The Future Retail Store Will Double as a Last Mile Distribution Channel

The pandemic has accelerated disruption in retail and shifting spending even faster to online. Paradoxically, it has also underscored the importance of the physical store. In short, consumers more than ever want multichannel shopping options. Their perfect experience is a mix of physical stores, online stores, mobile commerce and social commerce, according to a new report by CBRE.

What may be invisible to the consumer, though, is the changing role of the physical store from  the back end, namely also serving distribution or last-mile fulfillment needs for online sales.

CBRE refers to this as the hybrid store, and forecasts that it will be a model for the future of retail. The hybrid store will both provide an in-store retail experience while also providing support for online sales. “Although not every store in a retailer’s portfolio will be a hybrid, it is evident that retailers will need to strategically determine how many and which stores should be converted to a hybrid model,” John Morris, leader of industrial logistics and retail for the Americas, said in the report.

The store will provide the essential in-store shopping experience and storage, sorting and packing and shipping for online channels. More importantly, it will also play a role in reverse logistics to handle a major portion of returns. Returns have been a major challenge for online retailers. Funneling returns through physical stores will help solve a portion of the reverse supply chain and route inventory to the proper location. Even leveraging a physical store, retailers will still need to employ a sophisticated algorithm to both improve the customer experience and reduce costs.

For some retailers, the hybrid store model will mean closing some locations and optimizing value in others. For other retailers, more small store footprints that provide greater market penetration. This will also require a new pricing model to determine the value and appropriate rents of these retail locations.

This year, online retail sales surged by 36% during the pandemic while in-store retail sales fell 3.2%, according to research from Colliers International. However, next year, online sales growth will likely fall back to historical norms. Colliers predicts that online retail sales will decrease 8.5% in 2021, while in-store retail sales will increase 5.9%.

The CBRE research, however, shows that the two aspects of retail are now more intertwined than ever—and will need one another for true success.