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As Retailers Hit 'Critical Time' To Prep For Holiday E-Commerce Deluge, Don't Expect Warehouse Absorption Spike

Last year's holiday shopping season demonstrated the continuation of two trends: the American customer's increasing reliance on e-commerce, and the retail industry's difficulties adapting its supply chain.


E-commerce sales during the peak of last year's holiday shopping season — the five days between Thanksgiving and Cyber Monday — increased nearly 20% from the year before, according to some estimates. As more holiday shopping has moved online, customers expect deliveries faster than ever, thanks to the Amazon-led delivery arms race.

Last year, those dueling pressures overwhelmed even Amazon's capabilities, as the company's monster industrial footprint needed to be supplemented with tents in an attempt to keep pace. The entire logistics industry was overtaxed last year, multiple sources told Bisnow.

“Companies were not prepared for the huge spike in volume shifting away from brick-and-mortar retail to online fulfillment in terms of the holiday rush,” Palmer Logistics President Brett Mears said. “And I’m talking major companies like UPS and FedEx; it wasn’t on anyone’s radar how much traffic would shift from brick-and-mortar to e-commerce. And that’s why 3PLs and shipping companies were caught on their heels, even in the last three or four years.”

This is the time of year when the ramp-up to the holiday peak begins in earnest for retailers with seasonal business, as well as the third-party logistics operators and warehouses that support them. For those who find themselves in need of extra space, there are short-term, on-demand options from startups like Flexe and Flowspace.

“We are in that critical time right now,” Flexe Senior Vice President of Operations Megan Evert said. “If they aren’t coming to us in the next 10 days, the ability for us to really add enough value will be tricky, mainly because we have to inbound all of the merchandise with enough time to allocate the orders for it.”

Solar panels on Prologis International Park of Commerce that houses an Amazon distribution center in Tracy, Calif.

Many companies burned by the chaos of last year began their preparations months ago, and some users who used flex space last holiday season to add efficiency in peak timelines never gave it back once they realized the benefit, Evert and Flowspace CEO Ben Eachus said.

Either way, both Flexe and Flowspace expect significant growth this holiday season in usage of their services. Many already have taken extra space, considering that a large portion of the retail industry loaded up on products earlier this year. Though the accelerated ordering was largely to avoid tariffs on Chinese imports that took effect in stages starting in May, it will likely wind up helping holiday preparations, Mears said.

Shortening the time between a customer placing an online order and the package going out for final delivery is an overall focus of the logistics industry this holiday season, and some operators are using more last-mile distribution points to do so, Eachus said.

“Every brand of retailer is thinking about how to place their inventory closer to the end consumer, which shortens transportation time and costs,” Eachus said. “And once you settle on a location, it’s about finding warehouse capacity and [getting it online] quickly.”  

But aside from Amazon and its tents, scarcity of warehouse space was not a contributing factor to the bottlenecks of the 2018 holidays, multiple sources told Bisnow. Forming accurate sale projections and keeping every part of a retail supply chain on the same page about those expectations is the most important part of being ready for the holiday rush, Mears and Evert said. 

Though the economic climate may prevent this year from being as demanding as the last, there are some links in the supply chain that retailers simply can't fully control.

Amazon leased 6M SF of warehouse space in Metro Atlanta in 2020.

The final step from warehouses to customers' doors was possibly the biggest reason why retailers could not keep pace with online ordering. Major delivery services like the United States Postal Service, UPS, FedEx and others simply didn't have the number of trucks that the moment required, Route4Me co-founder George Shchegolev said.

“At some point, you don’t have enough capacity,” said Shchegolev, whose company optimizes shipping routes via an app for individual or enterprise customers. “FedEx, UPS and others, they keep taking more orders but don’t have a way to tell the customer that they can’t deliver the package in time.”

As more companies get in on the massive sales weekend with increasingly varied and deeply discounted deals, they may exacerbate the problem for delivery services. The additional cost required to meet peak demand keeps rising, but that peak remains a tiny sliver of the calendar.

“That’s one of the challenges of the Black Friday phenomenon,” Evert said. “When you have a 10x spike in business in one weekend, how do you build the capacity for that and pay for it throughout the year?”

Amazon has addressed the major delivery companies' lack of capacity by hiring networks of courier van services and launching Amazon Flex, its somewhat notorious freelancer program. Some competitors have followed suit with courier vans, Shchegolev said.

The issue with either Amazon Flex or local van fleets is the relative lack of control over who the drivers are and how they do their job, Mears said, and consequences range from delays all the way to wrongful death lawsuits. But as long as the problem remains too difficult for even Amazon to solve, the logistics industry will have to compensate with incremental improvement at every other part of the supply chain.

“There's only so much you can do when there's no truck to pick up the goods,” Evert said.