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Fulfillment Centres to Fulfill Retail Centres

March 25, 2020
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As e-commerce keeps on growing, more and more traditional retailers are embracing several strategies such as adopting omnichannel, downsizing the physical stores and reinventing new retail store format to enhance their sales revenue and profit. Nevertheless, these omnichannel retailers still need a physical retail space for their showroom and a fulfilment centre where the orders are stored, managed, packaged and shipped to online purchasers. The concept of Shopping Fulfilment Centre – which provides a combination of retail and fulfilment services – could be one of the solutions for retail developers to survive in the e-commerce era.

Online shoppers nowadays are not only demanding discounts and free delivery, but also expecting to receive their orders within a day or two. A Shopping Fulfilment Centre could benefit both retail landlords and tenants as the last mile fulfilment centre will occupy a large space of more than a thousand square metres in a mall without any need of a storefront while helping retail tenants to minimise the time and cost of delivery.

Without needing an attractive storefront, retail landlords can allocate dead spaces or less prime space on higher floors to fulfilment services. The only requirement for a fulfilment function is to have appropriate accessibility to the loading dock area and the customer’s pick & collect drop-off.

At present, CBRE is seeing synergy between retail landlords and delivery companies starting to take place. Most of the retail malls in Bangkok have at least one delivery service company located inside their mall; such as, CentralWorld, MBK Center, Future Park Rangsit, K-Village and The Paseo. These delivery companies know that many omnichannel retailers in the retail malls are demanding a packing and delivery service.

Location-wise, retail centres and fulfilment centres have two main criteria in common: located near a dense residential and commercial area to serve nearby communities and located on a main road with a well-connected road network such as highway and expressway to support transport. As mass transit stations do not provide much benefit for fulfilment service operations, retail centres in densely populated areas that are far from mass transit lines could still be attractive to fulfilment centres.

For this reason, retail landlords that own many outlets across the region have more advantages in attracting fulfilment companies because of their locations as an integrated network for storage and transport of products through many channels. In 2017, Kerry Express – the second largest delivery operator in Thailand – has decided to partner with OfficeMate to provide delivery service points in 80 branches of OfficeMate in Thailand, while Thailand Post has partnered with Big C in 2018 to operate in 40 branches of Big C Supercenter across Greater Bangkok.

Generally, it has become increasingly challenging for fulfilment service providers to find a financially feasible land for development of a last mile fulfilment centre near an urban area due to the high land cost. On the other hand, retail landlords are also seeking tenants who could fulfil their tenant needs and occupy vacant spaces. Therefore, partnership between retail landlords and fulfilment service firms could be an interesting collaboration for both parties to innovate a future retail format.

An article written by Pakapon Utaobin is an analyst at Research and Consulting, CBRE Thailand for Bangkok Post dated 8 April 2020.

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