The e-commerce boom is providing a surge of opportunity amid the “anemic” expansion of U.S. distribution space, said IMS Worldwide President Curtis Spencer.
“E-commerce is on everybody’s radar because it’s growing like a flipping weed,” Spencer told attendees of the Journal of Commerce’s Inland Port Logistics Conference on Thursday. He said online retailing — available through computers, mobile devices and social networks — is outpacing traditional bricks-and-mortar retail sales growth 5-to-1.
One of the biggest drivers of e-commerce distribution space growth appears be coming from traditional retailers looking to compete with the likes of Amazon. The share of e-commerce of total global retail sales is expected to expand to roughly 30 percent by 2025, translating to $2.7 trillion in annual sales, according to Dematic figures quoted by Spencer. U.S. online retail sales rose 16.1 percent to $194.3 billion, accounting for about 4.6 percent of total sales, according to the Commerce Department.
Online shoppers have come to expect next-day delivery and free shipping because both are offered by Amazon, and that “scares (traditional retailers) to death," said Blaine Kelley, senior vice president at CBRE. The threat appears to be spurring retailers to consolidate their supply chains so that their distribution centers, and even their retail stores, can handle e-commerce fulfillment.
Sears, for instance, used to believe distribution for retail stores and online sales should be kept separate. But now the company is pushing more e-commerce goods through its traditional distribution network and fulfilling orders at the stores themselves, said Jeff Starecheski, the company’s vice president of logistics services.
Aside from transportation costs, the quality and availability of labor is the second biggest factor determining where shippers set up their e-commerce hubs. He pointed to how accessing a full-time skilled work force, along with plentiful part-time workers for shipping surges, spurred Carter's, maker of OshKosh B’ Gosh brands, to open a 1 million-square-foot center facility in the Atlanta area.
“It’s one thing to say we have done our homework on the labor market,” Kelley told attendees of the Oakbrook, Ill., conference,” Kelley said. "It’s another thing to say we are confident we can hire 1,600 people.”
E-commerce distribution requires more skilled labor, such as material handlers and pick-and-pack operators, than traditional manufacturing largely because facilities utilize more technology. Data mapping and then following up with in-person interviews led CBRE to tap Braselton, Ga., as the best spot. The University of Georgia is roughly 30 miles away, allowing the facility to tap part-time college help during peak shipping seasons.
The facility, which opened July, receives about 90 percent of its inbound goods through the Port of Los Angeles and the remaining from the Port of Savannah, Kelley said. The large market share from the West Coast despite the facility being in the Southeast speaks to the success of BNSF Railway’s line connecting to CSX Transportation and Norfolk Southern Railway lines in Birmingham, Ala.
CBRE said it saved the retailer more than $17 million by finding a site that provided a sales tax exemption on equipment purchases, job tax credits and other incentives. The site is also within a Foreign Trade Zone, a crucial components for attracting e-commerce fulfillment centers, Kelley said.
Other major factors that attracts retailers to open e-commerce facilities are an exemption to online sales taxes, a right-to-work atmosphere, access to FedEx and UPS air and ground freight hubs and zone skipping, Spencer said. The latter allows shipper to use less-than-truckload carriers for part of the haul and then have a parcel carrier handle transport the rest of the way.