Probably no one ever thought that any member of a working supply chain would look back at the challenges and woes of 2021 longingly. Big-time consumer demand, port congestion, and manufacturing delays all contributed to massive challenges for retailers to get consumers the exercise equipment, furniture, appliances, and hamburgers that they demanded.
But today, members of various supply chains are facing the opposite, and potentially even more expensive, problem. In place of empty shelves, the largest warehouses in the United States are overflowing with inventory, as they have simply run out of space. Consider the situation in California’s Inland Empire—an area of Southern California, the east of Los Angeles, which itself hosts the Western Hemisphere’s largest port. There’s more than one billion square feet of warehouse space in that region. And virtually all of it is full. According to estimates by the real estate services firm Cushman & Wakefield, the Inland Empire warehouses have just .6 percent vacancy, compared with 3.1 percent nationwide. Although the vacancy rates already are the lowest in the United States, they could go even lower, if consumers continue to exhibit caution and limit their spending in these strange economic times.
Further down the supply chain, Best Buy has too many televisions and computers sitting around. For Target, it is televisions, clothes, and kitchen items. But regardless of their product category, the goods are taking up warehouse space instead of counter and closet space in consumers’ homes. They will soon face new competition for space, because more goods are coming, including Christmas toys, holiday paraphernalia, and other seasonal goods that people want in timely fashion.
The incredible demand for space is leading to higher rents, which reached an all-time high of $1.35 per square foot per month. In that sense, the threat to retailers may transform into an opportunity for other supply chain actors. A new business-to-business operation has arisen, designed to match retailers with unused space that currently is not being used for storage, but that readily could be. A warehousing-on-demand company called Chunker—the “Airbnb for warehouses,” as it likes to be known—finds empty malls and big box stores, as well as government buildings and old greyhound tracks, then builds out and transforms them into usable warehouse space.
To the extent that retailers still have too much stuff filling too little space, consumers ultimately might benefit. Once the demand for space gets powerful enough, they must dispach some of those goods, often to outlet stores or liquidation warehouses, where consumers can snag themselves a real bargain.
In the ongoing disruption involving supply chains, it thus appears that it is retailers, and perhaps their warehousing partners, that are caught between the proverbial rock and hard place: Manufacturers still might not be delivering consistently, leading them to order more safety stock. But if consumers are not buying consistently either, the costs of holding excess inventory might be more than they can bear.
Discussion Questions:
- Why are warehouses so full?
- What are some solutions to this space crunch? Can you think of any ideas that aren’t already being tried?
- Does every challenge in the retailing industry present opportunities for someone else?
Source: Lisa Baertlein, “America’s Biggest Warehouse Is Running Out of Room. It’s about to Get Worse,” Reuters, August 2, 2022; Greg Cornfield, “LA Is Out of Warehouse Space,” Commercial Observer, July 25, 2022; Sarah Zimmerman, “10 Disruptions that Rocked Supply Chains in 2021,” Supply Chain Dive, December 15, 2021; Justine Calma, “What a Billion Square Feet of Warehouses Looks Like,” The Verge, May 2, 2022; Santosh Nair, “California Government Leases Six Sites to Chunker Aiming to Reduce Port Congestion,” project44.com, February 18, 2022; Michael Corkery, “Retail’s ‘Dark Side’: As Inventory Piles Up, Liquidation Warehouses Are Busy,” The New York Times, July 30, 2022