Technology, new consumer behavior and prolonged COVID-19 restrictions are driving an upheaval in retail businesses and an explosion in transportation and logistics industries.
“The fastest growing sector in [our] county right now is logistics, warehousing and distribution,” said David Iannucci, president and CEO of the Prince George’s County Economic Development Corp (PGEDC). “Amazon is picking up everything they can find for those last mile centers. They’ve added 500,000 to 600,000 square feet to their inventory and close to 1,000 jobs here, and I don’t think they’re finished counting.”
The same thing is happening throughout central Maryland.
“We have a lot of different warehousing and transportation projects going on, especially in the north part of the county,” said Ben Birge, president and CEO of the Anne Arundel County Economic Development Corp (AAEDC). “The growth of e-commerce has really been beneficial to our warehousing industry.”
Next door, the 600,000 square feet of industrial absorption during the final quarter of 2020 equates to double the maximum quarterly absorption figures that Howard County has posted during the last three years.
Economic development officials in these counties say the expansion appears to be sustainable.
“It’s tied to the importance of being close to your customer, the available workforce and the changing retail market,” said Larry Twele, CEO of the Howard County Economic Development Authority (HCEDA). “We’re seeing it in terms of both retail and in the food manufacturing, processing and distribution side of things.”
New Habits
The main driver of current consumer patterns is the pandemic but technology and customer service are playing a role as well.
“Customers don’t want to spend time in stores right now but they still have to buy products and retailers are adapting,” said Ravi Srinivasan, associate professor of Operations Management at Loyola University Maryland’s Sellinger School of Business and Management.
Many retailers have instituted free return policies, mitigating consumer risk.
“Instead of trying on clothes at the store, customers might order three or four different sizes and return the ones that don’t fit or buy similar items for comparison and return what they don’t want,” he said.
Some eyeglass retailers have even made it possible for customers to upload headshots to a website to see what different frames look like on their faces.
Retail footprints are changing, too, becoming smaller in some cases with more product staying in the warehouse for online sales or arriving in stores just in time for pick up appointments.
“Since Amazon bought Whole foods, they have introduced a whole different set of products that weren’t traditionally carried by grocery stores,” Srinivasan said.
Meanwhile, in-store pickup has meant new problems for some retailers who never had to consider warehousing space before.
“Retail chains like Nordstrom responded by cordoning off sections of their stores for this purpose,” he said. “Customers can see additional racks of clothing and other products but can’t get to them because they’re reserved for online customers.”
Adjustment
According to Wesley MacQuilliam, Business Development/Land Use & Retail Lead for the AAEDC, retail had already begun a period of transition long before the pandemic.
“COVID is accelerating it,” he said. “It’s changing the shape of shopping malls and the types of concepts that are going to be at these malls.”
He predicts fewer big box department stores and more experiential retail.
“I think they’re going to focus on things that are going to drive traffic and that’s going to be things people can’t [order] from their computer and have delivered to their door,” MacQuilliam said.
These changing consumer habits are now prompting logistics providers and do-it-all retailers like Amazon to invest in more industrial space.
“We’ve seen a lot of interest from distribution companies in any industrial space that’s coming out of the ground,” MacQuilliam said.
That consideration impelled Amazon to spend $91 million last April for a six-building warehouse complex adjacent to BWI Thurgood Marshall Airport in Hanover.
“It was a property they were already operating in and planned to phase into once the other tenants moved out,” he said. “It seems like their goal is to move closer to same-day delivery and to do that they need to have a large footprint.”
New Opportunity
Surprisingly, companies like Amazon and UPS did not make the predictable announcement that they were hiring a certain number of temporary workers for the holiday season in 2020, Srinivasan said.
“They’ve been expanding throughout the year and the additional hiring they’ve been doing might have been sufficient for the holiday season,” he said.
Economic development officials expect industrial transportation and logistics activity to stay brisk.
“A lot of projects are still in flow,” Twele said. “It’s all shapes and sizes, retail to customer, wholesale to the restaurant industry, straight to retailer, it really does cover the board. The point is, we have a lot of industries that are impacted by the pandemic and workers are suffering … but there is a whole other segment of activity right now that is offering good opportunity to those folks who have been displaced.”
By George Berkheimer | Senior Writer | The Business Monthly | January 2021 Issue