Speed-to-Market

Looking to boost sales, competitors such as Walmart and Target refuse to be left behind in the race for speed. In March, Target launched a paid membership program featuring free same-day delivery. The same month, Walmart introduced an early-morning delivery service. As of November 2023, Walmart had more than 4,000 brick-and-mortar stores doubling as fulfillment centers and delivery hubs for e-commerce orders. Target is employing a similar strategy, with proximity to consumers making shipping from stores 40 percent cheaper than doing so from dedicated fulfillment centers. Meanwhile, adding “flow centers” used to restock stores more frequently and with smaller shipments helped Target cut store-replenishment lead times by 20 percent, according to The Wall Street Journal. On an earnings call in May, Walmart president and CEO Doug McMillon said his company completed same- or next-day delivery of 4.4 billion items over the preceding 12 months, with about 20 percent of those goods arriving in under three hours. But Amazon still dominates market share, with analysts projecting it to surpass 40 percent of all e-commerce retail sales this year. The modern emphasis on delivery speed—whether to e-commerce consumers or the backrooms of brick-and-mortar stores—is driving organizations to seek more warehouses that are smaller in size. Demand for smaller buildings continues to grow relative to supply. The availability of industrial space below 160,000 square feet has grown tighter for the past several years. As of the third quarter of 2024, availability plus under-construction space for such units was 1.4 percent lower than it was during the pre-COVID decade; by comparison, availability plus under-construction space for units exceeding 400,000 square feet was 5.6 percent higher.

Achieving greater speed requires more delivery network nodes, and the number of required network nodes increases rapidly as faster speed is achieved. Factors that drive higher network density include a less concentrated customer base, more diversified sourcing to reduce inbound transportation miles, lower average order value (which warehouse users will hope to make up for with volume) and higher service-level requirements. Still, the number of warehouse nodes required by service level varies based on the operation. More concentrated delivery points could result in a lower number of nodes, for example, and warehouse users can operate with fewer delivery nodes if willing to pay more for premium parcel service. Customers of a tractor parts retailer or distributor will demand expedited shipping of heavy parts anywhere at any time; the tractor parts seller, in turn, will want more network density or higher average order value. For all the variables, however, the net result is that consumers and warehouse users alike continue to prioritize speed. At the same time, spatial economics make last-mile warehouses in infill locations a uniquely cost-effective way to connect goods with consumers quickly. Given these factors and the firm's own proprietary data, Link Logistics' Research & Analytics department sees companies seeking to store goods closer to customers as a trend that will endure long-term.