The Footprint of Retail-Based and Distribution-Based Commercial Activities

Footprint of Retail-Based and Distribution-Based Commercial Activities

The provision of goods to final consumers takes two channels; retail-based, where consumers travel to stores to purchase goods, and distribution-based, where the goods are delivered to the consumers’ residences from distribution centers. Both have a footprint in terms of the amount of allocated space since stores and distribution centers occupy land, but not necessarily at the same locations. However, for the same volume, retail-based activities have a larger footprint since goods are staked on shelves trying to maximize consumer visibility and access. In a distribution center, the goods are efficiently stored to minimize the warehousing space as well as make storage and retrieval an efficient process. In a retail-based system, accessibility to the final consumer is the dominant locational factor, while in a distribution-based system, it is accessibility to freight distribution capabilities. Thus, retail tends to occupy central locations while distribution tends to occupy more peripheral locations.

Historically, retail-based commercial activities dominated, particularly in central areas. Their footprint was related to the population of their market areas and their development level, particularly in terms of income. Distribution-based commercial activities usually took the form of mail-order catalogs, be remained a marginal and niche activity that complemented retail. Goods were usually shipped either from a retail store or from a distribution center supplying stores. Demographic and income growth in developed economies in the latter part of the 20th century resulted in a substantial increase in the retail footprint, particularly in suburbia where new commercial facilities such as shopping malls and mega-stores were built. Such a commercial landscape prevailed until the early 21st century and was adopted in many societies experiencing economic development.

The diffusion of information technologies, particularly online shopping, is shifting part of the commercial activities towards a distribution-based structure; the emergence of an “e-commercial” system. As more consumers adopt online shopping, the outcome is a change in the nature of distribution and a decline in the total footprint of commercial activities in relation to total sales volume. The transition is also dependent on the type of retail activity and consumer preferences. While the consumer electronics sector has a high potential to become substantially distribution-based, the grocery sector is less prone to such a transition. Consumers prefer to select their groceries visually. Under such circumstances, it can be expected to see a decline of the retail footprint in advanced economies as this footprint is partially replaced by a less intensive distribution footprint. Several large retail stores have faced bankruptcy, such as Toys-R-us, one of the world’s largest toy retailer, which shut down all its stores in 2018. Retailers such as Macy’s and Sears are closing a large number of stores due to declining sales.

At some point, it could even be possible that distribution-based commercial activities become dominant and thus account for the largest share of the commercial footprint. Meanwhile, a transition is still ongoing as online sales take a greater share of total retail sales.