By Steve Purvis, Managing Director at Bis Henderson Space
With the Easter out of the way, many retailers and their supply chain partners will be starting to plan and secure their warehousing space and resource requirements for the Big One – the ‘golden quarter’ and the Christmas peak.
Predicting requirements seven or eight months ahead is always a nightmare, and this year looks particularly fraught. There is, of course, a ‘cost of living crisis’ but strangely, although full figures are not yet in, it looks as though consumer spending in the Easter peak held up much better than expected – indeed, anecdotally it appears that some retailers and suppliers were short of stock as demand exceeded their somewhat gloomy expectations.
Price inflation remains painfully high, but may decline rapidly over the course of the year. Or we may be trapped in a rerun of the high-inflation Seventies – both views are available, often from the same economic forecasters.
One rather firmer prognostication is that e-retailing seems to have found its new natural level – around a quarter of retail trade. So omnichannel is the way forward for many retailers, with the additional complexity that this brings to warehouse space planning.
Given the uncertainties, many firms will have held back on committing to space for the winter peak, and some, with pressure on margins and anticipating subdued trading, will have decided not to renew leases on some of their existing estate. That in itself is no bad thing – in our experience it very rarely makes sense for a business to scale its ‘permanent’ warehousing facilities to accommodate the highest peaks in demand. This ties up capital, or drains cashflow, whilst making an inefficient use of scarce and increasingly expensive labour and other resources during the off-peaks – which for many firms is most of the year.
And this year, particularly, is not a good time to be entering into long-term space commitments. Despite some big names, especially in e-commerce, rationalising their warehousing estate, quality space is still in short supply, whilst landlords are facing eye-watering increases in the interest they are paying. Unsurprisingly this is reflected in rents: the agents Colliers report that in 2022 there was a year-on-year increase of 10.5% in rents for large (100,000 sq ft plus) units, and a huge 13.2% on smaller and multi-let facilities and, say the agents “these will continue to rise, albeit at a slower pace”. Meanwhile, the bills for rates, electricity and other utilities, insurance and all the other costs of operating even a half-empty warehouse continue to increase.
The solution is to adopt strategies that embrace and make a virtue of short-term leasing. While the headline rates per square foot may look high, the business is only paying these for the time that the space is needed, and in practice rates are often highly competitive as the space provider is keen to see any return on what is otherwise an underutilised or idle asset.
Nor is the renter paying throughout the year to heat, light, staff and otherwise maintain largely empty space. And often, if a business moves in to take up another company’s spare capacity (which may be because that company is overprovided, or because its peak requirements are at a different time of year) many of the operating costs, perhaps even including labour and IT, are already paid for, so the renting company is charged something closer to the marginal rate rather than the full cost. It can even be that facilities are available already equipped with levels of productivity-enhancing IT and automation that the business would struggle to resource or justify on its own account.
However, the flexibility offered by a strategy that includes short-term lets isn’t just for Christmas. It can allow a supplier or retailer to experiment – with new product lines, with new regional markets or new customers, with new distribution chain architectures, with different blends and approaches to the physical store/e-commerce balance – at relatively little long-term risk.
Such a strategy may even lead to semi-permanent arrangements: an understanding that the business is minded to take the same space for the same three months every year.
Bis Henderson Space has many years of experience in helping companies ‘right size’ their peak space requirements, and then securing the right temporary space: right in terms of cost, location, and facilities, from bare sheds to space in fully-manned and equipped distribution centres. We have built an extensive network of space partners who, sometimes occasionally, sometimes predictably year-on-year, have more warehousing than they need. They are often keen not only for the extra income but for the productivity and efficiency improvements – such as being able to maintain a fully employed permanent staff – that full occupation of their facility can yield.
We help companies find and implement mutually beneficial deals surprisingly quickly – but be warned: an increasing number of companies are now actively seeking the benefits of including short-term accommodation as part of their warehousing strategy – and Christmas is closer than you think!
Bis Henderson Space has many years’ experience in this market. We can help convert your seasonal space requirements from a firefighting emergency to a considered tactical response as part of your wider warehousing/fulfilment strategy.