William O’Donnell, managing partner of Prologis Ventures, the venture capital arm of the logistics real estate trust Prologis, cited a jaw-dropping stat in a discussion with FreightWaves CEO Craig Fuller on Tuesday.
According to a recent study, every 100 basis points in the shift of consumer spending from traditional retail to e-commerce equates to 46 million square feet in industrial space needs.
With the uptick in online shopping showing no signs of abating, “there is a tailwind we are riding right now,” O’Donnell said.
O’Donnell and Fuller engaged in a conversation about the intersection between warehouse technology and industrial real estate during FreightWaves’ Future of Logistics Real Estate Summit. The discussion touched also on broader trends reshaping logistics, including e-commerce, COVID-19 and the fundamentally social nature of human beings.
“At the end of the day, people get joy out of going into a store and seeing product,” O’Donnell said. Sellers today need to offer e-commerce and in-person shopping, “and delight the consumer in both ways.”
Prologis, which holds $111 billion in logistics-focused real estate assets, formed its venture capital arm in March 2016. It has made at least 20 investments to date, including in FreightWaves.
The company’s approach to investing draws on “deep knowledge” of the industry, with a focus on where it can add value for its customers, according to O’Donnell. In many cases, the company’s real estate clients assist with the due diligence process. For example, one customer is partnering with Prologis on testing an autonomous forklift solution.
Not all of Prologis’ investments reside in warehouse tech. FreightWaves is a transportation data company, while Platform Science, another Prologis investment, sells trucking telematics software.
For every dollar a customer spends on rent, they will spend 10 on transportation, O’Donnell explained. “So anything we can do to lower the cost is a huge value to our customer.”
O’Donnell said the confluence of COVID-19, tariffs and social unrest is accelerating several manufacturing and warehousing trends, including just-in-time inventory, onshoring and, of course, e-commerce. “The way we looked at it is, what would have taken five years for digitization is happening in six months,” he said.
Economic and social disruptions, he explained, simply “removed the ability to deliberate on it.”
Prologis has a major presence in China and Wuhan, so the company was ahead of the curve in responding to the pandemic from a customer and employee safety perspective, according to O’Donnell.
“It’s one of the benefits of being a global platform — we get to see around the corner, see the leading indicators, and then we’re nimble and flexible enough that we can adjust on the fly.”
Elaborating on the relationship between e-commerce, retail and warehouse square footage, O’Donnell said that e-commerce warehouse requirements are generally three or three-and-a-half times the square footage of traditional retail.
So a billion dollars of retail spending in traditional brick and mortar would equate to 350,000 square feet, while a comparable amount of spending in e-commerce would require 1 million square feet.
“What you’re saying,” responded Fuller, is that the local Walmart or Best Buy is “nothing more than a retail storefront with a warehouse attached.”
O’Donnell said the big-box retailers are focusing on “inventory stockouts” to ensure that when consumers go into Walmart or Target, what they want to buy is there.
Even in traditional retail, he said, a significant amount of investment and capital is invested in demand planning, which is then influencing transportation because retailers need to bring goods to the stores on a real-time basis.