2018 Hottest U.S. Fulfillment Markets: Phoenix

Status of U.S. e-commerce fulfillment warehouse markets

During the start of the e-commerce ramp up, the heaviest activity with respect to industrial real estate facilities involved in fulfillment warehouse and distribution operations occurred in major metropolitan areas including Dallas-Fort Worth, central Pennsylvania and Inland Empire.  As primary U.S. fulfillment markets reached capacity warehouse occupancy rates, e-commerce, traditional and omnichannel retailers moved their businesses to secondary markets.  Rent increases, land prices escalation and decreases in the availability of land, have made primary markets unaffordable.  Those factors in combination with labor cost and availability are the typical determining factors in which markets are selected.

With primary markets saturated, e-commerce omnichannel and traditional retailers and their logistics partners are turning inland to markets such as Indianapolis, St. Louis, Phoenix and Salt Lake City to sate their appetite for large scale “big box” warehouse and distribution center facilities and the human workforce that powers them.

Recently secondary markets have become activated, shifting to such Midwestern markets as Indianapolis, Columbus, St. Louis and Cincinnati.  E-commerce business fuels a tremendous demand for labor, typically two to three times that of traditional warehousing operations.  With supply chain labor already facing a shortage, increased employment rates across the U.S. are often compounding the acuity of the labor challenge.

From 2010 to 2016, 13.7 billion cubic feet of warehouse space was built in the United States.

Approximately 65 percent of the warehouse space was positioned in the ten largest U.S. markets including California’s Inland Empire, Chicago and Dallas-Fort Worth.  Because the average height of U.S. warehouses has risen from approximately 24 feet in the 1960s to 33 feet in 2016, warehouse space is now often measured in cubic feet.  The increase in warehouse and distribution center ceiling height is due to the need for space for e-commerce operations.  E-commerce omnichannel operations often install mezzanine levels in modern warehouses.  This may be to enable more human workers to pick inventory in each building and/or to enable automation, addition of material handling solutions including conveyors for speedier, more accurate operations.  Another reason for the higher ceiling height is to enable greater use of the building footprint.  With land at a premium in top warehouse fulfillment markets, maximizing the space is critical to a successful fulfillment operation.

Here is a brief look at one of the hottest secondary fulfillment markets in the United States:  Phoenix, Arizona.

Success Stories

Chewy.com

Popular online pet retailer Chewy received $910,000 in incentives from Phoenix area distribution center in Goodyear, Arizona. Phoenix-based pet retailer Petsmart acquired Chewy Inc for $3.35 billion in the largest e-commerce acquisition to date, larger than Walmart’s purchase of Jet.com. Started in 2011, Chewy was originally headquartered in Fort Lauderdale, Florida.

The Chewy fulfillment operations are the first in the state of Arizona and the seventh in the U.S.  Part of its latest expansion into the Southwestern U.S., the new warehouse will provide 700 jobs to the area.  The 802, 671 square foot warehouse is positioned on an 49 acre parcel of land. Occupancy is planned for the second quarter of 2018.

Chewy executives selected the Phoenix area location due to its excellent geographic location and capability of reaching customers in key markets around the world and ability to attract area talent.  Chewy executives also favored Phoenix for being a business-friendly community that has been successful in attracting innovative high growth companies to the area.

New Phoenix-area cold storage warehouse boom.  Currently Phoenix cold storage warehouse space spans 8.4 million square feet, with only a 1.5 percent vacancy rate.  Metro Phoenix has a very limited supply of cold storage warehouse space currently available.  This has led to more companies purchasing land and building their own refrigerated warehouse facilities.

REI

The 400,000 square foot warehouse in Goodyear Arizona is the first distribution center in the United States to earn LEED-Platinum certification from the U.S. Green Building Council and achieve Net Zero energy status.  The REI distribution center has attracted worldwide interest for its achievements in sustainable logistics operations.

REI also has distribution centers in Sumner, Washington and Bedford, Pennsylvania. The REI distribution center is automated and was developed with a budget from $72-75 million so as to deliver ROI in nine years.  According to REI executives, the Phoenix area project has exceeded the company’s expectations including meeting budget and date of operation.

REI uses automation,  not to replace human workers but in supplement to its human staff. Many of REI’s processes are not suitable for automation. The Goodyear distribution center employs 180-250 employees throughout the year and has a special need for six highly trained mechanics to maintain the automated systems.

Conclusion

Can having a fulfillment warehouse or distribution center in Phoenix help consumers in Los Angeles?  You bet.  Pick and pack fulfillment warehousing is booming in secondary markets across the United States.  Fulfillment centers near inland ports are especially popular today and their popularity is impacted by land cost and availability, labor, lack of inventory tax and other factors.

Ecommerce business operators, traditional and omnichannel retailers have many factors to consider when selecting a fulfillment partner and optimal location for fulfillment centers.  Business owners who sell online often find it challenging to make the right decisions as there are so many complex factors to consider. Because the customer experience is paramount, business owners of online stores have to consider many factors involving the supply chain such as shipping rates,  optimizing the fulfillment process, selecting fulfillment software, and advantageous inventory storage locations to meet immediate delivery needs.

Today consumers expect same day or next day delivery. Time is of the essence.  Inventory storage locations must be readily accessible via multiple transport modes.  Having a warehouse network, third party logistics companies and pick pack and ship fulfillment systems ready to zip those orders out the door can mean the difference between customer satisfaction and a mad blast against your brand on social media.

Phoenix gets high marks for having no inventory tax, 40 percent lower operating costs than California and the third largest labor pool in the Western United States for warehouse workers. Its success as a ecommerce fulfillment market is marked by the addition of 313 million cubic feet of warehouse space since 2010.

From the supply chain to the shopping cart,  Phoenix has proven it will be rolling along as one of the hottest fulfillment markets in the U.S. for the considerable future.