By John Morris, Executive Managing Director, Logistics & Industrial Services, Americas
This article is the first in a series on how eCommerce is affecting the retail and industrial real estate markets.
Many moons ago I taped a single penny to a business reply card (remember those?) and became a member of the Columbia House Record Club. In short order, eight LPs (remember those?) arrived in my mailbox and my anemic vinyl collection grew by 100%. On a regular basis, I forgot to mail back my rejection of the next month’s selection, so my record collection grew, but at a cost. Between the markup and the shipping and handling, I was paying 50% more for each album than my local retailer charged.
For Columbia House, that penny was worth its weight in gold. If anyone reading this would like to buy a vintage, gently used Supertramp LP, please email me. My parents were members of the Time-Life Book of the Month Club, which filled our bookshelves in a similar fashion. And if you compared the record or book to the version in the mall, it was not the same quality.
So what should we make of the “subscription” online retailers of today? You might think that everything that’s sold online is experiencing fantastic success. After all, according to Garrick Brown, Cushman & Wakefield’s Director of Retail Research for the Americas, overall retail sales have increased 2 percent to 3 percent annually since 2010, while eCommerce sales increased in the 15 percent range over the same time period. However, there is one specific subset of online shopping that has yet to prove its staying power – the subscription box.
Everything from razors to diapers to cosmetics to dog toys to dinner ingredients can be shipped right to your front door on a recurring basis. There is a subscription service for just about everything. The industrial real estate market and third-party logistics (3PL) companies have greatly benefited from the onslaught of online shopping, and subscription boxes have been no exception. Subscription services require a significant amount of distribution center space to house products and fulfill orders.
However, industrial real estate owners and third-party logistics companies who are relying on subscription boxes to stay for the long haul should be wary. In 2016, there were more than 2,000 subscription box services in the U.S., according to Shorr Packaging. Oversaturation is occurring, and customer retention is an industry-wide challenge as people lose interest or can’t use all of the products before the next box arrives.
The single most important factor for any business is customer retention. The subscription box service market is relatively new and still determining its identity, but there will be success stories with the ones that are able to build repeat business. We will see continued consolidation across this sector in the short term as some box services merge and retailers or more established companies acquire others. Long term success will be dictated on a Darwinism basis – which products do you really need delivered on a monthly/bi-monthly/quarterly basis, and how will sellers incentivize consumers to choose a subscription for products versus buying on demand in stores or online?
Let’s check in with Vinyl Me, Please next year.
John is responsible for the Logistics and Industrial client business at Cushman & Wakefield, including oversight for the company’s more than 800 brokerage professionals in North and South America. He also oversees the industrial service line’s collaboration with Cushman & Wakefield’s other service lines, such as Global Occupier Services (GOS), Global Consulting, and Capital Markets. John assumed this position in 2013 and is based in Rosemont, Illinois.