Fillogic and the metamorphosis of physical retail

When was the last time you went to a shopping mall? Don’t remember? Well, you’re not alone. Malls have been on the decline since the turn of the century for a wide variety of reasons. Big department stores are closing down left and right, the real estate sector is suffering due to COVID-19 and e-commerce sales have more than doubled in the last five years, all of which have contributed to the rise of online shopping and the decline of physical retail.

Malls may appear to be a lost cause. But in fact, they present massive opportunities for smart businesses to capitalize on vacancies. The establishment of microfulfillment centers in vacant mall spaces, primarily among grocers, is red hot right now, but there’s another emerging model that can process much more than just milk and eggs.

“Our goal has always been utilizing underutilized spaces in shopping malls to convert them into tech-enabled, microdistribution hubs,” Bill Thayer, co-founder and co-CEO of logistics-as-a-service platform Fillogic, told Modern Shipper.

The company, founded in 2018, currently partners with the six major mall owners in the U.S. – Simon Property Group, Brookfield Retail, Macerich, Taubman, Westfield and, most recently, Tanger – and has access to about 450 of their properties. Currently, the company operates eight Fillogic hubs across the country, with at least 25 set to be up and running by year’s end, including in major markets like Atlanta, Miami, Phoenix, Los Angeles and San Francisco.

Working from the shadows

Thayer emphasized the “distribution” aspect of Fillogic’s hubs, and for good reason – microdistribution and microfulfillment may sound similar, but they differ from one another in a few key ways.

For one, while a traditional microfulfillment hub is located within a retail store, a microdistribution hub like Fillogic’s can be found just about anywhere in a mall other than in a store. Because massive retailers like Target and Walmart have crowded out the little guy by paying a premium for vacant mall space, there are tons of underutilized nooks and crannies for companies like Fillogic to scoop up. Rather than jump through the hoops of bartering for space with a retailer, Fillogic creates its own.

“We prefer the deep, dark truck tunnels before the consumer-facing spaces,” Thayer explained. “We don’t want to compete with a retailer. We take underutilized space; it could be an elbow joint, could be a void space, could be a truck tunnel. Those are the areas that we choose to take and utilize because our process is much more cost effective, and our fulfillment prices are much cheaper because we’re not now having to support all that automation.”

Keeping it simple

Another key differentiator is that Fillogic’s microdistribution hubs are largely free of any of the compact hardware typically found in microfulfillment hubs. As a result, a Fillogic hub is better prepared to process e-commerce orders of all shapes and sizes, not just those that would fit in a grocery bag. The result? One 4,000-square-foot Fillogic hub in New Jersey was able to complete 1,700 e-commerce orders in a single day.

“When you look at a shopping mall and when you look at general merchandise – apparel, accessories, shoes, luggage, things like that,” said Thayer, “those dimensions run a very, very wide gamut. You can’t put a dress through an ASRS at the level of volume that you need to make that cost efficient.”

Because they sidestep automation, Fillogic hubs are remarkably cheap to set up; there’s no need to worry about the cost of an ASRS, AMRs or the like. The hubs, Thayer says, can also be established in just 30 to 45 days after a location is selected, giving Fillogic a leg up on companies that are jumping through hoops to get a slice of space from department stores like Macy’s or JCPenney, which own their mall properties more often than not.

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“The process to get approvals from both the municipality that the asset is located in, as well as the other stakeholders that may own peripheral land around the mall property, is a very onerous and timely process,” Tom Dobrowski, vice chairman of capital markets for market research company Newmark, told Modern Shipper. “I would say it could take years to get all the parties aligned.”

According to Newmark’s Retail-to-Industrial Transformation report, many mall owners and logistics companies are setting up microfulfillment operations within dying anchor stores, usually the primary and largest tenant of a mall. But mall and anchor store owners have any number of reasons to push back on these projects: the reduced foot traffic, the costs of potentially transforming or razing the property and the pains of negotiating a complicated system of tenancy, to name a few. By operating hubs in the shadows, Fillogic avoids all of these.

Network-as-a-service

However, the whole of Fillogic is worth more than the sum of its microdistribution hubs. Unlike Amazon (NASDAQ: AMZN), which spent billions to construct its own logistics network from scratch, Fillogic’s network already exists – in the form of hundreds of malls and retail outlets. All Thayer and his co-founder and co-CEO Rob Caucci have to do is integrate them.

“A one-time integration with Fillogic enables you to be live in every single Fillogic hub we have,” Caucci explained to Modern Shipper. “So if you start out in a Fillogic hub in, let’s say, New York or New Jersey, and you want to go to the hub in Los Angeles – there’s no incremental development cost or any additional integration required.”

Instead, one provider can link all of their properties together, eliminating the need for mall owners to juggle tens or hundreds of 3PLs at once.

While there are tons of companies getting into the microfulfillment and microdistribution space, none are doing quite the same thing as Fillogic. ShipBob has a similar model, with a network of software-driven fulfillment centers, but mainly services e-commerce brands without physical storefronts. Stord has also worked its way into the Cloud logistics network niche, but the company prefers to operate out of full-fledged warehouses. But Thayer and Caucci insist that malls are the real value proposition.

“The same way they have security for asset protection, the same way they have waste management for garbage removal, the same way every mall has a bathroom,” said Caucci, “we believe the future of physical retail and malls absolutely includes a commercial-grade logistics platform.”