Logistics, Distribution & Fulfillment Center Industry Analysis

Logistics, distribution and fulfillment centers are the new job centers for many regions across the U.S. for lower skilled workers—much as manufacturing was 100 years ago.  Logistics, distribution and fulfillment centers is and has been a growing market due to globalization of the manufacturing industry and the massive expansion of e-commerce as a means of customers purchasing goods and services on-line rather than in retail stores.

The U.S. Census Bureau estimates of U.S. retail e-commerce sales for the first quarter of 2018 constituted 9.5% of all retail sales for a total of $123.7 B which is an increase of 3.9 percent from the fourth quarter of 2017. Total retail sales for the first quarter of 2018 were estimated at $1,306.7 billion, an increase of only 0.2 % from the fourth quarter of 2017. The first quarter 2018 e-commerce estimate increased 16.4 percent from the first quarter of 2017 while total retail sales increased 4.5 % in the same period. How people shop is clearly changing and that change dictates that fewer retail stores will be in business and logistics, distribution and fulfillment center networks will be developed to meet the new face of retail.

Source: US Census Bureau

The growth of e-commerce creates winners and losers in the retail marketplace.  Amazon so far is the clear winner.  While many traditional retail centers will struggle through the e-commerce revolution, thousands of new jobs are being created.  Amazon opened a record 26 fulfillment centers in 2016, which represented about a 30 % annual increase of square footage supporting fulfillment and shipping operations compared to 2015.[i]  This new face of retail is creating thousands of jobs and transforming low job producing distribution centers and reviving closed Malls.  As an example, Amazon announced plans for a 650,000 square foot fulfillment center at the closed Euclid Square Mall and this decision followed an even larger Amazon center in North Randall, Ohio where Randall Park Mall once stood.[ii]

The growth of e-commerce fulfillment centers has been staggering.  From 2010-14, e-commerce was growing but still ranked 3th in the “big-box” real estate market constituting 16.1% of the market trailing traditional retail and consumer non-durables.  However, as the chart below illustrates, the development of e-commerce centers is dominating this market place.

Source: Jones Lang LaSalle

The growth of e-commerce centers has also moved from the traditional mega-markets to the second level markets of Indianapolis, Columbus, and St. Louis with these markets now making the Top 10 for deal flow.[iii]

The face of traditional retail is dramatically changing as well. .[iv]  By shopping center “gross leasable area,” Cowen and Company estimates the U.S. has 40% more space per capita than Canada but five times more than the U.K., and American Malls grew more than twice as fast as the population between 1970 and 2015.[v]  Finally, Cushman Wakefield estimates that Mall traffic declined 50% between 2010 and 2013 due to the Great Recession.[vi]  Traditional retail has been struggling for a while but E-commerce is dramatically growing the list of Greyfield Malls.  Credit Suisse suggests that 25% of the current Malls in American will be closed by 2022 and the American retail industry this year set a record for announcing store closings with well over 6000 closed.[vii]  Current retail centers will need to be redeveloped to keep even growing communities from suffering substantial economic losses. 3000 retail store closings have been announced in 2018 alone.[viii]

The changing face of retail is both a threat and opportunity for communities.  The invasion of Amazon.com into the retail space has caused massive market disruption but this billion dollar behemoth is not going away.  Amazon receives a remarkable 44% of e-commerce purchases.  Considering the dramatic rise in Internet based purchases and the decline in purchases at brick and mortar retail stores, Amazon is America’s most powerful company.  Amazon is capitalizing on this market dominance by further changing the face of retail by moving to an instant delivery model for their goods.  That instant delivery system is driving the development of massive fulfillment centers spread over larger markets in the United States. Reports indicate Amazon built 26 fulfillment centers employing thousands of workers in distribution style facilities. The company almost doubled the number of its fulfillment centers — Amazon warehouses where goods are sent to customers— going from 58 in 2015 to 103 in 2016.[ix] And it more than doubled the number of sortation centers and delivery stations — which make up Amazon’s internal distribution network — from 28 to 61, and Amazon almost quadrupled the number of Prime Now hubs, from 14 to 41 over the same timeframe.[x]

Amazon v. Walmart

Facility TypeMarket CapWorkersCurrent FacilitiesCurrent Sq. FeetSales Revenue
Amazon Fulfillment, Supplemental & Return Centers$702.B541,00012192,260,621$177,877,000,000
Walmart Stores$310 B2,300,0006,363 US stores703,080,371$485,000,000,000

As the table above indicates, Amazon is running quickly toward Walmart in the retail market segment.  Amazon’s growth will likely drive new fulfillment centers to be launched by growing e-commerce companies such as Chewy (pet supply company) as well as traditional large scale retail companies.

Top US Retailers

Company2017 retail sales (billions)2017 stores
The Kroger Co.$110,215,0003,902
The Home Depot$81,482,0001,968
Walgreens Boots Alliance$79,283,0007,980
CVS Health Corporation$77,024,0009,778
Lowe’s Companies$60,409,0001,839
Albertsons Companies$58,696,0002,318
Royal Ahold Delhaize USA$44,153,0001,962
Apple Stores / iTunes$36,389,000272
Best Buy$35,899,0001,293
Publix Super Markets$33,376,0001,384
TJX Companies$27,365,0002,983
Dollar General$23,491,00014,534
H-E-B Grocery$21,987,000330

Source: National Retail Federation

As the above table illustrates, the opportunity for the development of fulfillment centers is substantial as many billion dollar retailers dominate the US market and with Amazon’s entrance into the grocery business more ecommerce related changes to that massive industry can be expected.

[i] https://www.bizjournals.com/seattle/news/2017/07/28/amazon-warehouse-expansion-fulfillment-centers.html

[ii] Ibid.

[iii] http://www.us.jll.com/united-states/en-us/Documents/Industrial/JLL_Labor%20shortage_The_effect_of_e-commerce%20fulfillment.pdf

[iv] https://revitalizationnews.com/article/bursting-retail-bubble-giving-communities-wealth-greyfields-redevelop/

[v] Ibid.

[vi] Ibid.

[vii] http://fortune.com/2017/05/31/malls-retail-stores-closing/

[viii] https://clark.com/shopping-retail/major-retailers-closing-2018/

[ix] https://www.geekwire.com/2017/united-states-amazon-2017-interactive-graphic-shows-tech-giant-growing-now/

[x] Ibid.