Retailers are hoarding warehouse spaces that are up to 50% bigger than what they need.
And many of these spaces are left pretty much empty in hopes that the brand can eventually overstock (yes, they’re planning on ordering too much on purpose).
But this is a really bad plan for both the brand and the larger retail scene from an operational perspective. (I mean, brands are literally paying to store air?!)
For one, hoarding warehouse space is expensive. A square foot costs roughly $7.50 on average.
So, say your brand needs 25k square feet (the average “small” warehouse), but you opt for 37.5k instead. You’ll be paying nearly an extra $100k for space you don’t need.
Second, let’s say this plan works out, and you amass the goods to fill this space. It’s still a huge gamble. You’re not just overpaying for warehouse space; you’re also tying up capital in product you don’t have demand for.
This leaves cash tight for your brand. And if the supply chain changes quickly (like it consistently has been), you likely won’t have the means to bail your brand out.
Best case, this leaves you with dead stock you can’t sell. Worst case, your business might no longer be profitable. After all, running out of capital was the #1 reason brands closed their doors in 2021.
Hoarding warehouse space only adds to the serious warehouse shortage the US, in particular, already experiences.
In Q4 of 2021, the national vacancy rate for warehouses fell to 3.2%, per CBRE Group. And rent rose a record 11% as a result.
But hoarding aside, this shortage would still be a huge problem for retailers thanks to ecommerce’s recent growth. The pandemic accelerated the shift to ecommerce by five years, leading to record online sales.
For every $1B bump in online sales, we need an additional 1M square feet of warehouse space. Meaning, if DTC’s growth continues, the US alone will need another 1B square feet of warehouse space by 2025.
New warehouse spaces are being built (a majority in the Atlanta, Dallas, and Lehigh Valley areas, per the NYT). But the spaces are leasing faster than they’re built–sometimes before ground is broken.
And logistics firms are scrambling to find new sites and looking farther and farther away from coastal ports.
Simply put, optimize the warehouse space you have, so you’re only paying for what your brand needs.
Luckily, there are a few tools that can help you out: