Moving to a new warehouse can have huge benefits for a retailer in terms of operational efficiency, but choosing the wrong building can act like a millstone around their neck.
Richard Tungay, manager of consultancy Kurt Salmon Associates, says that the cost of space, available labour and transport need to be weighed up when making the decision.Future plans, such as projected growth and sourcing policy, also need to be factored in before the detailed work of finding a building takes place. Retailers need a cross-functional input into the decision, he believes. "You have to take into account the number of stores, their format and location, what ranges they sell and the level of service required," he says.
Kevin Storey, head of industrial agency at property firm Cushman & Wakefield, says retailers are now willing to consider a wider area when searching for a building. Staffordshire and South Yorkshire, where Next is building two adjacent warehouses totalling 1.1 million sq ft in Rotherham, are popular locations.
"Although most demand is still in the East Midlands and the southern part of the M1, such areas are not as dominant as they used to be," he says. "This is due to better availability of both land and labour in other locations."
Staffing considerations can be an overriding factor for some retailers, limiting their search to an area close to their current facility. This was the case with Ossian Retail Group when it upgraded its warehousing near Glasgow. Logistics director Graham Clements says: "The key issue for us was that we wanted to retain as much of our existing workforce as we could."
The company will now operate separate warehouses for its Internaaionale fashion chain, which has 69 stores, and its Au Naturale homewares chain. Internaaionale will expand its warehouse from 20,000 sq ft to 35,000 sq ft by January next year, while Au Naturale will move to a new facility, having partly operated from the same warehouse as Internaaionale.
Moss Bros also stayed fairly near to an existing facility when it moved out of the Olympic Park area near Stratford, east London, and relocated to a 95,000 sq ft building in Barking last year.
Speculative building programmes from major developers reflect the increasing demand for distribution centres, and also the availability of land. For example, giant US developer ProLogis is working on four buildings totalling 1 million sq ft in Staffordshire.
Wal-Mart subsidiary Gazeley's development programme includes 470,000 sq ft in Newark and 330,000 sq ft in Worksop, both in Nottinghamshire and both further north than what is usually considered the East Midlands 'golden triangle' for distribution centres.
Some development is being stimulated by the availability of tracts of land formerly used by the coal industry - UK Coal has plans to bring forward 2,650 acres of developable land around the country. It includes a joint venture with Gazeley to develop a former coal distribution point in Ashby-de-la-Zouch in Leicestershire, to provide 1 million sq ft of warehouse space.
Developers also expect demand for property to rise close to ports or on major roads feeding them. Gazeley, for example, is planning a 27-acre distribution park next to Felixstowe port in Suffolk, which could accommodate 530,000 sq ft of space. Gazeley development director Nigel Godfrey says: "There is an emergence of interest in ports as centres for distribution, and, with imports rising, demand for such areas is only going to go one way."
ProLogis first vice-president Paul Weston says: "With more garments coming in from China and other countries, the way you manage containers and get products to your distribution centres is a major issue."
One of the main decisions retailers must make is whether to buy or lease a property in their own name or let a third-party logistics provider (3PL) do so. Some retailers take on a building, then use a 3PL to manage it. This approach was taken by Monsoon, which last year signed the lease on a 260,000 sq ft building developed by ProLogis in Wellingborough, Northants, but uses Clipper Logistics to run it. By contrast, TNT Fashion Group is responsible for property at the distribution centre it runs for Primark at Magna Park in Leicestershire.
Tungay says: "If you take the building on yourself, you have the option to change 3PL and stay in the same location, the flipside being that you are likely to have to commit to it for a long time. If the 3PL takes control of the property, you may have to leave the building if you no longer wish to use the 3PL in the future."
TNT Fashion Group development director Philip Bracken says that in many cases a 3PL can negotiate a better deal with landlords than a retailer acting on its own. "Bargaining power and strength of covenant is fundamental to this and even very large retailers do not operate as many warehouses as we do," he says.
Tim Robinson, business development director of Clipper Logistics Group, reports a similar situation. "Most clients want us to find the property and negotiate with the landlord. We are in constant touch with a network of agents and developers within the UK," he says.
Sustainability is also a big issue for all firms with a corporate social responsibility policy and retailers have become increasingly interested in this aspect of their warehousing. Godfrey says there has been a huge upsurge in interest in the past few years. "We have been astonished at how sustainability has become a vital part of development in such a short time," he says.
Gazeley, which includes features such as rainwater recycling, solar heating, organic paint and wind turbines in its buildings, says that apart from any environmental considerations, retailers can save significant amounts of money in this way. A new 650,000 sq ft warehouse it is constructing for John Lewis in Milton Keynes will reduce carbon emissions by two-thirds compared with a standard distribution building, saving £240,000 a year in energy costs.
Storey says that eco-friendly buildings are beginning to take the lead over standard properties in attracting interest from occupiers. "You could easily imagine a two-tier market for warehouses. Being eco-friendly is no longer seen as taking the tree-hugging view," he says.
On the surface, warehousing appears to be a simple issue of finding four walls in which to store and sort out products. But retailers face a complex set of decisions - if they get it wrong, the consequences for their business can be huge.
WAREHOUSE RENTS: THE INDUSTRY VIEW
Guy Grantham, associate director of research and forecasting, Colliers CRE
"Rents for large distribution sheds have been fairly stable, although demand from institutions and developers has been driving up capital values and land prices.
"Generally, it is expected that developers will try to establish new rental levels in the next round of development to justify some of the prices being paid for sites.
"The north-west logistics market has seen increased take-up of large units. Some of the demand is displaced from the Midlands, where acquiring large enough sites for single-unit big shed development on the M6/M1 axis is extremely difficult.
"Secondary sites and the A1 corridor are now on developers' radars. And Scotland is seeing a big improvement in market conditions - the best for 10 years."