Online sales are quickly outpacing in-store sales, largely due to online retailers’ ability to offer a wider variety of inventory and speedy delivery times. Due to this shift away from brick-and-mortar stores, many retailers have also had to shift their real estate selection strategy. E-commerce has driven real estate site selection away from local, high-cost retail site locations toward larger, strategically located distribution centers.
As such, larger sites near potential customers and transport hubs have grown in demand. Additional considerations, such as state sales tax, have risen on the list of selection factors, while the need for a large workforce necessitates sites in substantially populated locations.
As the market continues to change, watch for these 3 ways that e-commerce is impacting site selection:
1. Need for Fulfillment Centers Near Customers and Transport Hubs
As the demand for quick fulfillment increases, many retail supply chain executives are opting to locate fulfillment facilities closer to their customer base to keep pace with aggressive delivery schedules. While proximity to customers is one consideration, ideally facilities should also be located near regional centers with access to air and ground shipping hubs. These strategic locations facilitate nimble delivery systems that provide quick, reliable shipping at competitive prices in a market that grows more competitive every day.
2. State Sales Tax Drives Site Selection
When just starting out, Amazon took note of a crucial site selection component: state sales tax. States charging sales tax did not require vendors to collect sales tax from customers, as long as the vendor was out of state with no physical location in-state. As a result, Amazon placed distribution centers in areas with no sales tax (or low sales tax), such as Oregon, New York, New Hampshire, and Georgia, effectively allowing customers to bypass their state’s sales tax—a competitive advantage in the retail space. This trend continues, and state sales tax is a key consideration for e-tailers looking for new distribution locations.
3. A Large Workforce Increases the Need for Space
According to the head of retail/e-commerce distribution at Jones Long LaSalle, an e-tailer typically employs 300 or more workers at each site or 5-10 times that of store-based manufacturing distribution operations. This larger workforce requires parking space and operates in warehouses that are often larger than traditional fulfillment sites. Add to that the need for room to expand, and it is easy to see that these considerations have altered square-footage requirements for many e-commerce retailers.
While a larger workforce means good things for the economy, it also presents a challenge when locating potential sites, which, as previously mentioned, need to be located near customers and shipping hubs, while also providing ample space.
Looking Toward the Future
The demand for e-commerce distribution centers has increased dramatically in recent years. In fact, according to the Los Angeles-based commercial real CBRE, 30 percent of industrial real estate transactions in 2014 were e-commerce related. As a result, e-retailers now have to take these new factors into consideration in order to find the perfect balance between location, tax breaks and available labor when selecting new distribution and warehouse sites.