Prologis Explains Why Today’s Supply Chains Require More Logistics Space

In today’s world, 57% more logistics real estate is required to support $1 billion in retail sales than a decade ago, a new analysis by Prologis has found. 

Ten years ago, 500,000 SF would have been sufficient to do the job. Today, 800,000 SF is needed. “Today, these supply chains amount to 1.2 billion SF and support $1.4 trillion in retail sales (on 2022 dollars basis),” Prologis reported. This has happened despite automation and data analytics advancements, to create what it calls “the supply chain productivity paradox.”

“This paradox has happened because larger, decentralized logistics real estate networks unlock revenues and save on costs in ways that were previously not possible or well understood.”

The findings are based on an analysis of the supply chains of 25 leading U.S. retailers to determine how technology innovation might have changed logistics patterns. The results show that logistics real estate decisions are based on operational factors like warehouse layout, staffing levels, capital improvements, and network strategies. These in turn are designed to meet performance criteria like delivery times and in-stock rates. 

“Retailing strategy, transportation plan, and labor/automation design dictate real estate decisions,” Prologis commented.

One major driver of the need for more logistics space is e-commerce. According to Prologis, “e-commerce requires three times more logistics space than brick-and-mortar sales because of piece picking, product variety, direct-to-consumer shipping and the need to process returns.”

At the same time, large centralized facilities are needed to support omnichannel operations like ship-from-store and click-and-collect models.

Then there are changing consumer tastes, which mean retailers seeking growth and market share have to stock more varied products, creating “expansive upstream implications for warehouse operations.”

The drive to manage transportation costs efficiently also influences the design of networks around mother hubs, distribution centers, sort centers, and cross-docking facilities and affects warehouse requirements.

Space needs are also affected by regulatory requirements, such as specialized temperature-controlled areas, cleanrooms or secure storage areas.

“Logistics real estate use in supply chains will continue to rise. Retailers will need to increase their use of logistics facility space to compete and win,” Prologis summed up.