Is retail now facing a warehouse crisis?
With supply chain bottlenecks easing, a scarcity of warehouse space is promising to replace shipping container shortages as the biggest headache in the global supply chain.
Logistics real estate giant Prologis recently predicted an additional 800 million square feet of U.S. warehouse space will be required beyond earlier projections to handle excess inventories.
NPD’s recent monthly “Global Port Tracker” report indicated that a slowdown in cargo from Chinese factories facing pandemic-related lockdowns gave West Coast ports a chance to clear built-up congestion.
Inventory build-ups across retail, however, are being attributed largely to softening demand from consumers in the face of skyrocketing inflation and as spending shifts to experiences (i.e., travel, eating out). The elevated inventories also reflect the fact that stores are bulking up on orders as a precaution against supply chain disruptions, including a potential West Coast port strike.
The vacancy rate for U.S. warehouses is the lowest in decades, at around three percent overall and close to one percent near ports, according to Warehouse Quote’s “Warehouse Pricing Index” (WPI).
Warehouse rents have also increased 20 percent year-over-year in the second quarter due to warehouse shortages, according to Prologis. Steve Denton, CEO of Ware2Go, a UPS-owned third-party fulfillment services provider, told DC Velocity, “That means the margin evaporates if you carry [inventory] too long.”
Efforts to quickly add warehouses could face challenges due to shortages of steel and other construction materials, higher land costs and interest rate hikes.
Retail options to avoid paying for a warehouse premium include using stores as mini-fulfillment centers, although costs and executional challenges have to be overcome. Retailers are also exploring flexible or alternative warehousing, such as using vacant stores.
Retailers will have to balance the benefits of carrying extra inventory, including avoiding holiday stock-outs, against the costs. Some supply chain observers feel ongoing efforts to reduce prices, cancel orders and sell unwanted goods to off-pricers or liquidators will help rebalance excess stocks without requiring a warehouse building boom.
Chris Caplice, executive director of Massachusetts Institute of Technology’s Center for Transportation and Logistics, told The Wall Street Journal. “I don’t think it’s going to be like, we need to double the amount of warehouse space.”
- Strong Demand Sends True Months Of Supply To New Low – Prologis
- Surging Retail Inventories Are Swamping U.S. Warehouses – The Wall Street Journal
- America’s Biggest Warehouse Is Running Out of Room. It’s About to Get Worse – Reuters
- With warehouse space in short supply, retailers need to rethink their inventory strategies – Insider Intelligence
- LA Is Out of Warehouse Space – DC Velocity
- U.S. Ports Set Another Record as Volume Remains High and West Coast Labor Contract Talks Continue – National Retail Federation
- Supply Chain Graphic of Week: US Warehouse Vacancies at Record Lows – Supply Chain Digest
- Warehouse Space Is the Latest Thing Being Hoarded – The New York Times
- Amazon’s Plans for Massive Warehouses Go Forward Amid Logistics Review – The Wall Street Journal
DISCUSSION QUESTIONS: Is procuring adequate warehouse space a short-term, long-term or not much of a problem for retail? What factors should go into determining whether to mark down inventory or cancel orders to avoid warehousing costs?