The rising tide of experiential retail
The big shift to online shopping represents a major opportunity for eCommerce businesses. The increase in online sales in 2020 may have been equivalent to 4 years of historic growth, according to Savills. And the NAB Online Retail Sales Index showed online sales grew 59.3 per cent in the year to October 2020.
It’s clear online shopping is now more important than ever. And leading eCommerce companies are taking advantage of strategic leasing, supply chain optimisation and other innovations in order to organise their warehouse requirements in ways that minimise costs and improve customer experience.
From meal kit services like Marley Spoon and HelloFresh to fashion and apparell brands including Culture Kings and AS Colour, wine and liquor delivery services like the renegade Jimmy Brings, electronic goods retailers typified by Kogan, co-warehousing innovators CLIK Collective, and data centre firms like NextDC and Megaport – there a range of innovative ecommerce businesses thinking strategically about how their warehouse lease arrangements can best complement their bottom line in 2021.
Growth in eCommerce and warehousing options
“2020 has been a year like no other for e-commerce,” wrote Ben Franzi in the Australia Post eCommerce 2020 Industry Report. New data from JLL has shown that online retail spend in Australia increased by a record $14 billion over the last year – above the average of $2 billion a year.
Online sales are forecast to grow by $12.8 billion in 2021, “which would result in demand of about one million square metres of warehouse demand”, according to Colliers International. Goodman Group CEO Greg Goodman said most of its $8.4 billion pipeline of projects were for occupiers in the e-commerce and online retailing sectors.
Warehouses are in hot demand, both on the investor and tenant side, thanks to the online shopping surge that has propelled demand for logistics space. At the release of the Australia Post 2020 eCommerce report, online held upwards of 15 per cent of the total retail market. More recent figures from retailers suggest that digital may have hit 30 per cent of sales. In terms of occupiers, logistics giants DHL and Australia Post, as well as Coles and Woolworths, are among those rapidly expanding their e-commerce fulfilment capabilities.
Warehouse occupiers can save money now. As of December 2020, Savills reported that in Victoria at least, it was clear that leasing demand was yet to flow through to higher rent costs for tenants across the board. The stage is set for record take-up of industrial space in 2021, with the ongoing boom in e-commerce and impatience of consumers expecting same-day delivery. From pure eCommerce players, blended logistics businesses and wholesalers to electronic goods retailers and more – there’s plenty of scope in industrial leasing markets right now for occupiers to improve their lease positions.
Specific industries and verticals that show exceptional promise
Meal kit delivery services
Marley Spoon and the global firm HelloFresh (which has an Australian arm, HelloFresh Australia), are two examples of meal kit services that rode the pandemic-induced boom in online groceries and food delivery.
Marley Spoon’s ASX shares recorded a staggering 720 per cent gain in the 12 months to January 2021. Their budget-friendly brand, Dinnerly, became the first meal kit company to deliver across every Australian state and territory, after launching in West Australia in early 2021.
In June 2020, Marley Spoon signed a 10-year lease to take 14,200sqm of space at a logistics facility in Sydney’s West. From the September quarter of last year, their second biggest national revenue growth came from Australia (84 per cent), trailing the US (145 per cent) and Europe (83 per cent).
In the fourth quarter of the same year, HelloFresh NZ grew its revenue by 143 per cent year-on-year, reaching over $51.8 million for the period. Their local workforce also almost tripled in the past year.
In September 2020 HelloFresh ANZ announced plans to open a third distribution centre in Australia, following a surge in demand during the pandemic and the launch of a new budget-priced brand EveryPlate.
Woolworths unveiled plans to invest more than $110 million in a massive fresh food distribution warehouse in Sydney’s west as it looks to cater for surging demand across its supermarket network and from its booming online grocery business. Preliminary plans lodged with the NSW government are for a multi-storey 60,000 square metre fresh food distribution centre to be built on an 8.6 hectare site it owns at 250 Victoria Street in Wetherill Park, west of Parramatta.
Wine and liquor, and alcohol delivery
The wine and liquour industry were one of the key beneficiaries of the growth in online retail in Australia, with sales reaching over 160 per cent YOY in March-April 2020. The boon in booze sales was particularly pronounced for delivery-based businesses such as Jimmy Brings, which posted an increase of 23 per cent in March alone.
“Over the last few years, we’ve continuously proven ourselves to be a disruptor in the liquor industry. People more than ever are shifting their purchasing behaviour and Jimmy Brings is in a unique position to cater for all drinking moments,” said Jamie Gagliardi, Head of Marketing.
Even Amazon have turning their hand to alcohol delivery. But Jimmy Brings has been able to offer a more competitive delivery service than rivals like Dan Murphy’s and BWS, such as offering $2 delivery throughout last summer.
Fashion is another standout from the eCommerce boom, reaching highs of 100 per cent YOY.
Demonstrating immense ingenuity, Kiwi-grown fashion retailer AS Colour deployed a new warehouse management solution (WMS) remotely, while under COVID-19 lockdown. With nine stores in Australia, ten in New Zealand and four distribution centres globally, AS Colour has big plans for the future, including a new 18,000 square metre facility in Dexus’ Foundation Truganina estate in Melbourne’s west, set to go live by mid-October.
Across the pond, Aussie streetwear phenomenon Culture Kings was recently acquired by a.k.a. Brands, a global platform that is pioneering a new approach to driving growth in digitally-native fashion brands. The growth-move by the innovative hybrid online-offline retailer comes along with plans to expedite the expansion of Culture Kings into the U.S.
Data centres and other ICT businesses
Working from home post-COVID has led to a significant surge in the need for data storage and processing requirements underpinning demand for large-scale industrial property assets.
CBRE regional director, industrial & logistics Cameron Grie says there are currently large requirements from data centre groups seeking opportunities in Sydney and Melbourne. “In the past financial year, Sydney recorded the strongest growth of 76 per cent,” which is primarily attributed to it offering significantly shorter development time (6-8 months less) than comparable locations.
While the government comprises the bulk of demand in Sydney, growth is occurring across numerous verticals, including financial services, internet and technology, healthcare and education.
Entertainment, DIY, ‘eCommerce co-working’, ‘Brand Australia’ and more
Other verticals that have done well post-COVID are entertainment, self-improvement and DIY. A venture that has sought to bring together eCommerce businesses in different sectors for ‘co-warehousing’ – speculated to be the WeWork of eCommerce businsses – is CLIK Collective. The warehouse play involves flexible leasing arrangements, shared capacity and access to the benefits of scale for smaller businesses and start-ups.
Other deals worthy of note include the fact Amazon are opening a second fulfilment centre in Melbourne later this year, and at 37,000 square metres will add considerable bandwidth to their operation. It will join five existing fulfilment centres around Australia, the first of which opened in December 2017.
Logistics real estate platform ESR has also capitalised on the growing demand, for specialist cold storage warehouses, since the start of the pandemic – striking a deal to develop an $83 million pharmaceutical distribution facility in western Sydney for DHL. The 38,000-square-metre temperature-controlled warehouse will be built on seven hectares within ESR’s Bringelly Road Business Hub.
Another thing to consider for Aussie e-commerce businesses is the advantage that is uniquely theirs: “Brand Australia’’. Matt Malcolm, founder and managing partner of e-commerce consulting firm Gallantway argues that “The Asian luxury market is booming and e-commerce is a huge opportunity for e-commerce entrepreneurs. Australia is recognised internationally as a country that produces great products and great brands and we should be leveraging that.” The shift to online shopping represents an opportunity for small Australian e-commerce brands to “become impressive enterprises on the global stage”.
Deloitte Digital Consumer Trends 2020 report released last October showed that 24 per cent of respondents had purchased non-grocery items online for the first time, and 55 per cent of those said they expected the shift to be permanent.
Supply chain optimisation and reducing warehousing costs
It’s not all about mega-sheds like the 200,000 square metre Sydney fulfilment centre Goodman is building for Amazon. Strategic relocations, rationalisations and a host of supply chain innovations represent far more effective means of improving the leasing footprint of many eCommerce businesses.
Travis Erridge, managing director of logistics consultancy TM Insight, makes the astute observation that 2021 may well see a greater proliferation of regional and inner suburban fulfilment centres closer to end customers in “hub and spoke” supply chain models. This would tend towards greater industrial warehousing demand and greater links in capital cities, including inner-city areas.
Colliers saw a rise in enquiry around western Sydney among other markets, from warehousing and logistics groups seeking short-term solutions. David Hall, national director, Industrial at Colliers International, says the rapid increase in e-commerce and online ordering is causing occupiers to look at additional leasing space in non-traditional locations. And the capacity is there for occupiers to find sites in these places.
Same-day delivery, manufacturer-consumer supply chains
Cheap (if not free), same-day (if not faster) delivery is becoming increasingly widespread. According to Shopify, 64 per cent of consumers globally expect any order shipped for free. The challenge historically with same-day shipping is that it’s been difficult to arrange cost-efficiently — warehouse proximity to customers and inventory management being the main factors.
This has led to different innovations, such as retailers partnering with ‘last-mile’ delivery companies to fulfill online orders. Other retailers have begun offering direct local delivery, which is faster than traditional shipping, provides more work to retail workers, and gives the business full control over the customer experience. In many cases improved package tracking solutions also mean that consumers can receive real time, last-minute notifications about their order.
Other fulfilment innovations
Investment in reverse logistics is another big one for businesses with warehousing setups. Returns investment is due to spike in 2021 and forecast to hit $604 billion globally by 2025 — as retailers seek to alleviate a pain point in the shopping journey and minimize the costs of returns. Streamlining the return process — for instance by instantly giving customers store credit, pre-fill return labels and self-serve returns — makes business sense when 96 per cent of consumers will shop with a retailer again based on an “easy” or “very easy” return experience. Ironically, returns are a great way to retain business!
Scalable automation, digital solutions, flexible labour resourcing, flexible carrier selection, cross-company collaboration are other examples of modern logistics and fulfilment practices that achieve more responsive, efficient, malleable and cost-controlled operations. Furthermore, logistics start-ups are designing innovative concepts like crowd shipping platforms and flexible warehousing arrangements to facilitate better connections between manufacturers and/or warehouses and customers.
Inventory management automation is another way to reduce wait times, expedite fulfillment, and reduce shipping costs. 2021 should also see increased use of autonomous deliveries, smart sensors, blockchain tracking, and digital twinning to increase delivery speeds and cost efficiency. Robotics technologies like self-driving and drone deliveries are no longer pure novelty (but remain shy of mainstream status — costs still need to come down). However, it’s likely uptake of automation won’t be uniform, and will rather be used selectively in the form of “fit-for-purpose” solutions.
The pandemic situation has confronted businesses with the reality that traditional, single-origin product sourcing strategies aren’t great for supply chain resilience. Local vs overseas is on the agenda, with the added pressure from environmental councerns, as is dual sourcing (more than one supplier source). Nearshoring (outsourcing in a nearby country) is also an option for faster shipping.
Marley Spoon are a good example of local supply solutions, with ingredients sourced in Australia. Further, Dinnerly buys all the fresh vegetables, poultry and meat in each state and territory. As well as partnering with other local businesses such as South Australian culinary icon Maggie Beer.
End-to end visibility
Encompassing supply chain tracking, tracing, analysis and real-time decision-making – visibility allows for transparency, helpful digital visualisations and the ability to predict outcomes. Furthermore, it means consumers and other stakeholders can be assured about standards of practice – environmental and otherwise.
Ethical and Values-Based Brands & Products on the Rise
Offering genuine transparency, or taking a stance on ethical issues, can be risky for businesses, but when done right, it can build lasting customer loyalty, and most importantly, drive the bottom line.
Customers, particularly those of younger generations, appear to be more belief-driven and conscientious in their consumption decisions, preferring brands they consider supportive of social issues such as gender equality, climate change and more. Purpose-driven consumers — approximately 40 per cent of all consumers — want products and brands that align with their beliefs, and are willing to pay a premium. Gen Z, now the largest consumer group, leads the trend.
72 per cent of global consumers want brands to use sustainable packaging (many will pay a premium for it — with a focus on zero-waste, reused and recycled packaging, as well as reduced package sizes, and redesigned shipping cases).
Notables from those eCommerce businesses with warehouse requirements listed above, HelloFresh as a global company committed to offset 100 per cent of its direct carbon emissions from 2020 onwards through reducing food waste, improving warehouse efficiencies and more. And AS Colour ranked in the top tier out of 11 New Zealand companies for upholding Covid Fashion Commitments on ethical practice.
Social commerce and influencer marketing for eCommerce businesses
Social commerce generally refers to ‘native’ shopping experiences on social media platforms.This sales channel is growing, with 2020 yielding a partnership between TikTok and Shopify, an expansion of Snapchat’s Native Stores for brands, and the introduction of Facebook Shops.
Technavio recently reported that the social commerce market is poised to grow by $2,051 billion during 2020–2024, progressing at a compound annual growth rate of almost 31 percent. And regardless of where sales take place, social media will continue to introduce many customers to brands. For many eCommerce businesses, it’s an important one to look at.
Other giant digital marketplaces — like Amazon — continue to grow in importance. Half of all global ecommerce sales occur on marketplaces, compelling brands to participate. And this is getting easier, with Amazon just having introduced more tools for brands to build unique brand identities.
Many eCommerce businesses have a content problem — they’re unable to create enough content at scale to support their marketing efforts. “In 2021, a trend we will see is brands looking to influencers as content creators to support the content creation process in lieu of a content agency,” according to Jordie Black of ZINE.
Influencer marketing used to mean ‘manicured selfies, carefully-crafted captions, and heavily-edited product shots’ but we’re now shifting towards more authentic, raw expression: ads that aren’t over-produced; ads that prioritise entertainment, education and more. And the new ‘non-fancy’ of a lot of influencer marketing means lower production costs. Even if their audience is relatively small, campaigns with ‘micro-influencers’ who authentically align with the values and beliefs of both your brand and your customers can yield results.
Tenant Leasing Group is partnering with new and established e-Commerce businesses who are taking charge of the big property opportunities on offer in 2021 and beyond. From finding new warehouse sites, to rationalisations, relocations, lease negotiations, strategic advisory and more – we’re here to support eCommerce business occupiers to minimise warehousing costs and improve customer experience.
Director, Tenant Leasing Group
Phil has 25+ years experience advising and representing tenants on retail, office, industrial, large format retail, healthcare and other commercial property leasing.
A trusted veteran, Phil knows how to work negotiations in the tenant’s favour. He builds relationships directly with founders, business owners and senior executives to help optimise their business property situation.