By Christopher Mims
When Litisha Thomas heard through the gossip mill that the
shuttered Sam's Club where she'd worked for 11 years might be
reopening in her rural North Carolina hamlet, she immediately
jumped on an internet job board to see if it was hiring. It was,
but this wasn't a conventional reopening.
Sam's Club, the discount shopping club named for the founder of
Walmart Inc., was changing how it does business. The retail giant's
subsidiary converted the entire building, which reopened in April
2019, into an e-commerce fulfillment center, where orders from
samsclub.com shoppers throughout the southeast are picked, packed
and placed on trucks that take them to other shipping hubs.
Ms. Thomas -- who'd previously driven a forklift as an overnight
receiving associate at the Sam's Club in Lumberton, N.C.,
population 20,000 -- is back behind the wheel of a forklift, though
now she's a manager overseeing eight other employees.
The building in which she works looks about the same on the
outside, but inside, instead of wide aisles filled with shoppers
pushing carts, its floor-to-ceiling shelves are packed more densely
than ever with goods being picked by employees and shuttled to
conveyor belts.
Despite the lack of shoppers and cash registers, total
employment is actually up: Previously the store employed 164
workers, about a quarter of them part time, says Ms. Thomas. Now
there are nearly 300 full-time employees across three shifts.
Welcome to the next phase of the "retail apocalypse." This
conversion -- which Sam's Club has also completed for five other
big-box stores throughout the country -- is part of a burgeoning
trend in which retail spaces of all sizes are being converted into
e-commerce fulfillment centers. The global pandemic may have
turbocharged the shift from bricks-and-mortar retail to online
shopping, but the rate of conversion of retail into industrial
spaces has been accelerating for years, says Matthew Walaszek,
associate director of industrial and logistics research at CBRE
Group Inc., the world's largest commercial real-estate services
firm by revenue.
A just-completed CBRE analysis found that since 2017, 60 new
retail-to-industrial conversion projects have entered at least the
preplanning stage, out of a total of 94 such projects completed or
in progress in the past decade. Projects begun or completed since
2017 transformed 14 million square feet of former retail space into
15.2 million square feet of industrial space, most of it for
e-commerce distribution. That's still a relatively small proportion
of the 14.5 billion square feet of industrial real estate in the
U.S.
"We wouldn't say [these conversions] are moving the needle quite
yet, but it's a trend that has legs and we're going to see this
expand into the foreseeable future," says Mr. Walaszek.
Warehousing startup Ohi is certainly counting on it. The company
operates, or provides operational software for, micro-warehouses
for e-commerce fulfillment ranging in size from a few hundred to a
few thousand square feet in 80 cities across the U.S.
One of its locations is in former office space on West 38th
Street in Manhattan's Garment District. That's unusual --
e-commerce fulfillment hubs are typically in suburbia, occupying up
to a million square feet. Ohi's warehouses are used by both
well-established brands and small direct-to-consumer ones aiming to
reach relatively well-off consumers in cities. These startups use
Ohi's fulfillment centers to store their goods close to consumers,
allowing for same-day delivery, says the company's founder and
chief executive, Ben Jones.
Brands using Ohi's warehouses include Olipop, which advertises
its "prebiotic sparkling tonics" as healthy alternatives to
soda.
"We ship nationally from Montana, but at the mercy of FedEx and
UPS," says Steven Vigilante, Olipop's growth marketing manager.
Moving New York City customer delivery to Ohi's Manhattan
fulfillment center cut average shipping costs in half and delivery
times from 1 to 2 weeks to as little as two hours, he adds.
Between these two extremes are medium-size retailers catering to
middle-income Americans, many of which are looking to add
e-commerce fulfillment to their existing stores. A number of big
grocery chains across the globe, including Albertsons Cos.,
Wakefern Food Corp. and France's Carrefour SA, fall into this
category. They are using or planing to use almost fully automated
micro-fulfillment warehouses either within existing stores or in
adjacent retail spaces, says Max Pedró, co-founder and president of
Takeoff Technologies, which provides them with automated
systems.
Takeoff's 10,000-square-foot micro-fulfillment centers hold the
portion of a typical grocery store that represents most of its
sales, or around 15,000 different item types. They make extensive
use of robotics and automation to retrieve groceries from shelves,
and so require little in the way of human labor to operate until
the final stages of each order.
These automated systems are meant to assemble and pack orders
more efficiently than employees roaming aisles or visiting
stockrooms, and keeping the fulfillment center next to the store
has additional benefits, notes Mr. Pedró. Both can be resupplied
from the same trucks, staff can move between the two as demand
shifts between them, and their proximity to customers can save
retailers some delivery costs.
Many big retailers, including Walmart, Target Corp. and, in its
forthcoming grocery stores, Amazon.com Inc., are taking a related
but distinct approach: shipping directly from stores. Even stores
that have begun offering curbside pickup amid the pandemic are, in
a way, becoming part of the trend.
Each business that decides retail space might be better used for
filling e-commerce orders does so for its own reasons, but two
intersecting trends play a big role. Retail stores and shopping
centers were closing on account of declining foot traffic even
before the pandemic, as e-commerce continued gobbling
bricks-and-mortar retail market share like Pac-Man chomping ghosts.
Since March and the beginning of stay-at-home orders in the U.S.,
the trend has only accelerated.
Meanwhile, rents for e-commerce fulfillment and other industrial
spaces are climbing due to that surging demand. The gap between
higher retail rent and lower warehousing rent is closing, says
CBRE's Mr. Walaszek.
Office space can also be converted into micro-fulfillment
centers, and Ohi has set up at least one of its small fulfillment
warehouses in what was once office space. As companies reconsider
whether they ever want their employees to return to offices, more
of this kind of real estate could also be available.
As Americans shift from buying things in-store to buying them
online, all of those goods have to be shipped from somewhere. The
faster we demand they get to us, the closer they have to be stored,
which necessitates more e-commerce warehouses than ever, and in
places they've rarely been seen before, such as city centers.
One economist who has looked at these trends has concluded
something surprising: When you include all the jobs in fulfillment,
delivery, and related roles, e-commerce has created more jobs
between 2007 and January 2020 than bricks-and-mortar retailers
lost, says Michael Mandel, chief economic strategist at the
Progressive Policy Institute, a think tank. Since January,
employment in this sector has fallen, but Dr. Mandel believes that
as consumer spending recovers, so will employment in this area.
While it's easy to see these trends as broad abstractions,
they're also why Ms. Thomas -- a mother of two living in a small
southern town -- has a job, and a pay raise.
Every day, she goes to the same building she worked in for over
a decade before it closed in January 2018. There are some
differences. The sign says Samsclub.com instead of Sam's Club, she
says, and the parking lot is full of tractor-trailer trucks.
Inside, things have changed more. There's more merchandise, new
conveyor belts, a shipping area. "Sometimes I'll catch myself
walking the floor and picturing what it used to be," she adds.
Sam's Club customers are still shopping with the company -- it's
just that, like so many of us, they're now doing it from home. If
trends continue, then in terms of jobs, real estate, consumption
patterns, supply chains and land use, as Lumberton, N.C. goes, so
goes the nation.
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Write to Christopher Mims at christopher.mims@wsj.com
(END) Dow Jones Newswires
July 18, 2020 00:15 ET (04:15 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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