March 2006 | Commentary | EcoDev

New 'Lifestyle', New Logistics Challenges

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The proliferation of "lifestyle centers"—one of the biggest trends to hit retail real estate in decades—is having a significant effect on retailers' logistics and distribution networks.

Lifestyle centers—typically 150,000 to 575,000 square feet in size—are vibrant, upscale, Main Street-style shopping areas with aesthetic extras such as plazas, fountains, decorated walkways, and landscaping. They are often located in affluent ZIP codes.

Lifestyle centers offer customers a shopping "experience" through a combination of fashion, home goods, food, entertainment, and services, including destination spots such as skating rinks and high-end restaurants. This strategy is paying off for both retailers and real estate developers: The average lifestyle center shopper spends approximately $84 per hour versus $58 per hour at traditional malls.

A New Distribution Approach

These new centers, however, create logistics challenges for retailers and their suppliers. Lifestyle centers' limited loading docks, outside storage space, retail backrooms, and delivery hours necessitate a different supply chain sensitivity than traditional malls and big-box locations. Controlling the costs and challenges of serving lifestyle centers requires a new approach to distribution.

Retailers targeting affluent customers, for example, change their merchandising mix on a monthly or seasonal basis, often with point-of-purchase variations. To be successful in this demand-driven environment, retailers must leverage information technology systems to provide real-time inventory visibility and enable speed to market.

In addition, lifestyle center stores' limited backroom space means retailers are often forced to replenish in single quantities—known as "eaches"—rather than full cases or pallets, which is standard in traditional big-box or mall stores. Retailers have these single items delivered "shelf-ready" to minimize downtime associated with positioning, ticketing, and hanging inventory.

The biggest logistics challenge for lifestyle center retailers, however, is last-mile delivery, the most significant bottleneck point in both forward and reverse distribution. Several factors make last-mile delivery to lifestyle center stores tricky:

  • The affluent neighborhoods these lifestyle centers call home often have road restrictions on the size and number of trucks that can serve the center.
  • Lifestyle centers are surrounded by parking, roadways, or pedestrian walkways, which means the only access point for deliveries is a double door in the front or back of a store.
  • Truck deliveries are often prohibited during normal business hours to avoid conflicts with pedestrian traffic.

In addition, last-mile service to lifestyle center stores is costly, because most retailers use parcel delivery companies to replenish eaches daily.

Pooled Routes

To more effectively serve lifestyle centers, many retailers have turned to pool distribution. As in other time-sensitive distribution systems—the automotive, food, or medical industries, for example—retail pool distributors receive new items every night, and are charged with delivering and setting up the items in multiple retail locations in the morning.

Because of constant changes in traditional institutions from automobile manufacturing to malls, many pooled distributors are looking for opportunities to migrate their services toward today's customer- and service-driven lifestyle centers.

It will be interesting to see how the distribution model is revisited and refined as retailers continue to adapt to the unique challenges and opportunities lifestyle centers present.

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