The Most Important Challenge in Locating a Retail Distribution Center

May 1, 2015 – by Brad Struck, SIOR, President of Industrial Services

In the past when selecting a site location for a distribution center the first considerations would be inbound/outbound transportation costs, rental rates, number of existing buildings, price of land, taxes, incentives, and cost of labor.

These are all very important but the availability, quality and cost of labor has risen as one of the most impactful factors in site selections. This is especially so for retailers who experience a seasonal surge in the fall when they have the need for temporary employment.  As a supply chain executive mentioned recently “we can have the best building with the best automation but without a quality labor pool to accurately execute the picking/shipping we will fail.” This is further emphasized in an e-commerce fulfillment environment.

Some geographic areas are challenged by their success. For example, Indianapolis, Indiana, Columbus, Ohio and Louisville, Kentucky are strong locations from an inbound/outbound transportation perspective and therefore these areas have experienced significant growth for distribution centers. Unfortunately, that applies pressure to the availability of the applicable workforce and the ability to scale during a seasonal surge.

In addition, what is the true cost of that workforce? In site selection, the retailers cannot depend on public information to estimate labor costs. For example, public data might state $9.50 is the average rate, but if all the nearby DCs in a large industrial park are paying $10.50 then employees you intend to pay $9.50 will not have a long tenure. Budgeting the incorrect labor rates could have a significant impact when evaluating the ROI on a DC site selection.

Some retailers have sacrificed transportation advantages and located in remote areas to find less expensive real estate and labor. This strategy can be very effective but sometimes the higher-level employee and management is difficult to find.

When evaluating a DC site location, a retailer must create a team to truly understand and quantify the following:

  • Does the available labor pool match the required skill set?
  • Will the labor pool continue to be reduced/pressured because of nearby economic growth?
  • What is the true cost to hire and retain employees?
  • What are optimal commuting patterns?
  • Do the correct metrics exist for the retailer to hire a 4:1 ratio during the seasonal surge?
  • Are there competitive DCs in the area and building characteristics that influence employee retention?

E Smith Realty’s industrial team has successfully led several retailers through this site selection process. Read more about our experience in selecting and securing DCs for retailers or for questions contact: Brad Struck, SIOR, President, Industrial Services for E Smith Realty.