Navigating Warehouse Vacancy Rates

August 23, 2022
5 min read

In this video, Ware2Go’s Senior Manager of Supply Chain Strategy explains why warehouse vacancy rates are so low and what you can do about it.

Why Are Warehouse Vacancy Rates So Low?

Warehouse space is really tight across the US really due to a myriad of reasons. Prior to COVID, a lot of merchants were running a just in time inventory. They were bringing in inventory as it was selling. But when COVID hit, they had a hard time getting inventory in time. So when they were able to manufacture that inventory and they were able to get it across to the US, they were overstocking. They were sending in more inventory than they needed in order to make themselves feel comfortable with what they had so that they didn’t run into the same problems that they had during COVID. So a lot of warehouses are overstocked with merchant inventory.

The other piece of it, as well, is that while there was a significant amount of warehousing under construction over the last few years, we’ve hit a pretty significant delay over the last year and a half to two years because of supply chain disruptions to the construction industry. Materials were having a hard time getting that in and so a lot of those timelines for new buildings have been prolonged.

Merchants are having a hard time forecasting for their customers. I think that is really across the board for retailers, for ecommerce sellers. For everybody, not really being able to pinpoint the exact expectations of the customer population. Part of that is that we’re seeing a smaller set of products that are actually selling versus the entire catalog that our merchants are selling. They’re seeing a lot more of those C, D and E slower moving SKUs sit in the warehouses versus what they expected when they put them there.

How Can Merchants Better Manage Inventory?

One other thing that merchants can do is move back towards that just in time inventory planning, it doesn’t have to be as tight as it was pre COVID. But being able to really forecast those top movers and keep lower amounts in the warehouse in order to be able to minimize the amount of capital expenditure that they have in that inventory and driving really a lot more turns.

So when you run a tighter supply chain, you’re able to put that money that you would normally have sitting in inventory in the warehouses, in other parts of your business. And part of that is being able to understand where you need to put your inventory at what time and what amounts.

How Can Merchants Better Distribute Inventory?

One of the things that can be done is build out a distribution center, fulfillment center model. So hub and spoke, more or less, where you have a few concentrated centers that are running distribution for all of your SKUs, and they have higher amounts of inventory, but they’re typically further away from the more expensive cities. And then having smaller fulfillment centers across the US that can bring your highest moving SKUs to your customers — to your end customers — faster.

In having the distribution center/fulfillment center hub and spoke model, you’re able to drive a lot more of that management so that you can make quick decisions, so that if you have a SKU that goes out of style and you’re selling less of it, you’re seeing less of it go through your marketing channels, you can quickly pivot and stop sending it to your fulfillment centers. Stop filling your fulfillment centers with products that aren’t turning and then utilize really the product that is in the distribution centers to make your decisions in the long run.

How Does Ware2Go Help Merchants Navigate Warehouse Vacancy Rates?

One of the things Ware2Go is really good at is utilizing historical data to be able to help our merchants drive better inventory management, really. We can understand where customers are ordering from and therefore utilizing our tools, like network view, we can tell our merchants it’s best for you to be in these three areas. And so we’re able to utilize our technology to help drive where in our network, our merchants are best set up for success.

Looking for more insights on the current state of supply chain and fulfillment? Sign up for Ware2Go’s monthly newsletter to hear from more experts like Gabby Avery.

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