Why You Don’t Need More Warehouse Space

The news cycle is confusing. We hear warehouse vacancy rates are at a 27-year low. Then we read that new warehouses are being developed at record rates and that Amazon.com is shedding excess space. At the end of the day, the lived experience of most retailers and merchants is that capacity is tight — and expensive.

So what exactly is going on in the warehousing market? Prior to the pandemic, most merchants ran a just-in-time (JIT) supply chain. After supply shortages hit early in the pandemic, many merchants began stockpiling inventory to avoid stockouts. The result was record levels of product entering the U.S. supply chain, exacerbated by the following factors:

• Changing consumer spending patterns. Sales slowed for historically high-performing products, making demand forecasting challenging.
• Large 3PLs and major retailers that could afford it snapped up every bit of warehouse space they could find.
• Supply chain shortages in the construction industry slowed down completion timelines for new warehouse space.

All together, these factors have made it challenging for small to midsized businesses (SMBs) to determine where they can store their inventory. The current warehouse market is highly competitive and like most things today, pricier than ever.

There are, however, many SMBs that are navigating the current market — not by signing new warehouse leases — but by strategically managing their inventory.

Let it Go (Your Dead Stock, That is)

Aging or obsolete inventory is a major contributor to current vacancy rates. After years of supply chain disruptions, purging obsolete inventory may feel risky, but the opportunity cost of holding on to it — paying storage fees month-over-month on inventory that won't pay you back with sales in the end — could far outweigh the cost of liquidating. By clearing up that valuable shelf space, you’re making room for inventory that's going to turn at a faster (and more profitable) rate.

Moreover, when your capital isn’t sitting on the shelf of a warehouse somewhere, you can actually put it to work for you. More capital on hand makes your business more flexible and nimble at a time when supply chain resilience is paramount to success.

A Whole New World (the More Spacious Warehouse Markets)

Inventory management hinges on placement. The most popular warehousing markets are Southern California and New Jersey — and for good reason. If you’re only shipping a container or two, they’re the most affordable options. They’re also densely populated, giving you excellent one- to two-day ground shipping into major consumer markets.

However, network diversity is essential to maximizing available space. You may need inventory in Southern California to reach your West Coast customers or in New Jersey on the East Coast, but you can leverage additional fulfillment centers in secondary markets like Atlanta; Dallas; Chattanooga, TN; Salt Lake City; or Reno, NV — all of which get excellent one- to two-day ground coverage and are more affordable than coastal markets.

There’s no one-size-fits-all solution to inventory placement. Leveraging machine learning and artificial intelligence to analyze your shipping history and build a custom network ensures that you’re putting the right products in the right place at the right time, giving you:

• expanded one- to two-day delivery;
• a smaller warehouse footprint;
• less time in transit (TNT); and
• fewer next-day air shipments.

The Bare Necessities

In the end, sometimes less is more. Letting go of excess inventory and diluting your best-sellers across a diverse network will serve your business better than taking on additional hard assets like warehouse space. In this market, merchants are asking how to create supply chain resilience and pivot quickly. The answer may just be to pack light.

Gabby Avery is the senior manager of supply chain strategy at Ware2Go, where she's responsible for developing Ware2Go's warehouse network and supply chain strategy and expanding warehouse partnerships to enable merchants of all sizes to compete and grow.