The Amazon effect: Online giant changing everything about how companies ship their goods

amazon

by Dan Rafter

The impact of Amazon is no longer a new story. The online retailer has permanently changed the expectations of consumers. When they order a new pair of jeans from Amazon, they want those pants to show up at their doorstep as soon as possible.

Steve Golumbeck, vice president with Peak Construction Corporation, said that the increased demands on companies from e-commerce means that companies need even more warehouse space, something that can dramatically impact their logistics decisions.

The old adage, Golumbeck said, was that for every 500,000 square feet of retail floor space that companies maintained, they’d need 1 million square feet of warehouse space. Now with the boom of online shopping, that adage no longer holds true. Golumbeck said that today, companies need 2 million square feet of warehouse space for every 500,000 square feet of retail space.

“They need to be able to stock more materials and move their supply in a more expeditious manner,” Golumbeck said. “This is actually good for the market. Even though a lot of the big-box stores have built their million-square-foot warehouses in the last three years, there are a ton of ancillary companies out there who haven’t. They are now looking to build, which means that we’ll continue to see more warehouse construction in and around the Chicago area.”

E-commerce, of course, has also changed companies’ site-selection plans. Golumbeck says that companies are looking more at redevelopment and infill when it comes to finding space for warehouses near urban areas. This can be an expensive proposition. It’s easier, and cheaper, to build on a huge greenfield than it is to shoehorn warehouses into urban areas or retrofit older facilities.

“Developers are figuring out a way to get these deals done,” Golumbeck said. “They are figuring out how to make it work based on cap rates and rental rates. Cap rates are really favorable today. The rental rates, though, still have to increase. It feels like that is happening, but it is never happening as fast as anyone wants.”

Even as logistics and transportation decisions continue to evolve, Chicago remains one of the strongest industrial hubs in the country.

There are plenty of reasons for this. Golumbeck points to the major rail lines intersates that cross the Chicago area. Then there’s the dense population of the city itself, not to mention that Chicago is located in the center of the country, a great place for companies looking to reach major Midwest markets.

“At the end of the day, Chicago remains a healthy distribution market,” Golumbeck said. “There is always a demand for goods to come through the Chicago market. There is always work in Chicago. Even through the recession, things did get thin, but this market was always able to remain busy. One of the biggest advantages is our labor market. There is plenty of labor for the necessary jobs within the sector.”

And while Wisconsin and Indiana continue to lure companies with their lower taxes and higher incentives, the Chicago market will always have an advantage when it comes to the skilled labor pool needed in warehouses, Golumbeck said.

“When Amazon comes into those other markets and takes 3,000 employees out of their labor pool, that makes it challenging for companies,” Golumbeck said. “Amazon has sucked up a lot of the labor pool in Wisconsin and Indiana. Right now, the labor pool in Chicago is better. There are lots of available, skilled employees for the retailers and distributors.”

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