Warehousing Way Off-Site
The days of checking inventory with a quick visit to the warehouse may be numbered as more retailers and apparel manufacturers shift to a new business model when it comes to logistics.
Lured by tax breaks and low-cost real estate, some companies are packing their bags and moving their warehouse and distribution operations to more remote locations. Vacancy rates are at record lows in the traditional Southern California markets such as Vernon and Southeast Los Angeles and even the Inland Empire. Now, Central California’s San Joaquin Valley and even out-of-state markets are getting attention.
“No matter where you go in Southern California, industrial real estate is very tight right now—as low as 1.9 percent vacancy rates in the central markets,” said Jack Kyser, senior economist for the Los Angeles County Economic Development Corp. “Now you have residential developers buying industrial land for lofts and live/work space, so it’s getting even tighter, and companies are going out to the Central Valley and beyond for [warehouse] space.”
Kyser said the Central Valley—where Greensboro, N.C., powerhouse VF Corp. recently opened an 800,000-squarefoot distribution center in Visalia—was attractive because of low-cost labor and a central location between the Port of Oakland and Los Angeles.
VF is using Visalia as a distribution hub for its VF Outdoor division and will distribute all North Face, Reef, Eastpack, Jansport and Vans apparel and footwear from there.
Growing companies such as Anaheim retailer Pacific Sunwear of California also are looking outside the region. PacSun recently purchased land in suburban Kansas City, Kan., where it will build an 800,000-square-foot distribution center.
Surf brand Quiksilver also is shifting much of its warehousing inland to make more room at its Huntington Beach, Calif., headquarters for designers and other staff.
With the emergence of warehousing technology via software and remote management programs, which can track inventory at a click of a mouse, many companies no longer see a need to have warehouses on-site, because they take up valuable real estate.
Also fueling the trend is a growing list of incentives being offered by local governments and trade groups. Foreign trade zones, tax abatements and other dangling carrots await apparel companies looking to move to some of the emerging distribution markets.
PacSun, for example, will receive a 55 percent discount on property taxes for the next 10 years as part of a rebate program offered by the city of Olathe, Kan. The retailer is building a warehouse off Interstate 35, the main artery between Dallas and Minneapolis. The center will house goods for its new footwear concept One Thousand Steps, as well as growth from other divisions.
“The access north, south, east or west will be very good for PacSun,” said Tim McKee, vice president of economic development for the Olathe Chamber of Commerce. “They will be right in the middle of the country. There’s a future interchange that will be built. There are about 100 acres in this area that are master-planned for distribution space.”
Dillard’s and American Eagle Outfitters are among others that have been drawn to Kansas. The move—even though half a country away from California’s ports—can be beneficial, because 40 percent of imports get shipped east of the Rockies anyway.
Even though VF Corp. is leasing its warehouse space in Visalia, the state of California came running to its aid to draw it to the Central Valley. VF was looking at locations in Nevada and Texas, but it got some extra attention from the state’s Cal- BIS (Business Investment Services) program, a favorite of Gov. Arnold Schwarzenegger. CalBIS worked with VF Corp. for about a year, offering no-fee site-selection services and investment counseling.
“A lot goes into it,” said Rick Rice, undersecretary of the state Department of Labor. “There’s lots of analysis and studies of the workforce available, and it’s done for free to companies looking to locate to California or expand within.
“We’re cognizant of the garment industry’s needs,” Rice added. “We know it’s taken some hits and want to help, but [CalBIS is] a program for everyone.”
VF Corp. also will reap other benefits. Its new state-of-theart facility is in the MidState 99 Distribution Center in Visalia, and is central enough to where 98 percent of shipments within California can be delivered overnight using standard ground services. It’s also located in a Foreign Trade Zone and a California Enterprise Zone, making tenants eligible for federal and state tax breaks. Other benefits include fee deferrals, equipment and hiring tax credits, employer hiring assistance, and net operating loss carryovers.
Santa Fe Springs, Calif.–based Vans, now part of VF’s stable of brands, recently announced that it would move its warehousing operations into the Visalia facility. That will allow Vans to move its design and support staff back to Orange County, Calif., where the company was born.
Scott Burke, distribution director of VF Corp., said its move to Visalia was a big commitment.
“With this facility, we’re making the company’s largest single capital investment,” he said. “It’s a highly attractive site in an optimal location, with 35 million people living within a 300- mile radius. We’re committed to building the most flexible and efficient supply chain in the apparel industry.”
Wal-Mart, Sears and The Gap are among other retailers that have relocated some distribution operations to the region.
Companies such as Quiksilver are staying closer to home. The surfwear giant is moving some of its warehousing into a 683,000-square-foot facility in Mira Loma in Southern California’s Inland Empire. The new building will be used for footwear and other product distribution.
Quiksilver’s vice president of facilities, John Shipe, said that in weighing the geography and freight and labor costs, moving off-site was definitely a cost-saver.
Broker Rob Socci of Orange, Calif.–based Voit Commercial Services said that Quiksilver also could receive Foreign Trade Zone credits because it imports many of its goods.
“Availability in the Inland Empire is not plentiful,” Socci said, “but you have its proximity to SoCal, and that’s what Quiksilver is about.”
