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Are Retailers Ready for the Recovery?

Rich Thompson, managing director with Jones Lang LaSalle, wonders whether retailers are prepared to satisfy the growth in demand that comes with a recovering economy and rising freight rates.

After several years of malaise, the economy is starting to recover, but it’s “still very flat and slow,” says Thompson. Eventually, as the situation improves, interest rates will rise, and companies will be forced to place a greater emphasis on inventory management. That area of the supply chain “has not been a key focus in the last several years,” he says.

Already, though, distribution space is becoming scarce. Growing “big-box” demand is placing new pressures on distributors, retailers and lease rates. Rents are beginning to recover, suggesting that distribution costs are soon to rise. “Our opinion is that now is the time act,” says Thompson. The longer you wait, the more it’s going to cost you.”

Urban congestion and its impact on logistics is becoming a serious matter. Three or four years ago, deliveries were expected to arrive in three to five days. Now customers want next-day and even same-day delivery. As a result, sellers need to get closer to buyers and do a better job of managing last-mile logistics.

Some traditional retailers are beginning to focus more on the e-commerce side of the business, Thompson says. They’re attempting to juggle traditional big-box spaces with smaller cross-dock facilities located closer to major urban centers.

Demands for same-day service carry complications that will be tough to solve. “It’s safe to say that it’s really impossible to deliver a 60-inch plasma TV on the same day for ten dollars,” Thompson says. “Larger e-fulfillment companies are subsidizing those services to gain market share. We haven’t seen it shake out yet.”

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