Ake’s Take: Brick and Mortar – It’s What’s Inside That Matters

By | February 20, 2019

Brick and mortar are dead …

In 2016, demolition of Rolling Acres Mall began. The mall opened in 1975 on 260 acres on the southwest side of Akron, Ohio. In its heyday, it featured 140 stores on two levels,1.3 million square feet of retail space, and 7,500 parking spots.

However, the mall’s demise began long before on-line shopping became prominent. Safety and security issues scared shoppers away. The mall was offered at auction in 2009 and received no bids, and the last retail store closed in 2013. It took a lot of trucks to haul away all that brick and mortar when they tore it down.

It is now rumored (there is a name on the proposed blueprints), that a new Amazon fulfillment center will be constructed on that vacant land. Amazon fulfilment centers are somewhat more than a million square feet, so it will be just about the same total flooring as the old mall. Naturally, it will only be one floor, but stand taller.
Brick and mortar lives!

And what will the center be built from? Brick and mortar are not dead! But it will take considerably less materials to construct the fulfillment center than to build a mall with 140 separate stores, including five large anchors. However, this will be a much more efficient use of brick and mortar due to the spectacular productivity going on within those walls.

Productivity is the key factor. If someone presented a business case based on Amazon’s system in 1994 (when Amazon started) it would have been quickly dismissed, because it would have been thought to be inefficient and unproductive.

But what about the books? Amazon selling books did not become profitable until its seventh year. You could say it practiced on books. Once it achieved a level of operational productivity combined with volume, the profits began to roll in, and Amazon determined that other products could be channeled through its system.

How productive is an Amazon fulfillment center? It has been reported that the Kentucky operation can process 426 orders every second (read that sentence one more time). In the old mall, if one shopper were present at every register in every store (adding a few registers at the anchors) at the same time and assuming it took two-and-a half minutes to process the transaction (including 30 seconds waiting in line), the fulfillment center would be 400 times more efficient. If the registers were only in use 45 minutes of every hour, the fulfillment center is 500 times more efficient and, if you factor in when the mall was closed at night…whoa, sorry, my calculator just exploded.

Amazon achieves this extreme efficiency by using the most advanced technology available including robotics and 14 miles of conveyor belts per center. It has also been reported that it squeezes maximum productivity from its workforce.

Now thousands of on-line retailers are striving to emulate Amazon, which had a huge head start and holds a dominant competitive and technological advantage. The U.S. is in a “warehousing boom” (lots of brick and mortar), as distribution centers spring up across the country. These centers also are high-tech because efficiency is critical to being able to generate profits and compete with Amazon and others. So, inside the walls of the fulfillment center is the pinnacle of efficiency and productivity; but once those cardboard boxes hit the outside world, peak efficiency stops. This is because the transportation/logistics sector is trying to figure out how best to deliver packages that “final mile.”

The transportation players should not be faulted for a slower response. On-line sales have exploded as the baby boomers’ lust for product selection and customization melded with Millennials’ need for convenience and immediacy. These are the same factors that influenced sales methods and distribution historically.

The Sears catalog, first published in 1894, provided people with a much wider selection of goods than was available at the old General Store and was an immediate success. Sears serviced the country out of a 3-million square foot warehouse and made so many efficiency improvements along the way that Henry Ford studied their processes.

Sears opened its first department store in 1925, which provided the convenience of having many different products available in one location, with the immediacy of taking the product home with you rather than waiting weeks for delivery. This concept was so popular that Sears store sales (more were opened) exceeded catalog sales in just six years, which I find remarkable when considering the pace of life back then. It’s probably comparable to the way Amazon is adding fulfillment centers today.

Digitization has revolutionized the news, music, and many other industries. The Internet took the Sears catalog and digitized it by a trillion. (It may not be a trillion, but I don’t have time to count every individual product sold on-line). And then products were able to be delivered in days, then a day, and now sometimes in hours.

It’s not surprising that logistics is trying to catch up with all the various problems that exist with delivering a growing number of packages faster and faster. There are reports of traffic jams in neighborhoods caused by all the delivery vehicles on the streets. (Wouldn’t it be great if all the packages were on one truck?) And then there are the porch pirates. (Wouldn’t it be great if there was a central location for neighborhood pick-up and delivery.) And there are numerous inefficiencies. For example, my mailperson delivered a football jersey to me one day at 8:30 a.m. and then returned to deliver my mail around 1 p.m. in the same van. I think I could have survived those four hours without the jersey – or anything else for that matter. (But then I’m not a Millennial.)

And just as Amazon uses the latest in technology to make the warehouse most efficient, final milers are experimenting with drones, robots, and self-driving vehicles to deliver packages. Future technologies might even be developed to solve this specific problem.

Class 8 freight haulers have issues because they must service both traditional retailers and on-line sellers as the market rapidly changes. But when all those new warehouses get built, it should make the logistic system easier to navigate and better than it is now. There is speculation that the optimal store of the future (free standing) has a traditional showroom/sales space in the front and a large distribution center/warehouse in the back.

But the final mile problems will all get solved. We just need some time to figure out the most efficient and effective ways to do it. Why am I so sure of this? Well, history is on our side. At the start of the 20th century, the major catalog retailers, Sears and Montgomery Wards, had a huge problem in that 65% of the population didn’t have access to their goods and the infrastructure to fix this didn’t exist. So, after moving the products hundreds of miles by rail, they couldn’t get them delivered the…, the…, wait for it…, the final miles. Yep, the goods market had a final mile problem, but eventually they got it fixed and sales exploded. If our ancestors could figure it out using the technology of that day, I’m confident we can too.

Category: Uncategorized

About Don Ake

Don has more than 20 years of experience in the transportation industry, including 16 years with industry supplier Hendrickson International. Don has a very strong forecasting and market analysis background. While at Hendrickson Don developed forecasting models, methods and processes to accurately forecast Truck and Trailer builds and product demand. Don wrote an industry economic newsletter and gained a reputation as a top industry analyst. His industry supplier background provides a "customer perspective" now that he is with FTR.