The increase in e-commerce is driving the demand in storage and distribution space, it will also hurt bricks and mortar retail in the long run. (Photo by Luca Sola / AFP)
Retailers such as Massmart, Pick n Pay and Takealot are expanding their warehouse and distribution capabilities because of an increase in online sales.
The demand for warehouse and logistics space has kept the industrial property market stronger than its retail, hotel and office counterparts, according to FNB property economist John Loos.
“The industrial property market is the strongest property market at the moment and key to that has been the demand for more warehousing and logistics space, and online has been a strong driver of that,” Loos said.
Massmart opened a new distribution centre at Riversands, Johannesburg, last week. The 75 000 square metre warehouse facility is the second of three new facilities in Massmart’s new centralised network, which uses shared distribution centres to serve stores across the entire group.
Massmart’s portfolio of stores includes the Game, Makro, Builders, Jumbo and Shield brands.
“Over 30% of Massmart stores are based in Gauteng so this facility will give us the opportunity to deliver fast moving products to these stores at greater speed, thanks to the use of full pallets, with no need for re-packing inside the facility,” Massmart chief operating officer Jonathan Molapo said in a statement.
In its recent integrated annual report for 2021 the group said it was moving to a “digitally enabled, cross functional end-to-end omni network” and that the progress it had made, such as expanding customer pickup areas in its distribution network, would allow it to extend its online offering.
Massmart views its recent acquisition of OneCart and WumDrop and the launch of the VodaPay super app as a competitive advantage as it expands omnichannel capabilities that allow it to deliver speedy and convenient online shopping. The group’s online sales increased by 47% for the year.
Massmart has a footprint of more than 340 000m2 of distribution capacity in 13 nodes in South Africa.
The switch to greater levels of online retail means more inventory needs to be stored in warehouses because less is being stored in the retail centre, Loos said.
This included increased capacity for cold storage “because you’re storing refrigerated foodstuffs and from there it’s going straight to the consumer, whereas currently it’s stored in the in-store refrigeration facilities”, he added.
There is also a demand for smaller decentralised warehouses, because online retail requires products to be closer to the customer for speed of delivery.
Jason Cooper, the head of developments for Fortress Logistics, said businesses are likely to hold onto more stock and want their products to be closer to consumers because of the strain on supply chains caused by Covid-19, trade wars and fuel costs.
“Disruption in the world supply chain has focused attention firmly on local distribution and getting products to market faster. This goes for all industries, not just retail,” he said.
Grocery retailer Pick n Pay partnered with Fortress REIT for a new development that will cover 36 hectares (150 000m2). The development at Fortress’ Eastport Logistics Park, close to OR Tambo International Airport is scheduled for completion in 2023.
In its annual results, Pick n Pay said it would purchase 60% of the Eastport facility from Fortress on completion of the development at a projected value of R1.2-billion. The retailer will enter into a long-term lease for the 40% balance. This long-term lease results in an estimated R1.4-billion of future rental payments over a 15-year lease term.
Pick n Pay said the group’s combined online offer has delivered compound annual growth of 72.5% over two years.
Takealot also concluded an agreement with Fortress Logistics that will see the online retailer take up 20 000m2 of speculative warehousing at Eastport Logistics Park. Fortress said Takealot needed effective distribution in Gauteng as the growth of e-commerce continues at an exponential pace.
Property developer Atterbury said it was building a new 24 000m² distribution centre for Takealot in Milnerton, Cape Town. Takealot will begin operating from its Richmond Park distribution centre from 1 August.
The Takealot group grew gross merchandise volume — the total value of merchandise sold over a given period of time through a customer-to-customer exchange site — by 72% for the six months ended 30 September 2021.
“The intensified tilt to e-commerce in recent years means that our heavy logistics asset weighting has placed us in a prime position to benefit from the rapid evolution in logistics and supply chain that have re-defined retail in the wake of the digital and Covid-19 revolutions,” Cooper said.
Death of bricks and mortar?
According to Loos, while e-commerce continues to grow in the country, how much it has affected bricks and mortar retail to date is difficult to understand because some sellers are delivering from their own stores instead of distribution centres.
“I would think eventually when the online logistics is well established and when the warehouse space is established, the deliveries are probably not going to happen out of the Pick n Pay or the Checkers stores anymore, that started during Covid-19. I see it as an interim type of measure, ultimately, there will be a distribution centre closer to where people live,” he said.
Cooper said Fortress had seen an increased demand for warehouse/distribution space from food and clothing retailers.
“We’ve also noted increased demand due to the consolidation of space, finding supply chain efficiencies and increased e-commerce requirements,” Cooper said.
Loos noted other pressures hurting bricks and mortar retailers such as the rapidly rising cost of living that is putting a squeeze on consumer demand. Fuel prices have soared as a result of supply constraints caused by Russia’s invasion of Ukraine.
The price per litre of 95 unleaded petrol has soared to a record R24.17 inland and R23.42 in coastal areas.
“Consumers have debt to pay, they have petrol bills that they can’t avoid. So they will reprioritise some of their expenditure and focus more on the basics,” Loos said.
“However, online is a thing that is cranking up and over time, over the longer run, it will affect bricks and mortar retail, depending on how they respond to it. But, it’s a work in progress type of thing.”
Anathi Madubela is an Adamela Trust business reporter at the M&G.
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