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Property Special: The Modern Warehouse

Once upon a time, the humble warehouse was very much the poor cousin in a fashion retailer’s property portfolio.

Traditionally, these crinkly tin boxes were only used to keep a retailer’s valuables dry until they reached the high street. Now, in the era of omnichannel, they are a far more integral part of a retailer’s supply chain. But few, if any, know if the measures they take today - often at tremendous expense - will meet their warehousing needs in two years’ time.

Paul Weston, senior vice president and head of southeast markets for international industrial developer Prologis, says: “Digital disruption - internet and iPhone [mobile] purchases - is causing chaos in retailers’ supply chains. The better ones are responding but it is a very fine line. I expect a lot of people are flying by the seat of their pants.” Prologis has built warehouses for retailers such as John Lewis and Amazon, and is developing Debenhams’ new 726,000 sq ft logistics hub in Peterborough. It also housed in its first two industrial units - the latter a 530,000 sq ft shed in Barnsley, which was extended at the end of 2013 by 140,000 sq ft at a cost of £5m. John Lewis Partnership has responded to this digital disruption with a 675,000 sq ft distribution centre in Milton Keynes, Magna Park 2, the structure of which was completed last year. Fit-out is continuing and it will be fully automated by 2016. The retailer is now developing a third 638,000 sq ft super-warehouse adjacent to Magna Park to handle its furniture and electrical orders.

Womenswear chain East is about 75% of the way through a massive data-gathering project to better understand evolving shopping habits, which it will then use to guide its fulfilment strategy. East trading director Alison Lippiatt anticipates the project will be complete by the beginning of April, though she adds: “In truth, nobody knows how shopping patterns will change, except that they will continue to change and develop.” Mike Hughes is chief executive of Warehouse developer Verdion, which has offices in London and Düsseldorf. It recently completed a 644,000 sq ft scheme in Hanover, Germany, for Arvato Bertelsmann - a supply chain outsourcer, whose clients include Versace and Esprit - and has developed sheds for a number of third-party logistics companies with fashion clients. He says: “Growth of online retailing is creating demand for new types of warehouses that are customer fulfilment centres.

There are hundreds, even thousands, of staff working in those, which are part of a wave of ecommerce buildings [warehouses built specifically for ecommerce orders].”From a design perspective, the new wave of warehouses have more fit-out elements due to a rise in orders, more doors and a great deal more space for cars, to cater for the constant flow of delivery trucks. This is adding to land costs, as extra space must be factored in for this and additional staff car parks. Although cross-docking warehouses - where container goods come in on one side and are House in order: Verdion’s 644,000 sq ft warehouse in Hanover, for Arvato Bertelsmann unloaded directly onto delivery vans on the other - are not the norm, they will become more of a feature as internet sales increase.

Yet again, this adds cost in terms of the amount of land required, as it requires two goods yards. Real estate adviser CBRE’s national industrial director James Attfield says: “There is a trend towards new logistic facilities being over-specified in terms of the numbers of doors and dockers to meet the needs of a rapidly changing omnichannel retailer market.” CBRE acted for Next in securing forward funding for a £68.5m, 700,000 sq ft distribution hub at West Moor Park in Doncaster. The unit is the retailer’s third at that site and is due to complete in early 2016. Attfield adds: “Next is one of the retailers at the leading edge.

Having benefited over many years from the logistics required to support the Next Directory, it has quickly repositioned its national logistics network to meet the needs of its stores, online and Directory business.” Keeping additional centres adjacent to one another, as John Lewis is also doing at its Magna Park site, creates operational efficiencies, with short lines of communication for staff in proven locations. London Metric Property has been investing in and developing retail warehousing for two years, so much the modern warehouse march 28 2015 / Drapers Property Special 11 so that distribution centres now account for half its portfolio. chief executive andrew Jones says: “Fewer but larger and more sophisticated spaces create economies of scale. It is a trend that will continue.” he says Londonmetric moved into this arena ofproperty investment because many retailers he spoke to said they had too many stores and needed their distribution networks to improve.

There is increasing need for smaller parcel hubs to facilitate last-mile deliveries, although this demand tends to come from courier companies contracted by retailers. Prologis’s Weston says: “We are seeing demand for more quite low-density hubs.” These tend to be 50,000 sq ft to 60,000 sq ft, with lots of doors, and are often cross-dock units. This makes warehousing much more of a 24-hour operation. “There always has to be a level-access door available for the next van and so that drivers never wait to be loaded,” adds attfield. a constant in this period of change is the extra costs retailers face. In addition to more land needed, whether as a direct cost to retailers or indirectly through third-party provider fees, is the expense of technology to handle warehouse-based fulfilment. Dan monaghan, group logistics director at New Look, says: “We have already made signifi can’t investment in our distribution centre [at Newcastleunder- Lyme in Staff ordshire], bringing fulfilment in-house and giving us the benefi t of having all our stock in one building. We are also making further investments in our web platform, store technology and distribution centre infrastructure.” automated systems can identify a box’s contnets, barcode or frank it and deliver it ready to be posted anywhere in Europe and sometimes globally.

This whole process can be handled in around 30 minutes. But this is unusual for all but the largest retailers. Ben Dreyer, operations director at online and catalogue retailer Boden, says: “Until you get to a certain size, it is questionable how much benefi t automation gives.” Dreyer relates the story of a fashion rival that automated its warehouse but still picks items at half the speed of Boden’s manual distribution centre. Nevertheless, automation will become standard in the future. New Look’s monaghan says: “It will become more the norm, as retailers have to improve effi ciency, accuracy and speed of delivery. Keeping retail distribution and ecommerce fulfi lment under one roof creates complexity but having a single inventory off ers a true omnichannel customer experience.” as a result, warehouses will get taller, often up to 15.6m compared with the standard high-bay warehouses at around 10m. This is to deal with multistorey trailers and mezzanine levels being added to maximise space, according to Weston.

For example, Marks & Spencer’s 900,000 sq ft castle Donington fully automated distribution hub in Leicestershire, which was completed in 2013 to process online orders, stands at 25m, is the size of 11 football pitches and employs about 1,200 staff. The costs involved mean third-party logistics
providers are the only option for those that do not have the financial cache of a Next or M&S, at least if they want a property-based approach to fulfilment. East has gone down the opposite route, focusing on optimising processes, and has reduced its warehousing requirement as a result from two units to
one. Lippiatt says: “I have looked at the automation of some areas, but felt it was not the right time for us and not while the market is still learning about omnichannel. It could all change again in less than five years.” For East, it is more about stock management. It recently invested in scanners and now digitally catalogues 100% of its stock. It positions more of its stock in store [as opposed to in warehouses] and ecommerce orders can be picked, packed and despatched from the high street. The warehouses’ role is then to replenish that item. Less than a year ago, it had a separate warehouse for web fulfilment. Now there is no need for it.

The future of storage and distribution is an item firmly on boards’ agendas. Boden’s Dreyer concludes: “What is interesting, having come from a pure-play background, is the interest and respect that warehousing now gets from the boards of fashion companies. If you get it right and do it well, it can make a great difference to a business.”


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