Surging Retail Inventories Are Swamping U.S. Warehouses
Retailers and logistics operators are struggling to find space to store the flood of goods that have swamped warehouses and weighed on their balance sheets.
Warehouse owners say more retailers are looking to add storage capacity, both for goods now reaching their networks of stores and distribution centers and as they prepare to keep more inventory on hand long-term to guard against stock-outs.
Prologis Inc., the world’s biggest owner of warehouses by square footage, said in a recent market analysis that it expects an additional 800 million square feet of warehouse space to be needed beyond earlier projections to handle the excess inventories, about 300 million square feet of which has already been leased by tenants.
“We have specifically heard from customers who are looking at carrying more inventories and are leasing space,” said Chris Caton, managing director of global strategy and analytics at Prologis.
Retailers including Walmart Inc., Bed Bath & Beyond Inc. and Best Buy Co. have reported they are coping with an unexpected glut of casual clothes, kitchen appliances and electronics as consumers have pivoted away from spending on goods while the highest inflation in decades has crimped household budgets.
Persistent supply-chain bottlenecks have also led many retailers to stretch out buying cycles, bringing in goods early to ensure shelves are stocked during the critical fall sales season. Some retailers have also bulked up orders to be prepared in case of supply-chain disruptions, part of the shift from “just-in-time” inventory management to “just-in-case.”
The inbound shipments are stacking up at seaport docks, filling up warehouses near gateways and clogging distribution networks across the U.S.
Melinda McLaughlin, senior vice president and global head of research at Prologis, said across the company’s some 5,800 customers, the increased demand amounts to an average of about 138,000 square feet per client. Prologis’s biggest customers include companies such as Amazon.com Inc., FedEx Corp., Home Depot Inc. and United Parcel Service Inc.
The demand is also growing among discount retailers and liquidators as the country’s biggest merchants look to offload excess and out-of-season stocks.
Chris Caplice, executive director of Massachusetts Institute of Technology’s Center for Transportation and Logistics, said forecasts for more storage capacity may be overblown since retailers are also cutting prices and canceling orders to cope with excess stocks.
“I don’t think it’s going to be like, we need to double the amount of warehouse space,” Mr. Caplice said.
The industrial real-estate market remains extremely tight by historical standards, with demand for e-commerce along with upheaval in supply chains during the pandemic driving the vacancy rate for warehouses across the U.S. down to 2.9% in the second quarter, a drop from 7.7% 10 years ago, according to real-estate services firm CBRE Group Inc.
The addition of new space has been held up by labor shortages and supply-chain disruptions.
Developers completed 78.6 million square feet of new industrial space in the second quarter, down 6.9% from the previous quarter because of materials shortages, according to CBRE. A record 626.6 million square feet is under construction.
Some retailers have turned to flexible warehousing amid the tight real-estate market to handle increased inventory, said Karl Siebrecht, chief executive of Seattle-based Flexe Inc., which connects businesses to warehouses with shared space.
“We do see this dynamic happening across many of our customers,” Mr. Siebrecht said. “When you increase inventory, you must increase the capacity of warehouses to hold that inventory.”