They are rising in farm country west of King of Prussia like
giant garrisons positioned to deploy packages to shoppers up and down the
Atlantic Coast: automated warehouses of herculean proportions aimed at moving
online orders to people's doorsteps in just hours.
Philadelphia's Urban Outfitters Inc. is among a
rush of titanic store-based retailers spending staggering sums to open online
fulfillment centers closer than ever to customers, in a red-hot patch of
Pennsylvania along the state's toll-free I-81 spine.
Development officials say they are witnessing a
surge of interest in building warehouses that can pick, pack, and ship people's
orders at lightning speed. The mad dash is fueled by the promise of same-day
and overnight delivery, an ante set by Internet-only Amazon, a $61 billion
player whose own billions spent thus far are a powerful incentive.
"Their job," e-commerce expert Michael
Golden said of Amazon, "is to make sure you don't want to shop anywhere
else."
Stepping up its game Oct. 7 with a big-money
announcement was Philadelphia-based Urban, a front-runner in e-commerce.
The retailer, with headquarters at the Navy Yard,
announced it would break ground this month on a million-square-foot center on
52 acres in Lancaster County for products spanning its Free People,
Anthropologie, Urban Outfitters, and other brands.
The planned $110 million facility in Gap, Pa.,
will be built across from a 200,000-square-foot warehouse that ships
merchandise to the $2.8 billion corporation's stores. The move aims to
turbo-boost Urban's industry-leading capacity to move its apparel and
accessories to the customers who buy it on cellphones, iPads, and computers and
from catalogs.
Until now, Urban filled this need with operations
as far away as Reno, Nev., and Trenton, S.C.
Other store-based retailers are prowling, too,
eager to capitalize on the region's interlocking interstate highways, proximity
to the dense Northeastern United States, and increasingly numerous FedEx and
UPS hubs and stations, all key to achieving cost-efficient same-day and
overnight delivery.
The push is giving Pennsylvania traction against
farther-away states, whose development incentives, in years past, could lure
conventional warehouses.
Seattle-based Nordstrom Inc. is in talks with
communities near Lancaster and Chambersburg for an 800,000-square-foot center
for the department-store chain's online needs, said Mike Ross, president of the
Franklin County Area Development Corp.
And three large, unnamed retailers are considering
up to five sites, said Michael Rossman, who leads the deal-making Governor's
Action Team of the Pennsylvania Department of Community and Economic
Development (DCED).
"What we're hearing is a lot of people trying
to keep pace with Amazon and their current ability for same-day delivery,"
Rossman said.
The leader in online retailing, Amazon has three
fulfillment centers in York and Cumberland Counties, two in Lehigh County, and
one in Luzerne County, according to the DCED. In 2012, Macy's opened a $150
million, 1.3 million-square-foot facility south of Chambersburg in West
Virginia.
"It only seems to be accelerating," said
David Nikoloff, who helped negotiate tax breaks with Urban as president of the
Economic Development Company of Lancaster County and is in talks with another
retailer. "I'm expecting other people will be knocking on the door."
From Day One, Urban made clear that its preferred
location was not, as in the past, somewhere faraway. It wanted Pennsylvania,
Nikoloff said, because the rules of online now require it.
"Location and proximity for overnight
delivery," he said, recounting what company officials stressed in
meetings.
Urban Outfitters declined to comment for this
article.
The chase follows an Amazon-led movement dubbed
microfulfillment: "Putting the product as close to the consumer as they
can," said Golden, who helped many retailers develop online selling
platforms over the last decade through GSI Commerce, a King of Prussia company he
helped establish and that has since been sold to eBay.
Seattle-based Amazon has spent almost $13.9
billion on fulfillment expenses, including 50 new facilities, since 2010,
according to Bloomberg News. And the retailer recently announced new centers in
Florida and Baltimore.
Store-based retailers are acting with urgency to
up their own capacity. The timetable for locating and opening fulfillment
centers is shorter than ever, according to state officials, and the facilities
are larger than old-style distribution centers, too.
"We have a number of these retailers who are
trying to rush," said Ross, a 28-year development official in Franklin
County, whose proximity to I-81 and the Pennsylvania Turnpike have long made it
a locus of more conventional warehouses. "There's a need to get these
centers sited and built as quickly as possible."
For store-based retailers, expanding online
capacity is a matter of survival. Sales at stores are flattening overall as
customers divert dollars to online vendors at a remarkable pace. Online retail
sales reached $231 billion in 2012 and are forecast to hit $262 billion this
year and $370 billion by 2017, outpacing growth at stores, according to
Forrester Research Inc.
Each time a retailer loses a sale to an online
competitor, it reduces the pot of revenue the company is left with to cover
costs associated with stocking and operating stores.
But online sales are important in another way:
They can be more profitable because it is cheaper to sell out of a warehouse
than a store - as long as delivery costs are contained and a high volume of
merchandise flows out.
Urban is pursuing this latter promise of higher
profits more than defending against competitors like Amazon, said analyst and
managing director Barbara Wyckoff of CLSA Americas, who has followed the
e-commerce trailblazer for 13 years.
A company founded four decades ago as a single
storefront, Urban has been visionary, long ago investing cash to develop
in-house information-technology capabilities to support the growth of online
sales.
Urban differs sharply from Amazon by not selling
goods at the lowest price. Nor does it offer free shipping from, say, its
pricey Anthropologie brand, Wyckoff said.
"They are one of the few that still makes you
pay shipping most of the time," Wyckoff said, "which really sets them
apart."
Urban is so full-steam-ahead with online growth
that it continues to expand its headquarters to support those ambitions. And
since retaking the chief executive's post in 2012, founder and chairman Richard
Hayne appears to have only intensified Urban's pursuit to sell more merchandise
through the Web and catalogs.
"That channel continues to be a more
profitable channel than stores, mainly because the cost of occupancy is higher
than the cost of delivery," chief financial officer Frank J. Conforti told
investors in September, according to a transcript of remarks at the Goldman
Sachs Global Retailing Conference.
"We think the consumer is going to continue
to move to the Web in a greater way and in a bigger way," Conforti added.
Eight percent of all U.S. retail sales in 2012
were from e-commerce, Wyckoff said. At Urban, that number is 25 percent,
accounting for online and catalog sales. That share outstrips even tech-savvy
Nordstrom, according to CLSA estimates Wyckoff recently published.
Urban's strategy is not, simply, to emulate what
it sells in stores worldwide. The company also sells Web-only products, and
uses the Web to keep inventory low at stores - another profitable maneuver.
If a customer is in an Anthropologie or Urban
Outfitters store in search of a missing color or size for a shoe, associates
can find it digitally in inventory, ring up the transaction, and have it
shipped to the customer, Wyckoff said.
In that sense, store-based retailers are seeking
an edge over Amazon by expanding online.
"Brick-and-mortar retailers . . . are
recognizing that stores can be used as an advantage," said Mark Larson,
national sector leader for retail at KPMG.
But achieving same-day and overnight delivery is
no easy thing.
Goods can be shipped from stores, or from
warehouses close enough to customers, said Barbara Kahn, director of the Baker
Retailing Center at the University of Pennsylvania's Wharton School. The
presence of many FedEx and UPS hubs is critical.
"EBay now is testing in five different cities
delivery within an hour," Kahn said.
Whether retailers can manage this without going
into the red is unclear.
"That's the million-dollar question,"
Kahn said. "There's just no question that delivering in a very short
period, that last mile, is expensive."
Source: Philly.com
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