Focus: America's biggest warehouse is running out of room. It's about to get worse

Helen of Troy

02/08/2022 11:00

By Lisa Baertlein
    SAN BERNARDINO, Calif., Aug 2 (Reuters) - America's largest
warehouse market is full as major U.S. retailers warn of slowing
sales of the clothing, electronics, furniture and other goods
that have packed the distribution centers east of Los Angeles. 
    The merchandise keeps flooding in from across the Pacific,
and for one of the busiest U.S. warehouse complexes, things are
about to get worse.
    Experts have warned the U.S. supply chain would get hit by
the "bullwhip effect" if companies panic-ordered goods to keep
shelves full and got caught out by a downturn in demand while
shipments were still arriving from Asia.
    In the largest U.S. warehouse and distribution market -
stretching east from Los Angeles to the area known as the
"Inland Empire" – that moment appears to have arrived.
    "We're feeling the sting of the bullwhip," said Alan Amling,
a supply-chain professor at the University of Tennessee.
    The sprawl of Inland Empire warehouses centered in Riverside
and San Bernardino counties grew quickly in recent years to
handle surging demand and goods imported from Asia. 
    That booming area, visible from space, anchors an industrial
corridor encompassing 1.6 billion square feet of storage space
that extends from the busiest U.S. seaport in Los Angeles to
near the Arizona and Nevada borders. That much storage space is
nearly 44 times larger than New York City's Central Park and 160
times bigger than Tesla Inc's  TSLA.O  new Gigafactory in Texas.
 
    But a consumer spending pullback now threatens to swamp
warehouses here and around the country with more goods than they
can handle - worsening supply-chain snarls that have stoked
inflation. Retailers left holding unwanted goods are faced with
the choice of paying more money to store them or denting profits
 by selling them at discount. 
    Inland Empire warehouse vacancies are among the lowest in
the nation, running at a record 0.6% versus the national average
of 3.1%, according to real estate services firm Cushman &
Wakefield. [graphic: https://tmsnrt.rs/3oHaiXu] 
     The market is poised to get even tighter as shoppers at
Walmart  WMT.N , Best Buy  BBY.N  and other retailers retreat
from early COVID-era spending binges.
              
    BINGE TO BACKLOG 
    While U.S. consumer spending remains above pre-pandemic
levels, retailers and suppliers are raising alarms about
backlogs in categories that have fallen out of fashion as
consumers catch up on travel and struggle with the highest
inflation in 40 years.
    Last week, Walmart said surging food and fuel prices left
its lower-income customers with less cash to spend on goods, and
Best Buy said shoppers were curbing spending on discretionary
products like computers and televisions.  urn:newsml:reuters.com:*:nL4N2Z63A4 Those
cautionary signals followed Target Corp's  TGT.N  alert that it
was saddled with too many TVs, kitchen appliances, furniture and
clothes.  urn:newsml:reuters.com:*:nL4N2XU2A7
    Suppliers - ranging from barbecue grill maker Weber Inc
 WEBR.N  to Helen of Troy Ltd  HELE.O , a consumer brands
conglomerate that includes OXO kitchen tools - also have warned
of slowing demand and an urgent need to clear inventories.
    While the U.S. economy was downshifting, goods kept pouring
in at near-record levels.
    Imports to U.S. container ports that process retail goods
from China and other countries jumped more than 26% in the first
half of 2022 from pre-pandemic levels, according to Descartes
Datamyne. Christmas shipments and the reopening of major Chinese
factory hubs could goose volumes further.
    Meanwhile, cargo keeps flooding in to the busiest U.S.
seaport complex at Los Angeles/Long Beach. During the first half
of this year, dockworkers there handled about 550,000 more
40-foot containers than before the pandemic started, according
to port data.
    Christmas toys and winter holiday decor landed on those
docks in July, along with some patio furniture for Walmart and
stretch pants, jeans and shoes for Target, said Steve Ferreira,
CEO of Ocean Audit, which scrutinizes marine shipping invoices.
    Retailers ordered most of those goods months ago and many
are destined for the Inland Empire's already jam-packed
warehouses.
    "It's a domino effect. Now the inventory is going to really
build up," said Scott Weiss, a vice president at Performance
Team, a Maersk  MAERSKb.CO  company with 22 warehouses in
greater Los Angeles.
    Demand for space in the Inland Empire is so intense that
when 100,000 to 200,000 square feet of space frees up, it "gets
gobbled up in a second," said Weiss.
    
    SEARS AND PARKING LOTS
    Investors have almost 40 million square feet under
construction in the Inland Empire - including Amazon.com Inc's
 AMZN.O  biggest-ever warehouse - and at least 38% is spoken
for, said Dain Fedora, vice president of research for Southern
California at Newmark, a commercial real estate advisory firm.
    While Amazon's 4.1 million square-foot facility rises on
former dairy land in the city of Ontario, the online retailer
has been shelving construction plans in other parts of the
country.  
    Amazon is the biggest warehouse tenant in the Inland Empire
and the nation. Its decision to scale back on building, coupled
with rising interest rates and the slowing economy, is
sidelining other would-be Inland Empire warehouse builders, area
real estate brokers and economists told Reuters. 
    Meanwhile, the scramble for space continues.   
    Trucking company yards and spare lots around the region have
already been converted to makeshift container storage, so
entrepreneurs are marketing vacant stores as last-resort
warehouses in waiting.  
    Brad Wright is CEO of Chunker, which bills itself as an
AirBNB for warehouses, and works with everyone from state
officials to the owners of vacated big-box stores to find new
places to stash goods.
    During a recent tour at the former Sears anchor store in San
Bernardino's Inland Center mall, Wright and a potential tenant
strolled past collapsed ceiling tiles, sagging wall panels and
idled escalators while working out how forklifts would navigate
the abandoned space. Wright sees the empty stores as one answer
to easing the log jams.
    "There's a lot of them sitting around, and they're in good
locations," he said. 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
From burgers to bleach, stressed consumers buy cheap   
 urn:newsml:reuters.com:*:nL1N2Z70Z4
Walmart 'train wreck' profit warning sends shares down 10%   
 urn:newsml:reuters.com:*:nL4N2Z63A4
BREAKINGVIEWS-Target joins the growing bad forecasters’ club    
 urn:newsml:reuters.com:*:nL4N2XU2SG
Walmart profit woes hit retail stocks, deepen consumer spending
concerns      urn:newsml:reuters.com:*:nL4N2Z72QB
No room in the Empire    https://tmsnrt.rs/3zjIHk1
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Lisa Baertlein in Los Angeles
Additional reporting by Siddharth Cavale in New York
Editing by Kevin Krolicki, Ben Klayman and Matthew Lewis)
 ((lisa.baertlein@thomsonreuters.com; +1 310-491-7241; Reuters
Messaging: lisa.baertlein.thomsonreuters.com@reuters.net))