IllinoisIndustrial Industrial Insider: COVID-19 industrial real estate update Elise A. Couston, SIOR July 20, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email It has been two months since the last Industrial Insider column in early May, at which time we were just sixty days into the COVID-19 pandemic, and some new paradigm shifts have begun to develop or continued to accelerate. Many of the impacts created by the 2020 global pandemic are continuing to emerge, but some of the most significant changes have developed as the result of increasing e-commerce demand paired with disruptions within the global supply chain. Transportation resources and the flow of goods worldwide have been severely interrupted, and many companies are now considering alternative suppliers because of production delays. As a result, supply chain planning has become much more difficult. Additionally, the unpredictability of the outbreak has increased the urgency for companies to learn new information more quickly, act faster and become nimbler operationally. It is also more apparent than ever that e-commerce has become an increasingly significant part of retail sales going forward, as both Target and Walmart, for example, have seen an increase of their online orders by over 400 percent in the last few months. As a result, we have seen an increased demand for additional warehouse space to improve flow and accommodate increased inventory levels. This “safety space” currently represents an increase of approximately 10 to 15 percent in additional warehouse space that users now require. Many purchases from these retailers have been placed online for curbside or in-store pick-up instead of delivery or shipment. This is just one example of how almost all retail supply chains have been forced to recalibrate their business models, and some, like Walmart and Target, are looking at adapting a portion of their retail locations to become a partial distribution center for the growing demand for pick-up orders. As companies are continuing to increase the production of consumer products to meet increasing demands, supply chains are now being challenged to problem solve within a rapidly evolving “new normal.” Although the initial phases of this paradigm shift had already been underway for the last several years, the companies who have been able to respond most reliably to increasing demands from consumers are faring better than those who have been, and continue to be, unprepared to meet these new challenges. In talking with several supply chain industry experts, I discovered that supply chains are currently focused on risk management strategies and processes. The prevailing global pandemic has created an upheaval within supply chain operations, so risk management strategies have become an essential part of companies’ business plans going forward. The main purpose of a current risk management plan is to mitigate potential losses and prevent costly issues if and when a “risk event” occurs. Risk events might include pandemics, transportation disruptions, natural disasters or unpaid invoices. One way that supply chains are evaluating, identifying and mitigating their business risks includes transparency throughout the entire supply chain with their partners, and including these partners in risk management planning. Additionally, supply chains are looking to diversify their suppliers, maintain the quality of suppliers and purchase adequate and applicable insurance coverages. Social media and the supply chain The increased demands on the supply chains created as a result of the large expanse of consumers’ use of social media is impossible to ignore. While very large segments of the population have spent the last few months doing the vast majority of their shopping online, their utilization of social media “influencers” when making purchasing decisions has increased exponentially. Consumer product brands have been utilizing “influencer partnerships” for quite some time, and now more than ever they have discovered that one of the largest benefits of this type of marketing is the result of User Generated Content (UGC) social media campaigns to influence consumers’ purchasing decisions. UGC marketing is any content such as videos, images, text messages and product reviews that are created by “people” rather than the product “brand.” The brands share these personal reviews on their own social media accounts, website and other marketing channels, to create a feeling of community amongst their followers which encourages more people to create additional content. This engagement with the consumer enables the company to pay close attention to the quality of their content and demographics of their consumers, which in turn increases the demand for the brand and the product. This type of content establishes real-time credibility for the endorsed brands because it enables consumers to see how real people have actually utilized a product, so it influences their purchasing decisions. Current studies from Pew Research have indicated that “almost 70 percent of social media users will use social media UGC before making a purchase, and UGC videos get 10 times more views than brand content.” Creating more personalized content and experiences online have been reported to boost revenues by as much as 10 percent because it helps consumers feel a connection to the brand and simplifies the online shopping experience. Another recent study by sproutsocial.com has shown that “customers have expressed that a highly personalized shopping experience makes them 110 percent more likely to add additional items to their shopping carts, and 40 percent more likely to spend more than originally planned.” We have probably all experienced that many companies make personalized recommendations via email to their customers based on browsing history and past purchases, as well as providing exclusive offers to subscribers. Companies can engage in social media activities in a variety of ways, from employing and communicating with local workers, donating a portion of their profits to charitable causes and supporting efforts to improve the environment. There has become a growing awareness by consumers to choose how their shopping habits can have a positive impact on the global environment overall, and they are opting to put their financial muscle behind sustainable products and brands that are dedicated to improving the environment and supporting social changes throughout all aspects of their business operations. Two examples of companies that are using a portion of their corporate profits to support the global environment are: tentree, a Canadian apparel company that plants 10 trees for every product sold, and Brilliant Earth, a California-based jewelry design company that donates 5 percent of its profits to support charitable organizations who provide assistance in communities where they operate, and sources and sells ethically-generated and lab-grown diamonds and other gemstones. It has been recently reported that, “Gen Z buyers are 1.5 times more likely to refer a brand on social media after learning about its values, 68 percent of Gen Zers expect brands to contribute to society and 87 percent of consumers will buy from a brand with a social or environmental benefit.” As we continue to experience many “new normals” developing during these unprecedented and uncertain times, it will be interesting to report on new trends in another sixty days from now about things we may not have been able to anticipate today. Stay well and be safe. Elise Couston, SIOR About the author Elise Couston is senior managing director with Chicago’s Newmark Knight Frank.