The Warehouse Space Race
With warehouse capacity at a premium, businesses try to get goods and move them out as global economic chaos disrupts long-held ideas about stocking stuff just in time.
BY GABRIELLE GURLEY The pandemic shattered the fine art of moving stuff from your fingertips to the front door. Purchases of food, household supplies, and over-the-counter medicines exploded when COVID-19 lockdowns spread across the globe. American businesses fought to keep up as the world’s most voracious consumers, propped up in part by stimulus payments and boosted unemployment insurance, traded in-person movies, sports events, and concerts for new clothes, armchairs, books, TVs, and other creature comforts that could be packed up and shipped to their homes. This triggered severe strains at every level of the nation’s transportation and logistics system, with cargo buried on offshore ships, in stacked containers, at overflowing ports, and in creaking truck beds and railcars. Many companies compensated for this by ordering “safety stocks”—additional inventory to guard against supply chain slowdowns, ensuring they’d have at least something to sell. But this led to a new problem: finding a place for the goods once they finally trickled out of ports. The pandemic and the logistics mess exposed a long-standing issue: The United States doesn’t have enough warehouses, or workers to run them, to satiate Americans’ insatiable desires for new stuff. This has led to a mad scramble for storage, 40 PROSPECT.ORG FEB 2022
a warehouse space race. Rents for renewing existing leases are at “nosebleed” levels, according to commercial real estate firm CBRE. Almost 96 percent of existing space in the U.S. is in use. Of the 190 million square feet of warehouse space under construction in 2020 across North America, almost half of it was pre-leased. Private equity firm Blackstone, which normally seeks riches in more high-flying deals, recently paid $2.8 billion for warehouse space to lease out. The race for space heralds a massive transformation for the communities where new facilities land. Amazon has led a warehouse construction surge in rural towns and urban neighborhoods. There are boarded-up shopping malls to be converted, too. Large warehouse-seeking companies promise jobs, pocket tax breaks, and deliver noise, traffic, and air pollution while oblivious consumers sit somewhere else waiting for their cardboard boxes. In addition, with death and the threat of it closing in every workday, warehouse workers have reassessed what it means to do physically and mentally debilitating manual labor, unappreciated by firms bent on paying them as little as possible now and aiming to replace them with robots later. But one nagging question is, how did the country get caught so short? How were retailers so ill-prepared for the need
for more warehouse capacity, when we’ve known about the e-commerce surge for years? The answer lies with our corporate titans of conspicuous consumption, who are always thinking about how to refine the lean inventory management philosophies that have steered commerce for several decades. In the 1980s, big-box retailers like Walmart embraced an inventory management philosophy that had already catapulted Japanese companies like Toyota into the first rungs of global manufacturers. In a sense, American retailers did an about-face, embracing concepts that auto companies rejected when W. Edwards Deming, an American engineer and New York University statistics professor, first proposed them before World War II. Deming went to Japan to assist with the postwar reconstruction effort, and continued touting his ideas. His “total quality management” philosophy rested on imbuing a company’s leadership goals with team-oriented approaches. Success meant that everyone, from assembly line workers to executives, worked on problemsolving strategies that could occur at any point in the production cycle. Workers observed problems in producing or moving goods as they developed and assisted managers in resolving them.
