Mall-Based Micro-Distribution Centers Put Fulfillment ‘Closest to the Population’

Getting a package in the mail is no longer a surprise for many consumers, especially when it comes to online shopping. The ability to track an order from the minute it’s placed to the second it lands on the front stoop has become an expectation for most people.

And it can be especially frustrating when a package is expected to arrive on a certain day and never does. Bill Thayer, co-founder and co-CEO of logistics-as-a-service provider Fillogic, told PYMNTS that on any given day, 5 million packages will be left on a loading dock undelivered “because there’s just not enough capacity.”

Some retailers have built their own ability to fulfill online orders from physical stores — Walmart perhaps is the largest example — but for many retailers, Thayer said, the growth of eCommerce has happened too fast for them to scale their fulfillment operations.

“The cost of eCommerce fulfillment is growing exponentially,” he said, because of shortages in capacity and last-mile carriers. Thayer said for industrial real estate to keep up with demand, there needs to be 1.5 billion square feet of warehouses built in the U.S. through 2025, which is unlikely to happen.

Instead, Fillogic works with Simon Property Group, Tanger Outlets, and other major mall operators “who have access to 450 of the best locations in the U.S., closest to the population, because that’s how malls were designed,” Thayer said.

Fillogic converts underutilized, but not customer-facing, space at shopping malls and other large physical retail locations into tech-enabled micro-distribution hubs. Thayer said Fillogic’s two main lines of customers are digitally native retailers, or “the future of where physical retail is transforming;” and mall-based retailers, which he said is the company’s “North Star, because they’re living and breathing in the physical location where we operate.”

“We’re big believers that physical retail is under a 100-year transformation to support the changing access of commerce, but they don’t have commercial-grade logistics to support that,” Thayer said.

To be sure, with Amazon and Walmart both offering their logistics capabilities to competitors, Fillogic is working against two of the biggest names in retail who both have well-established fulfillment networks. Thayer said his company’s advantage, though, is the ability to use existing infrastructure.

“Everybody wants to get closer to the customer, but you can do that with the existing infrastructure,” he said. “You don’t need to build a 100,000-square-foot facility in the middle of your network. Maybe Amazon might need to, but traditional retailer or emerging retail, they don’t need to.”

The Future of Malls

Thayer said he doesn’t expect, though, that the future of malls will be some kind of interactive distribution center for consumers, nor does he expect real estate developers come in and shut down portions of malls to create more industrial space.

“The future is a mixture of retail, entertainment, food, experiential, but all of those types of channels of business have a heavy logistics component,” Thayer said. “So being the logistics-as-a-service provider, we can support all of that.”

But while that may be true for A-level malls, B- and C-level malls may not be as fortunate. Jared Blank, chief marketing officer at VTEX, told PYMNTS last month that the U.S. has “an insane amount of retail” driven by a real estate boom in the 1990s and 2000s that the world just can’t support, especially as shopping continues to shift online.

“The mall story over the past 10 years has really been a story of the ‘haves’ and the ‘have nots,’” Blank said. “Those top-level malls really have done well, whereas the B-, C-level malls … didn’t make sense long term.”