”

Maneri adds that many of the warehouses that are being leased closer to stores have installed automation processes that allow for rapid deployment of inventory to the stores.

-Paul A. Waters, SIOR, CCIM, CRE, FRICS

Based in New York City, Paul Waters, SIOR, CCIM, CRE, FRICS, is Executive Vice President-The Americas at NAI Global, where he is responsible for business development and client relationships among major corporate end users of office and industrial space.