E-commerce center's economic impact part of larger picture

GMCS Editorial: An excellent analysis by the York County Economic Alliance of the impact of just one project on an entire region.  

In announcing it would be opening an e-commerce fulfillment center in York County, Target said it would bring with it 250 new jobs and invest about $52.5 million in the site.

What is the overall economic impact to the community of such an endeavor?

The York County Economic Alliance says the center is projected to have a direct effect of more than $82.3 million on the local economy annually.

But there's also the number of jobs directly created by the company and jobs created by the company doing business with other local businesses, as well as by the new employees spending their paychecks for haircuts, groceries and the like (see “New Target e-commerce fulfillment center impact" below).

Perhaps the biggest business impact comes from the infrastructure improvements that eventually flow from the tax dollars the operation generates, said Ian Langella, chairman of the Department of Finance and Supply Chain Management at Shippensburg University.

“What's the economic benefit for the region? It's jobs, but more precisely, it's tax revenue,” he said. “Tax revenue off the jobs and from the company. That brings about improving infrastructure.”

The project, announced Feb. 10, received conditional approval from West Manchester Township site in January. Township officials said the necessary conditions have been met, but the plan has not been recorded, meaning site preparation work can start, but no construction can begin.

Economic impact

The NAIOP Research Foundation, the research arm of the national commercial real estate development association, does a report on the impact of different types of commercial real estate on national and state economies, said Kathryn George Hamilton, NAIOP vice president for marketing and communications.

In 2013, the most recent year available, the soft costs (such as design fees), hard costs (such as materials) and tenant improvement of warehousing in Pennsylvania resulted in $793 million in spending, she said. The total contribution to the state's economy was $1.86 billion. The sector had 13,713 jobs.

The group doesn't break the numbers down by county, Hamilton said.

But Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp., said the analysis holds true in Cumberland County.

“Based on our analysis, distribution and warehousing is the second-highest property type we have after commercial general,” he said. “Those types of uses produce a significant local real estate tax.”

However, e-commerce centers are different from general warehouses, Bowser said. Because those centers in Cumberland County are providing an in-demand service for a large portion of the Mid-Atlantic, they tend to hire more workers. For example, the Amazon.com fulfillment center in South Middleton Township recently advertised to hire more employees.

“A product has a longer shelf life in a distribution center,” he said. “The purpose of an e-commerce center is getting the goods out to consumers faster.”

Langella said e-commerce centers are set up differently from warehouses. A warehouse has tractor-trailers on one end delivering products. The outgoing trucks are full of a mix of products headed for specific stores.

An e-commerce center's input is the same, but the output is made up of smaller, third-party delivery services, such as UPS, that take products to customers directly.

And all of this drives tax revenue, he said, leading to improved roads and bridges that other businesses benefit from. He also noted certain quality-of-life aspects get improved, too, such as school systems. That can create incentive for more skilled workers — with stronger earning power — to locate here, he said.

Target project

So it's no wonder that YCEA President and CEO Darrell Auterson, when commenting on the Target project, said, “It's a good day for York County.”

The YCEA uses a computer program called Implan to calculate the projected economic impact of a business or an event, said YCEA Executive Vice President Katie Lentz. The program uses formulas for certain economic sectors to make the projection based upon the number of jobs expected to be created or the amount of money being invested.

The program can also look at other industries that would be affected. In the case of Target, the warehousing and distribution industry would see the biggest increase in the number of jobs, at more than 265, Lentz said. But the next largest impact would be on maintenance and repair construction of residential structures, with a projected 231 jobs.

“The third most impacted is retail,” she said: An additional 107 combined jobs across the sector would be created.

When factoring in the one-time construction jobs that would be tied to the project, which includes expanding the 625,000-square-foot facility by another 160,000 square feet, it would result in 927 total jobs, she said.

New Target e-commerce fulfillment center impact

The York County Economic Alliance uses a program called Implan to calculate the economic impact of certain businesses or events based upon certain criteria.

For the Target project, YCEA ran two projections using two criteria: Target said it would create 250 new jobs and would invest about $52.5 million in the West Manchester Township site.

Economic impact by employment

Impact type*	Employment	Labor income**	Total value added***	Output****
Direct effect	479.8	$30.2 million	$41.6 million	$82.3 million
Indirect Effect	244.2	$8.5 million	$15.7 million	$26.3 million
Induced Effect	203.1	$7.9 million	$14.6 million	$24.2 million
Total Effect	927.1	$46.6 million	$71.9 million	$132.8 million

Top 10 industries affected

Industry	Employment	Labor income**	Value added***	Output****
Warehousing and storage	265.5	$15.1 million	$19.6 million	$31.7 million
Maintenance and repair construction of residential structures	231	$16.1 million	$23.2 million	$52.8 million
Retail - Nonstore retailers	31.5	$402,290	$1.7 million	$3,110,899
Real estate	27	$265,373	$4,414,168	$5,471,264
Retail - Miscellaneous store retailers	24.9	$376,790	$402,647	$749,449
Employment services	24.1	$589,413	$762,233	$976,481
Retail - Clothing and clothing accessories stores	22	$379,473	$733,698	$1,434,461
Retail - General merchandise stores	15.2	$388,883	$560,905	$962,692
Hospitals	14.2	$1,001,069	$1,012,210	$1,923,595
Retail - Gasoline stores	13.6	$331,094	$440,488	$804,595

*Direct effect is the total number of jobs, including temporary construction, that will be created by the project. Indirect effect is how many jobs will be created by the center doing business with other businesses locally. Induced effect is how many jobs will be created by employees of the center spending paychecks at local businesses.

**Labor income is the expected total amount of money workers will make.

***Total value added is the total income the project will generate in the local economy.

****Output refers to the total economic value of the project in the local economy.

Source: York County Economic Alliance

Source: Central Penn Business Journal