IE Business Daily Business news for the Inland Empire.
Fulfillment centers, the logistics operations that serve e-commerce businesses, are appearing in the two-county region. The good news is they pay well and employ a lot of people, but some of the jobs can require special skills.
The Inland Empire has long been the warehouse-distribution center of the western United States, if not the entire country. Now, there are more such operations on the way, and the two-county region has already landed several of them: fulfillment centers, the high-tech logistics facilities that are designed to deliver items the day they’re ordered.
About 30 years ago, standard warehouse-distribution centers began to appear in Riverside and San Bernardino counties, taking advantage of the region’s open space, good freeway access and its proximity to the ports of Long Beach and Los Angeles. Much the same thing is happening today with fulfillment centers, which are more sophisticated and employ a lot more people than regular warehouse-distribution operations, said Paul Earnhart, senior vice president with Lee & Associates Ontario.
Logistics is gradually becoming a major part of the Inland economy, and fulfillment centers figure to add to that during the next 10 to 15 years, according to Earnhart and several other local officials familiar with the logistics industry. “This is where the population is, so this where the fulfillment centers will end up,” said Earnhart, a specialist in large industrial projects, both lease and sale. “That trend has already started, and it’s only going to continue, because e-commerce is only going to get bigger.”
E-commerce is expected to represent 30 percent of all retail sales and account for $2.7 trillion in total sales worldwide by 2025, according Demetic, a worldwide material handling and logistics automation company based in Luxembourg. Within five years, the percentage of sales at traditional retail stores will drop from 91 percent, where it is today, to 76 percent, according to Deloitte, a global accounting firm based in Los Angeles.
CBRE Group Inc. lists nine logistics facilities in Riverside and San Bernardino counties that are currently filling same-day orders placed online – Amazon.com, Walmart, Macy’s, Hayneedle, Hautelook, Skechers, Restoration Hardware, Shiekh Shoes and Home Depot – although the actual number could be higher, according to the real estate brokerage.
The largest and most prominent of those is the fulfillment center opened last October in San Bernardino by Amazon.com Inc. That facility, which ships goods that include books, electronics, toys and general merchandise, covers nearly one million square feet and employs about 700 people. On average, workers there are paid about 30 percent more than workers at a retail store, according to Amazon.com officials.
The Amazon.com facility at 1910 E. Central Ave. was developed by Hillwood Investment Properties, the Dallas-based company that is the master developer of San Bernardino International Airport ‘s non-aviation projects. Amazon.com’s operation is one of 40 that the online retailer plans to build throughout the United States.
“They were a demanding client,” said John Magness, senior vice president with Hillwood Investment. “There were a lot of exact specifications that went into that building, but in the end they were fun to work with. They are right at the cutting edge of that kind of project.” Amazon.com has been the driving force in the growth of e-commerce, ever since people started shopping on the Internet, according to a report on the state of e-commerce in the United States published earlier this year by CBRE Group Inc.
In 1994, Amazon.com’s founder, Jeff Bezos, noticed that the Internet was growing at a rate of 2,300 percent annually. One year later,Amazon.com started as an online book retailer, but spurred by those staggering growth numbers, it quickly grew into an Internet superstore, offering products in 16 categories that ranged from clothes to electronics.
Today, Amazon.com’s annual revenue is about $60 billion, roughly one-third of all online sales in the United States. The online giant has also moved well beyond selling books: when the company started in 1995, books accounted for nearly all of Amazon.com’s sales.
Today, books only generate a little more than 30 percent of Amazon.com’s annual profits, according to the CBRE Group study.
“Amazon is the engine that has driven the growth of e-commerce in the United States, where total online sales have grown seven-fold since 2000, to $226 billion in 2012,” the report stated.
Shopping online is becoming so popular that some traditional brick-and-mortar retail is in danger of becoming a glorified showroom, where people go to find something they want to buy, then go home and purchase it on the Internet. That trend is only going to grow: by 2016, the United States will experience a 61 percent increase in online shopping compared with 2011, with sales expected to reach $327 billion, according to the report.
Those are staggering growth numbers, and they never would have happened if Bezos and a few other pioneers of e-commerce hadn’t figured out that they were never going to be able to meet demand with a conventional warehouse-distribution operation. While they usually look the same on the outside, on the inside a fulfillment center is different in several ways from a standard warehouse. “There’s a lot more activity inside a fulfillment center,” Magness said. “They’re a lot more sophisticated. There’s just more going on inside them.”
Probably the most significant difference is labor: a warehouse-distribution center that covers one million square feet probably won’t employ 100 people, while a fulfillment center of the same size typically will have 500 or more workers because so many order have to be shipped so quickly.
Fulfillment centers have more infrastructure, meaning more conveyor belts and sorting systems, use more power and are built in places where they’re allowed to operate 24 hours a day, seven days a week. They also have higher ceilings – sometimes as high as 40 feet – and they usually require a lot of land for parking and so their trucks can maneuver for pickups and deliveries.
Large fulfillment centers are so specialized that a lot of companies, like Amazon, are building those facilities rather than trying to fit them into an existing building, even though a building from scratch is more expensive, according to the CBRE Group study. “A typical warehouse-distribution center has shelves and racks, but a lot of fulfillment centers don’t,” Magness said. “There’s no reason to, because what goes through them doesn’t stay there for long. They just stack things on the floor.”
They’re also considerably more expensive to build, said Darla Longo, vice chairman with CBRE Group Inc. Ontario. Tenant improvements for a standard warehouse-distribution facility typically cost about $5 a square foot. If a business decides to put a fulfillment center inside an existing structure, instead of building one from scratch, tenant improvements can reach $35 a square foot, Longo said.
“We’re only going to see more of these, because more people are shopping on the internet,” said Longo, an investment sales specialist who has worked on several Inland-based fulfillment centers, including Skechers and Walmart. “It’s something that traditional retailers are having to respond to.”
