Is Micro-fulfillment the Next Big Bet for Malls, Retailers,
and Restaurants?
Case
Abstract
This case explores the potential for repurposing outdated shopping malls as micro-fulfillment
hubs for restaurants and retailers. The COVID-19 pandemic compounded commercial real
estate occupancy challenges while increasing demand for restaurant and retail delivery.
Supporting resources define micro-fulfillment, detail market trends, and provide meaningful
examples. Students are asked to explore the opportunities and challenges associated with
micro-fulfillment and the possible effects on other industries.
Learning Outcomes
Students should apply their learning about micro-fulfillment to discuss the implications for commercial real
estate, restaurants, and retail. Students will also consider the capital investment necessary for such significant
transformation.
The Issue
Employers and workers have quickly grown comfortable with remote working and shopping. A recent
McKinsey report concludes that demand is expected to rise across all shopping segments and consumer
groups, and Morgan Stanley estimates that U.S. home food deliveries could reach USD 350 billion by 2025.
But are companies ready to meet the increasing demand for small custom deliveries? Not yet.
Even before the pandemic, online retail and rapid food delivery struggled to service “the last mile” to the
doorstep. Delivery speed and custom orders strain company capabilities to manage inventories, maintain
technology, ensure data security, and meet health and safety standards. In turn, customer loyalty hangs in the
balance as companies race to affordably match logistics with demand.
Surging demand from “stay-at-home” consumers compounded the problem and stressed even the most
reliable couriers. On Cyber Monday 2020, UPS imposed shipping restrictions on Gap, Nike, and others
to cope with record deliveries and capacity shortages. Restaurants and grocers face similar challenges in
disrupting kitchens and straining margins to process, prepare, and deliver small orders.
Empty mall retail space provides an ideal solution for fractured supply chains. Malls are often located
near highways and suburban population centers. They have loading docks for bulk receiving, inventory
management infrastructure, and large parking lots fit for small delivery vehicles. Repurposing failing or
abandoned malls as mini-distribution hubs stabilizes both overextended supply chains and troubled
commercial properties. Mall owners in need of cash flow and lease agreements to meet loan obligations are
listening.
For instance, CloudKitchens, a restaurant start-up, repurposed empty mall locations into “ghost kitchens” to
serve delivery customers only. UberEats, DoorDash, and other services use parking lots redesigned as order
pickup queues. The model has wide appeal as fast food and casual dining restaurants rely more on delivery.
These isolated operations allow existing shops to focus on in-person, takeout, and drive-thru service without
the disruption of food couriers and online order spikes at peak dining times. A similar model may work for
retailers preparing orders of popular items for same-day or next-hour delivery.
While appealing, micro-fulfillment requires major technology and physical infrastructure investment. Speed,
accuracy, and product selection via technology replace the customer retail experience. Such digital
transformation requires carefully coordinating customer interfaces with order fulfillment and delivery.
Why Is It News?
Before the pandemic, many shopping malls were struggling to generate sufficient customer traffic and retain
tenants. As consumer demand for at-home delivery continues to rise, companies now compete for logistics
resources. Commercial real estate holders, restaurants, and retailers are thoroughly evaluating micro-
fulfillment solutions. Repurposing existing infrastructure, investing in emerging technologies, and restructuring
supply chains offer opportunities with many economic beneficiaries.
Discussion Questions
What are possible benefits of micro-fulfillment to malls, retailers, and restaurants?
What are some major challenges and risks facing legacy retailers and restaurants considering
micro-fulfillment?
What other industries or businesses that could benefit from malls, restaurants, and retailers are
pursuing micro-fulfillment investments?
https://dx.doi.org/10.4135/9781529774269