“After the financial crisis in 2010, the demand for mobile consumption totally changed the approach to value creation for P3’s customers. Margins are now tested by the capability to deliver quickly and directly to consumers,” says Christophe Chauvard, Managing Director of P3 in France.
Newly arrived at P3 but well established in the industry with an expertise of retail, Christophe spoke with us in-depth about the importance of the customer-centric approach, how the rise of e-commerce and mobile phones are reshaping the retail business and how data and blockchain are revolutionising logistics.
You understand brands’ business plans and the strategy they need to deploy in a rapidly changing world, considering e-commerce, the pace and volume of mobile purchasing, last mile logistics, etc. Tell us a bit about these retail trends.
Part of my understanding comes from observing customer behaviour. After the financial crisis in 2009, customers totally changed the way they consume and this had a direct effect on retail and retail strategy.
For retail, the big challenge since 2009 is how quickly the use of mobile phones and mobile/web sales have become the number one source for consumers today. In the early days of mobile, people just looked at something on the phone and said, “okay, it looks great, I’ll go to the store”. Now, for the past 10 years, the biggest challenge in retail is to move away from the model of the big retail store and towards the model of rapid fulfillment stores.
And this totally changed the retail business. It changed the way retail talks to its customers, the way customers are served and customer relationships handled. So much of the change comes down to data and blockchains. This shift towards people ordering on their mobile phones, this new way of consuming, presents a new challenge for retail brands. They have to change their logistics strategy if they are to survive.
Can you be more specific?
Sure, I remember visiting one of France’s so-called mega malls recently. It has more than 42 million visitors annually. This mall has all the usual suspects, including an enormous Auchan grocery store and a DIY store called Castorama. One is suffering, the other is about to close. It just goes to show that even the biggest commerce centres must adapt to the modern consumer and how retailers do need to adapt their strategies quick.
So what comes next?
50 years ago, it was all about malls and a new business model. Not so today. Brands must take a close, hard look at what customers want. Who wants to jump in a car and drive 45 minutes to a shopping centre on the outskirts of the city? They want convenience, their favourite brand experiences just around the corner. That means new retail store formats and locations and, frankly, a move away from the era of the mega-malls of yesteryear.
So it’s a customer-centric approach, isn’t it? From consumers being able to order on their mobiles very quickly and have goods delivered to their door, to them taking a stroll to the city centre. That’s clearly going to dramatically change the nature of the businesses you’re working with and supporting?
Absolutely. It’s easy to imagine how it affects the logistics business. Logistics is an extension of their business. How you bring goods to the customer today is all about speed, speed and delivery time. Brands have to understand that if they don’t move in the right way the brand awareness will decrease and they will not survive. That means focusing not just on quality product, but moreover putting customer service at the forefront of their business and having the inbuilt capability to deliver to customers quickly.
How is this changing the dynamics of the physical warehouse spaces that you’re building? What needs to be there to be able to cater to these specific and rapidly changing needs and the fact that this dynamic is ongoing?
First there is the need to provide more SKUs (stock keeping units) for e-commerce platforms, which means having the right amount of product always on hand. This has created a need to increase the size of storage space by 3-4 times what it was before. Another complexity is how you look at storage size in terms of your capability to deliver to the markets you serve, whether inside or outside the city. There is clearly a need for strategically located big box space, and at the same time, smaller facilities closer to city centres to feed into the overall timing from the order, no matter the platform, to the end customer, and enhance delivery speed. Thinking in this way provides retailers with the capability to have real logistics in line with changing consumer behaviour, demands and expectations.
I was recently reading an article that said that today approximately 60% of new warehouse development comprises facilities from 50,000 to 250,000 m2 and that it’s shrunk significantly because of the need to be closer to markets, have more rapid turnover and better access to customers. Is that a trend that you’re seeing?
There are two big trends. XXL warehouses/multi-storey levels and other different size of boxes, organised in a logistics parks or stand-alone. But few actors have the ability to manage such size and scale. Many average e-commerce shops and brands just don’t have the ability to manage that, which is also where we come in. These operators need logistics developers, owners and managers who can provide the agility they need.
When it comes to urban logistics, last-mile delivery is everything these days. That means having buildings closer to the city centre or so-called intermediate spaces from 5-10,000 up to 20,000 m2, which are strategically located. The big challenge for retail brands today is the speed of delivery throughout the supply chain all the way to the last mile, to the customer. This is where we are starting to talk about the “Uberization” of the business. The ability of different companies operating out of the same logistics centres to be able to share means of transport to create greater efficiencies and speed in last-mile delivery whatever is B to B or B to C customers.
One example is IKEA and the home improvement retailer Leroy Merlin in Paris. They both opened flagship stores in downtown Paris and an innovative logistics space, 10,000 m2 on two levels just outside Paris to supply these stores. But the really innovative thing was that, because they were moving goods of a very large size: beds, sofas, doors, etc., they merged the supply of their goods to these stores in the city centre. By aligning their forces in terms of delivery and reverse logistics, they created tremendous efficiencies.
It just shows what will be within a few years, the kind of logistics we are now looking at. It means more buildings closer to the inner cities with different sizes. And it will be totally disruptive. Retail strategy is changing dramatically due to the prominence of mobile ordering and the need for speed to retain customer loyalty.
You mentioned blockchains earlier. Tell me more about this concept and what it means…
This concept is quite new. Blockchain means sharing strategic information across the entire supply chain to bring greater value. For example, Nestlé and Carrefour decided to implement a blockchain solution in their logistics supply chain to extend the customer experience. This means sharing information about how quick a Nestlé product is sold in a Carrefour shop and providing the information in such a way that it is visible to the entire logistics chain as well as giving detailed information about the product, his manufacturing, the sourcing etc.. Obviously, a customer buying a product will affect storage in Carrefour’s stores, as well as Nestlé’s production volume and the entire supply chain.
So it goes all the way back down to the production facility?
Absolutely. Because blockchain allows logistics to focus on customer demand utilising strategic information. This includes information on peak buying seasons, the weather and other different scenarios that different companies used to keep separate and didn’t share with their distribution channels. We are at the beginning of a new model, one which is accentuated by the so-called “Uberization” of transportation and supply channels. We are just at the beginning of this completely disruptive change and it’s being driven by data and technology.
Learning how to change the organisation to help the process of customer relationships is the name of the game because tomorrow is today. Last-mile delivery is totally changing the needs of P3’s customers because the demand for quick, efficient supply is essential for their survival.
So we are starting to see an increase in demand for smaller buildings located much closer to the centre of the city. Buildings from 1,000 to 6-8,000 m2 for last-mile logistics with big logistics centres of 25 - 30 - 50,000 m2 further behind that. What you see is the multiplication of locations for last-mile delivery.
In summary, after the financial crisis, from 2010 until now, this demand for mobile consumption, through data and data management, has totally changed the value creation for P3’s customers. The margin is now created by the capability to deliver to customers quickly. For logistics developers and managers this is a fantastic opportunity because there is more need for space, and there are many more delivery companies in operation. For the first time we can speak about the full integration of logistics and retail.
Is it safe to say that kind of the ultimate value that you bring to your customers today is this core, in-depth understanding of these rapidly changing retail trends and how it’s effecting their businesses?
In fact, the whole business of P3 is to develop buildings for occupants and to deliver the best value for these occupants. We are customer driven. As long-term investors, developers, and asset managers of warehouse properties we are able to offer our customers a clear competitive advantage. The challenge is how to serve the market from the customers’ standpoint and adapt to the change that’s just started with mobile ordering. Right now we are just seeing the tip of the iceberg of what is a completely disruptive change in the way retail does business and their changing logistics needs.
You’ve been with P3 for a few months now, can you tell me about some of the success you’ve had in France already?
First, we have customers who continue to stay loyal to P3. That’s a great tribute to the asset management teams who have people completely focused on customer needs and demands, so that’s a very important point.
The second point is we already secured three sites for new developments. One is in the south of Lille, which is an important city in the north of France, close to the airport for a 23,000 m2 building, Build-to-Suit, for customers who want to have a building there that has been designed for their specific needs in great detail.
We also have another 30,000 m2 30 km south of Lille, in a big project area and we just won a tender with the French Port Authority in Rouen. The French Port Authority at Rouen, named Haropa, is the authority between Le Havre and Paris ports, so they manage the Seine river. We also won a project for developing 165,000 m2 of logistics buildings some 80 km from Paris, and this development is already underway.
So clearly the strategy of P3 in France will be to continue to develop land for big logistics, this is our DNA, with seaports, airports and other strategic locations at 30-40 km from big clusters and big cities. We would like to buy and develop many more buildings close to the ones we’ve developed to provide synergies in infrastructure and help our customers take advantage of the Uberization of logistics and blockchains. This means we will also target strategic land acquisitions, close to big cities, with the capability to develop any kind of warehouse size, and facilitate urban and last-mile logistics.
And, of course, we are looking at our classical business of portfolio acquisitions. Those are the three areas in which we have started to move since I’ve arrived in France with a strategy of retail / logistic end users and growth, all customer-centric, as well as understanding our customers’ rapidly changing business needs.
At P3 we have a clear Build-to-Suit DNA when it comes to our buildings. We understand the big picture as well as the vital importance of the smallest of details. We know and understand our customers.
As an accomplished real estate professional and manager having both experience in logistics and retail, will you also be speaking in public soon?
I used to speak at many events, for example at MAPIC since 2012, about the shifts and trends / innovations in global retail and how it affects real estate.
The important thing is that it all comes back to the essence, which is about the customer experience, customer service, and the ability to deliver quickly to increase brand loyalty. At P3 we don’t forget who pays the rent, P3 has this in its DNA, and that’s why we develop to meet retail’s changing needs.