America’s largest warehouse is running out of room. It’s about to get worse

Written by Lisa Bertlin

SAN BERNARDINO, California (Reuters) – America’s largest supermarket market is filling up as major U.S. retailers warn of slowing sales of apparel, electronics, furniture and other goods that have filled distribution centers east of Los Angeles.

Goods continue to pour in from across the Pacific Ocean, and for one of the United States’ busiest warehouse complexes, things are about to get worse.

Experts warned that the US supply chain would be hit by a “whip effect” if companies issued panic orders to keep shelves full and fell into a contraction in demand while shipments were still arriving from Asia.

In the largest warehousing and distribution market in the United States – stretching east from Los Angeles to the area known as the “Inland Empire” – that moment appears to have arrived.

“We feel the prick of the whip,” said Alan Amling, a professor of supply chain at the University of Tennessee.

Inland Empire warehouses stationed in Riverside and San Bernardino counties have grown rapidly in recent years to handle increased demand and imported goods from Asia.

This thriving area, visible from space, anchors an industrial corridor that includes 1.6 billion square feet of storage space that stretches from the United States’ busiest seaport in Los Angeles to near the Arizona and Nevada borders. This storage space is about 44 times larger than Central Park in New York City and 160 times larger than Tesla Inc’s new Gigafactory in Texas.

But falling consumer spending now threatens to flood warehouses here and across the country with more goods than they can handle — exacerbating the supply chain crises that have fueled inflation. Retailers who leave unwanted merchandise face the option of paying more money to store it or reducing profits by selling it at a discount.

Vacancies in Inland Empire warehouses are among the lowest in the country, coming in at 0.6% versus the 3.1% national average, according to real estate services firm Cushman & Wakefield.

(via Reuters)

The market is poised to get tighter as shoppers at Walmart, Best Buy and other retailers pull back from early stints of spending in the COVID era.

DIVE IN BACKLOG

While US consumer spending remains above pre-pandemic levels, retailers and suppliers are sounding alarms about a buildup in out-of-fashion categories as consumers catch up with travel and struggle with the highest rate of inflation in 40 years.

Last week, Walmart said rising food and fuel prices left its lower-income customers with less cash to spend on goods, and Best Buy said shoppers were limiting spending on discretionary products like computers and televisions. These warning signs came on the heels of Target Corp’s warning that it was overloaded with several televisions, kitchen appliances, furniture and clothing.

Suppliers – from barbecue maker Weber Inc to Helen of Troy Ltd, the consumer brand group that includes OXO kitchenware – have warned of slowing demand and the urgent need to liquidate stocks.

While the US economy was heading lower, commodities continued to flow at near-record levels.

Imports into US container ports that handle retail goods from China and other countries jumped more than 26% in the first half of 2022 from pre-pandemic levels, according to Descartes Datamin. Christmas shipments and reopening of major Chinese factory hubs could increase volume.

Meanwhile, goods are constantly flowing into the busiest seaport in the US, Los Angeles/Long Beach. During the first half of this year, dock workers there handled about 550,000 more 40-foot containers than before the pandemic began, according to port data.

Christmas toys and winter holiday decor landed on those docks in July, said Steve Ferreira, CEO of Ocean Audit, which scrutinizes shipping invoices, along with some Walmart’s patio furniture and rubber pants, jeans and shoes for Target.

Retailers have been ordering most of these merchandise for months, and many are destined for the already crowded Inland Empire warehouses.

“It’s a domino effect,” said Scott Weiss, vice president at Performance Team, a Maersk company with 22 warehouses in Greater Los Angeles. “Now the inventory is going to really ramp up.”

The demand for space in the Inland Empire is so severe that when 100,000 to 200,000 square feet of space is freed up, Weiss said, it “is devoured in a second.”

SEARS AND PARKINGS

Investors own nearly 40 million square feet under construction at the Inland Empire — including the largest ever warehouse for Amazon.com Inc — and at least 38% are talked about, said Daine Fedora, vice president of research for Southern California at Newmark. Real estate consulting company.

While Amazon’s 4.1 million-square-foot facility rises on former dairy land in Ontario, the online retailer has been suspending construction plans in other parts of the country.

Amazon is the largest warehouse tenant in the Inland Empire and the nation. Real estate brokers and economists told Reuters her decision to scale back construction, along with rising interest rates and a slowing economy, is sidelining other potential warehouse builders from the Inland Empire.

Meanwhile, the scramble for space continues.

Trucking and parts yards across the region have already been converted into temporary container storage, so entrepreneurs are marketing vacant stores as warehouses of last resort on hold.

Brad Wright is CEO of Chunker, which bills itself as AirBNB for warehouses, and works with everyone from state officials to vacated supermarket owners to find new places to store merchandise.

During a recent tour of the former Sears store at the Inland Center Mall in San Bernardino, Wright and a potential tenant walked through collapsed roof tiles, drooping wall panels and broken escalators while working on how forklifts navigate the deserted space. Wright sees empty stores as one answer to decongesting the registry.

“There are a lot of them sitting around, and they are in good places,” he said.

(Reporting by Lisa Bertlin in Los Angeles; Additional reporting by Siddharth Caval in New York; Editing by Kevin Kroeke, Ben Klayman, and Matthew Lewis)

Leave a Comment