The Amazon effect: Why your next store could be a warehouse

The Amazon effect: Why your next store could be a warehouse

Total Property - Issue 8 2017

Online shopping has radically altered the retail sector, disrupting established business models and practices. Ecommerce giants such as Amazon and Alibaba are dominating markets around the world, putting pressure on traditional high street players by beating them on price and, more importantly, service.

New Zealand’s annual online retail spend is estimated to be NZ$4 billion, and while online shopping represents a relatively small proportion of overall retail spending in New Zealand it is growing at a faster rate than bricks and mortar retail.

The growth in ecommerce has forced retailers to reassess their property needs. To fulfil their customers’ orders quickly, they need warehouses.

Overseas, Amazon, Walmart and others have spent billions buying, building and leasing industrial real estate, with growth in occupied warehouse space far exceeding that of retail space.

Many warehouses are beginning to assume some of the characteristics of stores as more retailing activity starts to happen inside distribution centres. They are highly varied in size, shape, purpose and intent, and deploy technology to meet rising customer service expectations.

Ecommerce businesses have to think differently about the location of their distribution centres. To stand out in a crowded market, retailers are competing aggressively on reducing delivery times, which is creating increased demand for last-mile logistics.

The game-changer for the Australasian market, is the arrival of Amazon.

The company announced in August that it is opening a 24,000m2 fulfilment centre on the outskirts of Melbourne as part of its entry to the Australian market, and has committed itself to “fast delivery”.

Amazon has not commented on whether it will establish a presence in New Zealand, but brokerage firm Forsyth Barr has advised its clients that the likelihood of Amazon entering the New Zealand market has increased. “Once Australia is bedded in, New Zealand presents a logical extension to Amazon’s investment in the region,” the firm said in a report issued earlier this year.

New Zealand retailers and logistics firms are not standing still.

New Zealand Post has partnered with The Warehouse Group - which includes The Warehouse, Warehouse Stationary, Noel Leeming and Torpedo7 - to trial a new shipping service for online shoppers. The service, Shipmate, offers unlimited delivery of online purchases for a one-off NZ$12 fee. The two-month trial, which started on August 14, covered 5,000 shoppers in the North Island.

New Zealand Post says it is talking to a wide range of companies about partnering opportunities. Already, it handles logistics for food delivery service My Food Bag. “More and more New Zealand brands are seeking to do business with us on ecommerce projects,” a New Zealand Post spokesperson said.

“Our current network gives us significant last-mile delivery reach across New Zealand - we have more than 1.9 million delivery points across the country. However, we operate in a highly competitive market.”

Logistics companies form around 30 percent of Goodman property group’s customer base in New Zealand and occupy more than 300,000m2 of space within its portfolio.

“The New Zealand logistics market is mature with national and international companies providing wide distribution channels and sophisticated third party logistics services. They are efficient businesses operating in a competitive environment,” chief executive John Dakin says.

Mr Dakin says Goodman is intensifying its industrial development programme, and undertaking a significant proportion of new projects on an uncommitted basis “to address current capacity constraints and to meet forecast demand”.

Goodman predicts that distribution warehouses will, in the short term, evolve as online retail sales grow. “Existing third party logistics businesses with good distribution channels and/or specialist services will benefit but competition will intensify. We also expect that infill locations, close to consumers and key infrastructure will become increasing sought after,” Mr Dakin says.

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