America's largest warehouse is running out of space.  It will get worse

America’s largest warehouse is running out of space. It will get worse

SAN BERNARDINO, Calif., Aug 2 (Reuters) – America’s largest warehouse market is crowded as major US retailers warn of a slowdown in sales of clothing, electronics, furniture and other goods that filled distribution centers east of Los Angeles.

Goods continue to come in from across the Pacific, and things are even worse for one of the busiest warehouse complexes in the US.

Experts warned that the U.S. supply chain would suffer a “whip effect” if companies panicked to order goods to fill shelves and faced a drop in demand while supplies were still flowing in from Asia.

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In the largest warehouse and distribution market in the United States, stretching east from Los Angeles to the area known as the “Inland Empire”, this moment seems to have come.

“We feel the sting of the whip,” said Alan Amling, a supply chain professor at the University of Tennessee.

The sprawl of Inland Empire warehouses, centered on Riverside and San Bernardino counties, has grown rapidly in recent years to cope with rising demand and goods imported from Asia.

This booming area, visible from space, is the anchor of an industrial corridor covering 1.6 billion square feet of warehouse space that stretches from the busiest US seaport in Los Angeles to the borders of Arizona and Nevada. This large storage space is nearly 44 times the size of New York’s Central Park and 160 times the size of Tesla Inc. (TsLA.O) New Gigafactory in Texas.

But cuts in consumer spending now threaten to flood warehouses here and across the country with more goods than they can handle, exacerbating the supply chain problems that fueled inflation. Retailers left with junk merchandise are faced with a choice: pay more money to store them or cut profits by selling them at a discount.

Warehouse vacancy in the Inland Empire is among the lowest in the country, at a record 0.6% compared to the national average of 3.1%, according to real estate firm Cushman & Wakefield.

The market is poised to get even tighter as shoppers at Walmart (WMT.N)Best Buy (BBY.N) and other retailers are turning back on excessive spending in the age of COVID.

EXECUTION DELAY

While U.S. consumer spending remains above pre-pandemic levels, retailers and suppliers are sounding the alarm about lagging categories that have fallen out of fashion as consumers catch up on travel and fight the highest inflation in 40 years.

Last week, Walmart reported that rising food and fuel prices have left its low-income customers with less money to spend on merchandise, and Best Buy said shoppers are cutting spending on discretionary items such as computers and TVs. read more These warning signals follow those of Target Corp. (TGT.N) warn him that he was burdened with too many televisions, kitchen appliances, furniture and clothes. read more

Suppliers are from barbecue grill manufacturer Weber Inc. (WEBR.N) Elena Troyanskaya OOO (HELE.O)The consumer brand conglomerate that includes OXO kitchen tools also warned of a slowdown in demand and an urgent need to clear stock.

While the US economy was in decline, goods continued to flow at near-record levels.

Imports to U.S. container ports that handle retail goods from China and other countries grew more than 26% in the first half of 2022 compared to pre-pandemic levels, according to Descartes Datamyne. Christmas deliveries and the reopening of major Chinese factory centers could boost volumes even further.

In the meantime, cargo continues to flow into the busiest US port complex in Los Angeles/Long Beach. In the first half of this year, dock workers handled about 550,000 more 40-foot containers than before the pandemic, according to the port.

In July, Christmas toys and winter holiday decor landed at those docks, as did patio furniture for Walmart and stretchy pants, jeans and shoes for Target, said Steve Ferreira, CEO of Ocean Audit, which scrutinizes shipping bills.

Retailers ordered most of these merchandise a few months ago, and many of them are destined for the Inland Empire’s already crammed warehouses.

“It’s a domino effect. Inventories will really increase now,” said Scott Weiss, vice president of Performance Team, Maersk. (MAERSKb.CO) a company with 22 warehouses in Greater Los Angeles.

The demand for space in the Inland Empire is so great that when 100,000 to 200,000 square feet of space is freed up, it “burns up in a second,” Weiss said.

SEARS AND PARKING

Investors are building nearly 40 million square feet in the Inland Empire, including Amazon.com Inc. (AMZNO.O) the largest warehouse in history, and at least 38% speak for it, said Dane Fedora, vice president of research for Southern California at Newmark, a commercial real estate consultancy.

While Amazon’s 4.1 million-square-foot facility perches on former dairy land in the city of Ontario, the online retailer is delaying plans to build elsewhere in the country.

Amazon is the largest warehouse leaser in the Inland Empire and in the country. His decision to cut construction, combined with rising interest rates and a slowing economy, is sidelined by other would-be Inland Empire warehouse builders, local real estate brokers and economists told Reuters.

Meanwhile, the battle for space continues.

Trucking company yards and spare lots across the region have already been turned into makeshift container storage, so entrepreneurs are touting empty stores as spare warehouses on hold.

Brad Wright is the CEO of Chunker, which bills itself as an AirBNB for warehouses and works with everyone from government officials to empty large store owners to find new places to store goods.

On a recent tour of the former Sears anchor store at San Bernardino’s Inland Center mall, Wright and a potential tenant strolled past collapsed ceiling tiles, sagging wall panels and idle escalators, trying to figure out how forklifts would move through the abandoned space. Wright sees empty warehouses as one way to ease log jams.

“There are a lot of them, and they are in good places,” he said.

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Reporting by Lisa Bertlein in Los Angeles. Additional reporting by Siddharth Kavale in New York. Editing by Kevin Rabbits, Ben Klyman and Matthew Lewis.

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