Why Warehouses Are Falling Behind Ecommerce Demands

by Emily on January 8, 2019

in Articles

Most of the country’s warehouse stock is decades old and ill-suited for the demands of ecommerce. While it may appear that developers have raced to erect warehouses and distribution centers in recent years, the new supply’s impact within the wider scope of the entire U.S. warehouse market has been muted. Despite roughly 1 billion square feet of new construction over the past decade, the average age of warehouses rose to 34 years from 26 in that span. That’s partly because that new construction amounts to only 11 percent of the entire 9.1 billion-square-foot inventory.

Why warehouses are falling behind ecommerce demands? Experts in the ecommerce industry analyzed data from 56 major U.S. markets and found that most facilities built prior to the mid-2000s have limitations that preclude their use for ecommerce distribution, such as low ceilings, small footprints, uneven floors and inadequate docking.

In contrast, modern facilities with larger footprints, high ceilings and close proximity to major population centers are in strong demand. Three quarters of U.S. warehouses that went under new leases in 2016 and 2017 were buildings constructed within the past five years. Just keeping the industry’s average building age constant would require the construction of 275 million square feet of warehouse and distribution-center space annually. Actual construction has averaged 100 million square feet annually in the past decade, including a peak of 183 million square feet last year.

Ecommerce has created demand for a new type of warehouse with different dimensions, locations and capabilities than what most of the existing U.S. supply offers. Given that only a small portion of the overall market is truly modernized, there is a strong case for new construction and redevelopment of outdated facilities in many markets.

The breakdown of markets with the oldest and youngest average ages of warehouse stock tends to fall along geographic lines. Many of the oldest markets are in the Northeast, led by Northern New Jersey with an average warehouse age of 57, Pittsburgh (56), Boston (44) and Philadelphia (44). The youngest markets mostly are in the West and South, led by California’s Inland Empire (20 years), Las Vegas (23), Phoenix (26) and Atlanta (29).

It’s no understatement to say that ecommerce has changed the way people shop; 54 million people are now Amazon Prime members, which amounts to nearly half of U.S. households. This massive influx of members has set a precedent for shoppers when it comes to competitive pricing, ease-of-use, and shipping times.

Additionally, mobile shopping has become a simple and risk-free experience. In fact, approximately 20 percent of all digital dollars are spent on a mobile device. With the shopping experience in the consumer’s hand rather than at a mall 30 minutes away, researching and purchasing products digitally have become that much more appealing. This is why ecommerce platform providers are prioritizing mobile compatibility to cater to the demand of mobile shoppers. This true whether you sell electronics online through Shopify or customizable sports jerseys through another ecommerce service.

As a result, ecommerce sales have continued to skyrocket. Primarily due to ecommerce, traditional brick-and-mortar stores have seen a major decline in sales over the past several years, forcing some completely out of business. As a result, many businesses have opted for a solely online presence.

This growing network of ecommerce sites, fulfillment centers, and delivery services function together to seamlessly coordinate the online shopping experience from initial order to eventual home delivery. This infrastructure network, particular to the growth of ecommerce, requires an influx of warehouse staff to box the orders and maintain the facilities, and a robust transportation system to support rapid delivery mandates.

As the unemployment rate drops, online retailers frequently have a difficult time finding a sufficient number of warehouse workers. It is not uncommon for major retailers to scramble to find warehouse workers in advance of the holiday rush, particularly when competing within a sharing economy when millennials generally prefer to work on their own terms. Online employers have already had to sweeten the deal with pay
increases, mobile health clinics and on-site child care.

As ecommerce continues to drive retail growth, the need for a reliable pool of light industrial workers to move and pack goods, as well as expanded transportation staff to deliver them, will become the critical bottleneck for expanding retailers. This will all develop as ecommerce continues to grow, and warehouses will need to keep up to stay relevant to the growing online/mobile market.

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