Randy Thompson: Distribution Centers—Big Changes in the Wind

Randy Thompson
Randy Thompson

At the turn of the last century, shopping was blessedly simple. Folks loaded their broods into the back of their buckboard or covered wagons, dodged tumbleweeds and road apples, and trundled the dusty trail to the wood-cladded general store in town. Sunday shoes, work boots, overalls, licorice, shovels, manure and seeds, the proprietor there had it all. Did the shoes or denims always fit?  No. But back in the day, people got by, ill-fitting boots and all.

And manufactures of such goods had it pretty easy, too. Handwritten orders in No. 2 pencil came in by U.S. mail or Wells Fargo Express maybe once a year, and then they’d ship whatever the local retailer ordered.

Simple, right?

Fast forward to the 1970s. Folks like my parents, they loaded us kids into the back of the Chrysler station wagon (fake wood siding, intermittent air conditioning, seatbelts optional) and then trundle off to the Topanga Plaza mall. There, unlike a hundred years before, retailers had specialized spaces where they had segregated themselves, their offerings focused on a single good or class of goods. For shoes, we went to Thom McCann, for boots we’d go to Red Wing, my sister got her clothes from Contempo, my brother and I from Mervyn’s, and for candy we’d pop into See’s (man how I loved the smell of that place!).

Most manufacturers in those days were shipping full pallets of goods to warehouses operated on behalf of retailers, where they would break down the pallets and send products to their stores. How did they know where to send what?

In my first part-time retail job, at the end of each day, we would count what was left on the shelves, then the manager would call someone (I never did figure out who they called or where they were), spend an hour or more on the phone telling them what we needed and then a few days later, more product would show up. And then came the fax machine—but that’s another story for another day.

Fast-forward again: The whole process has now morphed into something altogether different. Today, people are shopping online, never setting foot in a brick-and-mortar storefront. Once a purchase is made, the consumer expects the goods they buy to show up at their door the next day.  And that buying behavior is having a far-reaching impact on manufacturers and on their distribution networks.

I was at a conference in Austin last month where the impact of this sea-change was discussed. The core issue is this: Distribution centers that once shipped full pallets of products are now having to evolve into e-commerce fulfillment centers, where a single pair of jeans, or shoes, or three-pack of tee shirts, or mouthwash, or hair dryers or some combination of all these, have to somehow get into the same box to be shipped to a customer’s home for next-day delivery.

Trust me, this is a huge change that is just now starting to take hold. And not only does this impact industrial users inside their buildings, it is impacting the types of buildings they are looking for.

Here’s how:

Clear height: Distribution centers are getting taller. Ten years ago, they were commonly 26 to 30 feet tall. Five years ago, 34-36 was the standard. Today, 40 feet is not uncommon. And believe it or not, in some markets where land is grotesquely expensive (think Tokyo, San Francisco, etc.), developers are actually looking at, and in some cases, building two-story or taller distribution centers, one right on top of the other!

Power: Last-generation distribution centers were largely packed with extensive racking, conveyors, sorting equipment, automated pallet-pickers, etc. But picking single quantity orders (aka “eaches”) is changing much of that. You may recall a recent blog post where I talked about the Internet of Things (IoT). Well, it’s happening in distribution centers too, where IP-enabled equipment is feeding information into a central station, where the flow of goods can be managed. In addition, warehouse workers have systems they wear that talk to them, instructing them what bins to go to, how many parts or items to take from a given pick location, and so on. As a result, more and more electricity will be needed to run DCs of the future. I was talking with one developer recently who told me they had allocated as much power for their 500,000-square-foot distribution center as they would normally put into a three-story office building!

Parking: In the old paradigm, DCs would only have a handful of parking spaces needed for their employees, because the systems were largely automated. But e-commerce fulfillment centers can require hundreds, if not thousands, of employees. In fact, I read about a newly developed e-commerce site that has parking for 3,500 cars! And that doesn’t include the truck/shipping traffic or trailer storage spaces. What is the impact on older DCs? Most do not have nearly enough of the acreage needed to provide that sort of parking.

LEED/Sustainability: While one-off users of DC space may not care if their space is LEED-certified, the big e-commerce users do. Or perhaps better said, their board members, shareholders, and their customers do. So e-commerce centers, in spite of their immense energy consumption, and their commuter parking, etc., are expected to be environmentally friendly. Sustainable space is table stakes in this new, emerging distribution economy.

So the next time you log onto your favorite online retailer, keep in mind your consumption behavior is having a significant impact on an entire industry. And although this disruption may hurt some, it is an overall benefit to our economy. So shop on, people!

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