A future for the high street hub

Omnichannel retail has opened up huge opportunities for highstreet retail stores. Such as the emergence of ‘endless aisles’: interactive walls showing a huge number of the retailers products in an experience-driven environment. Customized products can be ordered in-store without the need to have them in stock and send to the customer’s home. Examples of frontrunners in this domain: the NBA store at Times Square (NYC) and California-based Oak Labs interactive mirror systems.

However, the shadow side of this is less visible: despite the continued strong growth of internet retail, the margins retailers generate on online sales remain under pressure. An important reason for this is the significant volume of good send and returned – both for free. Indeed: both in urban and peripheral environments, effective logistics handling of the ‘last mile’ to the client remains a challenge.

In ‘Who suffers when you return those Xmas gifts’ (Fortune, January 2016), data from consulting firm AlixPartners for the US were presented, suggesting that throughout the year, the cost of handling apparel returns averages some 26% % of total E-commerce fulfillment labor spending. Typically peaking in January at 32% - when Christmas gifts are returned. The average share spent on returns in all online retail categories is 10%.

In an increasingly transparent and competitive retailing environment, only high-margin retailers can afford such costs. Against this background, both in the US and the EU, retailers have started to adapt store layouts to allow clients to pick up goods ordered online – or drop off returns in site. Most non-retailer click and collect initiatives so far, such as Collect+ (UK) or UPS’s access points, are based on combining 3rd parties logistics providers’ strengths with collect and return points in various local retailer locations – including pertol stations.

Although in-store collecting and return strategies generate the advantage of face-to-face contact with clients, it can be an expensive option as at given typical rents at high street locations. At the same moment, a significant number of retailsites in the immediate vicinity of these highstreets are struggling to attract tenants, resulting in increasing vacancy and decreasing effective rent levels.

Hence, a logical thought is to create ‘high street hubs’: dedicated inner-city collect and return spots, efficiently servicing the pick-up and return requirements of a range of retailers combined. These should enable economies of scale in collect & return volumes, standardization of service levels and opening times – all benefitting both retailers and consumers. And last but not least: these high street hubs also open diversification opportunities for for real estate investors, as so far the only option to invest in logistics real estate is in larger out of town centers.

The dedicated high street hub: effective last mile distribution services for retailers. And an attractive real estate development and investment proposition: short term opportunities for early adopters – and fast followers.

Joris Winters

Sectorleader Financial Institutions +31 (0)6 5073 6790 Ask me a question