Walmart Introduces Its Next-Generation Fulfillment Centers

Walmart announced it is building four next-generation fulfillment centers (FCs) over the next three years, with the first opening this summer in Joliet, Ill.

These FCs combine people, robotics, and machine learning to set “an entirely new precedent for us on the speed of fulfillment,” the company said.

They feature an automated, high-density storage system that streamlines a manual, 12-step process into five. Its benefits include more comfort for associates, double the storage capacity and double the number of customer orders Walmart fulfills in a day.

Walmart also maintains that these FCs alone could provide 75 percent of the US population with next- or two-day shipping on millions of items.

Large-Box Retailers Leading the Way

Fulfillment center technology and efficiency are top of mind for investors.

Joseph McKeska, an Oak Brook, IL-based principal at advisory firm A&G Real Estate Partners, tells GlobeSt.com that for most brick-and-mortar retailers, substantial investment is required in technology and automation to improve supply chain efficiencies in a growing omnichannel environment. 

This is being led by large box retailers, including department store chains, home improvement and grocery retailers, McKeska said. Specialty retailers and junior anchor chains are also active in this space, albeit not at the size and scale of major players such as Walmart, Target, Amazon, and Kroger.

“The largest opportunities are in improving efficiencies in online ordering and in-store pick-up, given that most existing store layouts were not designed for click-and-collect or direct shipping of online orders,” he said.

“While much of the attention has been placed on the development of highly automated regional warehouses designed specifically for fulfillment of online orders, another major source of investment has been in improvements to backroom inventory management systems and the addition of micro-fulfillment to existing stores.”

McKeska said the companies that successfully invest and integrate these capabilities into existing supply chain infrastructure will have a cost and customer service advantage over rivals who either don’t have the capital to invest or otherwise struggle to implement such improvements.

Flexibility, Robotics, Employee Comfort are Key

Rob Gemerchak, director at Stan Johnson Company, tells GlobeSt.com that investors are seeking assets that are well-positioned from an infrastructure and flexibility standpoint to accommodate the increased storage capacity, robotics, and employee comfort and safety protocols that will become more common as fulfillment systems continue to become more sophisticated and efficient. 

“These features could include heavily reinforced floors, a cross-docked floor plan, high-bay ceilings, air conditioning, as well as heavy power and fire protection capacity,” Gemerchak said. “Savvy investors with an eye to the future recognize that distribution facilities with such infrastructure will be in greater demand, achieve higher lease rates, and create ‘stickiness’ with tenants as they invest in their modern and efficient fulfillment systems to meet the increased demand for high volume e-commerce deliveries.”

Now a Revenue Generator

Customer acquisition and retention for retailers today is dependent on reducing time from click to delivery, and this requires holding inventory closest to the consumer, Uma Pattarkine, Senior Investment Strategy Analyst for CenterSquare, tells GlobeSt.com. 

“This used to be thought of as a cost before but now is a revenue generating process and therefore much stickier as a demand driver,” Pattarkine said. “Amazon spent 10 years getting to this point and other retailers are just in the beginning of the journey, so we have a long runway for growth of demand. Part of reducing time of click to delivery is making operations within an industrial facility streamline and automate. 

“While demand is steady, supply for the best industrial markets is declining as assets are being converted to higher and better use, new entitlements are difficult to come by, and new land is very effectively unavailable. 

“The two combined provide for an extremely favorable fundamental backdrop for infill industrial landlords, we’ve seen market rent growth as high as 50 percent in the past year in these markets as demand is insatiable and there’s effectively no functional vacancy.”