It's hard to escape the irony in Amazon.com Inc.'s plan to lease space for an 855,000-square-foot fulfillment center where Cleveland's once-mighty, but long closed and now mostly demolished Randall Park Mall once stood. Over the next few years—the Amazon center is scheduled to be operational in late 2018—locals who had once bought stuff at Randall Park will find their online orders fulfilled out of the same property.
Billed as the world's largest mall in the 1970s, Randall Park, like other malls, fell on hard times as the e-commerce phenomenon essentially invented by Seattle-based Amazon blunted the need or desire to drive to a mall. In its traditional form, the mall model is unlikely to make a comeback. E-commerce, which accounts for just 12 percent of total U.S. retail sales, is on the cusp of making large inroads in market share. There is a surplus of mall space; real estate services giant CBRE Group Inc.'s mall "availability" rate, which measures vacant space as well as occupied space that's being re-marketed to new tenants, today stands at 6 percent, double the rate of less than a decade ago.
With their tenants experiencing declining traffic and facing a mix of falling rents and rising costs, many mall operators may have no choice but to shutter. Investment firm Credit Suisse predicted in June that 20 to 25 percent of U.S. malls could close during the next five years. The main culprit: A projected doubling of online sales of apparel, which is the principal product sold in many malls.
Yet the land will remain, as will the structures—at least for properties with the prospect of undergoing some form of repurposing rather than demolition. Many malls sit on large parcels with flat topographies that would be capable of accommodating the needs of a large DC. A large number of older malls are in densely populated residential areas, though in some cases the neighborhoods may not be particularly desirable. Many have decent road infrastructure, a holdover from an era when developers and communities invested in roads to entice suburban consumers to shop at the malls. "Where roadway infrastructure once helped shuttle people to and from a mall, it could now support the shipping or trucking of goods and materials to and from a new distribution or fulfillment center, provided there are no issues from the surrounding neighborhoods," said Aaron Ahlburn, director of industrial research for real estate services giant JLL.
Amazon, which has never before taken this route to build out its fast-growing fulfillment-center footprint, is one of the country's most influential companies. Amazon's halo effect alone could spur discussion over malls' budding potential as distribution centers or e-commerce fulfillment hubs.
Those looking to take the plunge are likely to find a buyers', or lessees', market awaiting them. For many years, retail real estate commanded higher rental rates than industrial property. At the same time, "capitalization" rates, the ratio of a property's value to its operating income, were traditionally more compressed for retail than industrial. This meant retail buyers were willing to pay higher rates for the same amount of income compared to industrial buyers. Since the Great Recession and the e-commerce explosion, however, the gap between retail and industrial has significantly narrowed, according to James Tompkins, founder of consultancy Tompkins International.
NO SLAM DUNK
Converting traditional mall property to industrial use is hardly a slam dunk, however. Repurposing an entire standing mall into a facility supporting large-scale DC operations is nearly impossible to do because of severe configuration restrictions, said Joe Dunlap, CBRE's managing director of supply chain services. Among the many shortcomings Dunlap cites: Low or irregular clearances, uneven floors, an insufficient number of dock doors, inadequate sprinkler systems to protect high-value cargo, and a chopped-up inner wall structure that makes worker mobility laborious and circuitous.
Demolishing an existing mall and rebuilding it from the ground up is an option only for the deep of pocket. Amazon is leasing the North Randall location from Atlanta-based developer Seefried Industrial Properties Inc., which will oversee what's left of the demolition that began three years ago and then build the fulfillment center at a reported cost of $177 million. It has also been reported that the Cleveland-Cuyahoga County Port Authority plans to issue $123 million of bonds to finance the project. Not every mall project will have Amazon's imprimatur, or a willing public sector funding source.
Yet Tompkins said that outdated malls can be effectively repurposed in their current design, and without being torn down. Many interior malls have multi-story designs with open courtyards or atriums that would be well suited for the low-cost automated order creation and parcel sortation that is the linchpin of e-commerce fulfillment, he said.
Tompkins cites an example of a traditional two- to three-story indoor mall with stores on either side of a central multi-story courtyard. A mini-load ASRS could be used for storage in the courtyard and for doing batch picking. Totes of batch orders could be dispatched to an area of the mall once occupied by retail stores, and via a robotics unit and parcel sortation system be sorted into individual orders and then packed and sorted to delivery zones or to click-and-collect pickup locations, Tompkins said. Batch picking could be done in the mall on each level for orders to be dispatched to "stores" on multiple levels, he added.
Mall repurposing will be done opportunistically starting next year and become mainstream in 2019, Tompkins predicted. This will all be part of a larger discussion over the need to have bricks-and-mortar and digital commerce co-exist rather than consumers and companies having to choose between the two, he added.
The lease of the old North Randall mall demonstrates that, as it has been many times over the past quarter century, Amazon is positioned at the vanguard of something relatively new. Neill Kelly, a CBRE senior vice president and leader of its Occupier Restructuring and Disposition practice, has seen no interest so far from logistics companies in the department store spaces CBRE is marketing. But Kelly said the mall's time will come, especially as the retail and logistics markets continue to evolve.
"The distress in the retail space has to go a little deeper, and the e-commerce fulfillment companies are going to have find a little more justification in their underwriting for those locations. But I guarantee that they will intersect, and that will be a viable avenue for second-generation big-box space that's well located," he said.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.
Honoring supply chain professionals and companies for their contributions to the industry is a tradition at the Council of Supply Chain Management Professionals annual EDGE Conference. The following are some of the recognitions given out this year.
The 2024 Distinguished Service Award was presented to Heather Sheehan, owner of Crispy Concepts LLC, instructor with Penn State University, and board member and adjunct faculty member with the University of Denver’s Transportation & Supply Chain Institute.
Sheehan, along with Roger Penske, chairman of Penske Corp., were inducted into CSCMP’s Supply Chain Hall of Fame.
Travis Kupla, Ph.D, of the University of Arkansas, won the Doctoral Dissertation Award for his paper “How Supply Chains Respond to Disruptions: Three Essays on Responses to Operational, Geopolitical, and Natural Disaster Disruptions.”
The Bernard J. La Londe Best Paper Award was given to Matias G. Enz from the University of Missouri-Saint Louis, and Douglas M. Lambert from The Ohio State University for their paper “A Supply Chain Management Framework for Services.”
Wenting Li and Dr. Yimin Wang of Arizona State received the E. Grosvenor Plowman Award for their research paper, “A Procurement Advantage In Disruptive Times: New Perspectives On ESG Strategy And Firm Performance.”
The Teaching Innovation Award was given to Dr. Shane Schvaneveldt of Weber State University for his paper, “A Lean 5S Experiential Learning Game for Logistics and Supply Chain Management.”
To see a full list of honorees, please visit cscmp.org and click on the tab "Academia & Awards."
Supply chains today are facing an onslaught of disruption and change from geopolitical events to technological advances to economic shifts. Supply chain partners that successfully navigate those changes together will seize a competitive advantage that will win them market share and increase profits.
The “2025 Third-Party Logistics Study,” spearheaded by Dr. C. John Langley of Penn State University and developed in collaboration withNTT DATAand Penske Logistics highlights the crucial role that change management plays in the relationship between third-party logistics providers (3PLs) and their customers. Unveiled today at the Council of Supply Chain Management Professionals (CSCMP) EDGE conference, the study delves into the dynamic nature of relationships between shippers (companies that manufacture goods or provide services) and third-party logistics providers.
“While users and providers of 3PL services continue to report successful relationships, they find themselves having to deal with an increasingly wide range of challenges,” said Dr. C. John Langley, Professor, Supply Chain & Information Systems, Penn State University. “While examples include economic concerns, geopolitical unrest, and changing markets for supply chain services, they also are taking advantage of change management processes to benefit from new and improved capabilities such as artificial intelligence (AI) and direct-to-customer proficiencies.”
The survey found that both shippers (61%) and 3PLs (73%) agree that supply chain change management is vital. Respondents from both groups indicated that the top factors that are driving the need to change their operations were shifting customer demands, economic factors, and technological advancements. In particular, both shippers and 3PLs believe that improvement and change is needed in supply chain visibility, with 69% of shippers and 68% of 3PLs citing it as an area of concern.
AI as change agent
One technological advance that is enabling change in supply chain operations, according to survey respondents, is AI. Both shippers and 3PLs agree that AI can be pivotal in automating data analysis, identifying patterns, solving problems, and automating repetitive tasks. Top implementation areas for AI cited by respondents include supply planning and demand forecasting (33% of shippers and 19% of 3PLs) and transportation and route optimization (27% of shippers and 22% of 3PLs).
The e-commerce effect continues
Omnichannel retailing and e-commerce continue to exert pressure on supply chain operations for shippers and their third-party logistics partners. Both shippers and 3PLs view delivery speed and visibility as strong areas of differentiation. According to the study, 48% of shippers and 53% of 3PLs reported that customers routinely expect deliveries in less than two days, and 27% of shippers and 26% of 3PLs noted that there are three-day or less delivery expectations. Shippers (44%) and 3PLs (38%) are willing to absorb a small percentage of the costs related to shipping speeds.
The Annual 3PL Study surveys 3PL providers and users of 3PL services to understand the current state of 3PLs and how 3PL relationships are evolving with their customers. The 2025 study and past versions are available for download at www.3PLStudy.com.