Retail Supply Chain Fix: Back to the Future

January 14, 2022

The Supply Chain

The supply chain, as we've come to know it, began to dominate U.S. product supplies in the mid-1990s, when more U.S. companies seeking cheap labor decided to outsource most or all manufacturing of their products to foreign countries, primarily Communist China.

They calculated that the savings on the cost of facilities, machinery, and labor more than offset the shipping expense, virtually all of which is done by container cargo ships.

supply chain

Add the "just in time" inventory strategy where retailers are now entirely dependent on the continual flow of products to stock their shelves and no longer maintain local or on-site inventories, and you've just created an economically efficient but fragile supply chain.

Retail Inventory History

It wasn't so long ago when the stores of many major retailers, and even many smaller retailers, would divide their space between retail selling floor space in the front and an inventory warehouse at the rear. The ratio for single-story buildings was typically 2/3 retail and 1/3 warehouse or a full-basement for inventory storage. And, those who didn't have an on-site inventory warehouse had an inventory warehouse nearby.

While this method was more costly in that it required more physical space plus the inventory cost, it also gave retailers significant control over their inventory.

supply chain

 Having on-site or nearby inventory also allowed the retailer to provide better customer service and avoid potential inventory supply shortages.

The Supply Chain Problem

supply chain
supply chain

As of this writing, there are reportedly more than 90 cargo container ships off the coast of southern California. And, they are among the first significant wave of cargo ships to reach the U.S. west coast from the far east since the start of the Covid-19 pandemic in early 2020 due to government-ordered production shutdowns in China.

However, the lack of off-loading and shipping in the U.S. is primarily due to labor shortages resulting from U.S. government Covid-19 mandates, among other things, which are causing widespread shortages of everything from computer chips to medicines and food. Just as bad is that U.S. farmers cannot ship their products abroad because the ships that would take their products are the same ships that are still waiting to be off-loaded.

What has followed are widespread shortages of products and escalating prices for existing product supplies, not to mention the significant increase in the pay scale for workers in this industry sector.

Shortages of computer chips have also had a severe negative impact on U.S. auto production, which has resulted in supply shortages and a significant increase in prices of both new and used cars due to the pent-up demand from the previous and long-enduring Covid-related restrictions.

supply chain

Another adverse effect from this supply disruption has been the financial damage to the consumer due to the rapid and substantial price increases and the impact on the bottom line of retailers of virtually all sizes.

Unfortunately, until there's a change in the way to smooth out potential future supply disruptions, which are almost certain to occur, the convenience of shopping as we've known it will be gone along with many more retailers.

How to Solve This Problem

I recently appraised a large strip shopping center in northern New Jersey, the initial section of which was built in 1960.

In that initial section were two end cap tenants; a supermarket at one end and a J.J. Newberry's five and dime store at the other end. The J.J. Newberry space originally contained 45,000± square feet of retail floor space and about 22,000 square feet in a 2-story inventory warehouse at the rear of the retail space.

supply chain

Over the years, J.J. Newberry went out of business, and their space was reconfigured for smaller users. Unfortunately, this left the inventory warehouse space unusable. But, putting this specific shopping center aside, I believe there's a valuable lesson to be learned from the original configuration of that space.

And, what I think is so important about it, is how the original configuration as a retail store with an on-site inventory warehouse could substantially minimize the supply and economic damages caused by future sporadic inventory shortages from the herky-jerky nature of the modern supply chain.

Will having on-site or nearby retail inventory warehouses be the end-all-be-all to eliminate supply-chain issues? Probably not.

But, what having these facilities will do is to smooth out the severity of the impact from these disruptions, give the retailer and the consumer a more reliable supply and price structure, and eventually allow the transition of manufacturing back onshore by those companies who undoubtedly will bring at least some, if not all of their manufacturing back the United States.

With decades of commercial real estate brokerage experience, I'd be happy to discuss you needs for industrial space to help support and grow your business.

Contact me at your earliest opportunity to set up an appointment for a complimentary, no obligation conversation.

I look forward to hearing from you.

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