In the creation of new warehousing and planning locations, the exponential increase in the prominence of e-commerce has added a new factor that company’s must consider. Simply put, most existing warehouses are not designed for high levels of e-commerce. Looking at the divide between warehouses built before and after the mid-2000s, we see older warehouses with lower ceilings and inadequate docking, while newer facilities have adapted to the new necessities for more and more e-commerce; three out of four warehouses that underwent new leases in the last two years were constructed during the previous five years.
In breaking down this new trend, it clearly also plays into finding optimal placement for any new warehousing locations. Many older warehouses are located in the Northeast, primarily in New Jersey, where you can find warehouses of ages of almost 60. However, in the South and West regions, it is much more common to find ages in the lower 20s. These areas, such as regions in California, Las Vegas, and Phoenix, are all highly populated and have large amounts of developable land. Thus, this makes them prime locations for warehouses needed to fulfill high volumes of e-commerce, while these older warehouses are more suited for heavy industrial plants and shipping/transport centers.
Nonetheless, factories built before 2000 still account for 89% of all warehouse space available in the US, so companies have been faced with a dilemma in how to proceed in obtaining adequate warehousing. Colin Yasukochi, the CBRE Director of Research and Analysis, notes that with such a disproportionate ratio of old, outdated warehouses to new, modern warehouses, it is essentially becoming a race for companies to get any new facilities available. In other words, those warehouses in inland California and Las Vegas are certainly in the most desired locations, but as those facilities are acquired, companies are moving into more remote areas. Companies may be faced with deciding whether to renovate old warehouses in perhaps more central locations to be somewhat better suited for heavy e-commerce growth, or start from scratch in a remote location and create a facility optimized for e-commerce. However, there are even more options and factors to consider. For one, a significant number of retailers have filed for bankruptcy or closed a large portion of their stores, so these facilities would become vacant for other companies to convert to warehousing. Furthermore, some companies, like Target and Best Buy, are utilizing their brick and mortar stores essentially as mini distribution hubs for online customers. Finally, companies must factor in how automation, such as drones, will change the way distribution works, and be prepared to adapt to any developments in technology when they occur.
Ultimately, warehousing is becoming more complex thanks to e-commerce, and with record lows for facility vacancy last year (only 5.3% of total space in the U.S. was vacant), companies are certainly putting a lot of thought into which course of action is best. I would imagine this decision is very closely related to a lot of the topics we’ve discussed in class. Companies can perform extensive forecasting to come up with future estimates for demand and how each location would accommodate it with the required inventory, and then utilize breakeven analysis to find at which point one option is more profitable than another.