Will Airbnb for Warehouses Take Off?
On-demand services are becoming so much a part of our daily lives that millennials can't imagine a world before Uber or Postmates. Now, on-demand service is becoming a reality in the logistics real estate sector.
Technology platforms such as Flexe and Stord connect organizations that need warehousing space to those that have extra space on hand. How fast and far can Airbnb-type services for warehouses grow?
Similar to any startup, the path to growth, and more importantly, sustaining that growth, isn't clear-cut. These platforms are making a big push to disrupt the traditional warehousing industry, and we can't overlook their recent success in doing so.
Flexe, for example, entered the market around five years ago and currently has more than 500 locations across the country. The company fills a market gap for retailers, distributors, and manufacturers that need only seasonal space. While holiday shopping creates obvious demand for this extra space, businesses that supply other seasonal goods, such as soft drinks or home improvement products, reap the benefits as well.
Similar to other on-demand services, those who need extra distribution space are able to book it through an easy-to-use website. Next, the technology platform connects the incoming party that needs warehousing space to the host that has the extra space. Sounds straightforward, right?
The difference here is that hosts end up providing inventory management and order fulfillment services as well. It's one thing to make space available in your building, but managing fulfillment is a larger undertaking. Therefore, the ideal incoming party is a business whose inventory has characteristics similar to the host's.
Success is Building
The idea isn't earth-shattering, but it's seeing success. A few years ago, Flexe's big push was to get available space in the top two to three dozen distribution markets. If the company could offer one-day ground delivery shipping in these markets, people would not only pay, but it could compete with some of the e-commerce giants offering two-day deliveries. Flexe's Next-Day Delivery offering does just that, serving 98 percent of the U.S. population.
There's a natural resistance to most new technologies, and these services are no exception. Some question whether this is just a trend without true growth potential. From a legal and practical standpoint, these services must differentiate their agreements from traditional real estate subleases, which are more complex. Solving that challenge is key.
For an incoming party, there's also the risk of getting caught in a lease without a need for the space. Hosts may think they have a good feel for peak periods and enter into an arrangement based on those times. But what happens if those peak periods change?
The upshot is that these services offer monthly agreements. So, when a business experiences a significant increase or decrease in seasonal demand, a long-term contract won't keep it from adjusting accordingly. I call this "the accordion" feature of scaling size as needed.
The takeaway? Within the next five to 10 years, on-demand warehousing services will become a reasonable alternative to traditional leasing. They will not dominate the industry, but they will grow to fill a gap in the market. Like the impact that Airbnb has had on hotels, the platforms will serve as a disruption, and the traditional industry will have to adapt.