Retailers Experiment with Mini Distribution Centers in Their Stores

The trend can help landlords charge higher percentage rents and avoid vacancies.

An increasing number of retailers are experimenting with mini distribution centers in their bricks-and-mortar locations to leverage existing physical footprints and dodge record high prices in the industrial sector.

“If [retailers] are already paying rent for a space, and they don’t need 100 percent of it, could they take 25 to 30 percent, and put stock in there? Versus trying to go and buy [or rent a warehouse at an additional cost], then they’re paying a trucker to truck that product to that warehouse and then have the trucker send it to either the store or the consumer,” says Anjee Solanki, national director of retail services at Colliers International, a commercial real estate firm. “Why not store it in the space that they’re already renting?”

Along with retailers getting the opportunity to save on operating costs, retail landlords can also benefit from a mini distribution center on their properties. First, the concept helps landlords struggling with high vacancy for large box formats, as there are fewer potential retail replacements for the space than there were a few years ago. Second, having a mini distribution center in the same location as the physical store means online sales would go through that location. Due to this, landlords can then request the retailer to include those online sales in their reporting, upping the amount of percentage rent their tenants pay, according to Solanki.

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