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Retailers Downsize Logistics Networks as Pandemic Disruptions Ease: WSJ

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by Sakthi Prasad , Director - Content
6 June 2023


Major retailers such as Big Lots and Walmart are streamlining their logistics networks and warehouse space, responding to eased Covid-19 pandemic supply chain disruptions and a shift in consumer spending towards services, a move that is anticipated to moderate the previously surged warehousing demand, according to the Wall Street Journal.

The Journal points out that Big Lots closed four forward distribution centers last month, following a decline in sales. These smaller facilities, situated closer to customers than traditional warehouses, were initially opened to handle bulk products during the pandemic when the retailer was experiencing a period of high growth, as stated by Jonathan Ramsden, the Chief Financial and Administrative Officer at Big Lots. However, he commented, “In the current economic environment we no longer need the additional capacity”.

The WSJ said that during an earnings call on May 26, executives of the Ohio-based company announced that they saved $100 million in annual costs in Q1 by implementing measures such as the closure of these distribution centers. Their net sales reportedly saw a year-over-year decrease of 18.3% in the first quarter, falling to $1.12 billion, while their inventory levels also dropped 18.8% compared to the previous year.

Rob Handfield, a professor at North Carolina State University specializing in supply-chain management, told WSJ that retailers are reassessing their logistics operations, including warehouse space, as consumer demands for swift shipping have cooled and spending has shifted more towards services.

“You’re starting to see demand slowing and they’re realizing, ‘Maybe we don’t need as much inventory, and if we don’t need as much inventory, we don’t need as many [distribution centers],’” Handfield told the newspaper.

The pandemic saw retailers expanding their logistics networks in an attempt to navigate supply-chain blockages and expedite deliveries to cater to the rising e-commerce demand. This expansion led to a surge in demand for distribution space, dropping the industrial real estate vacancy rate to a multiyear low of 2.9% in Q2 2022, the Journal observes. However, the vacancy rates have started to rebound in recent months, and companies are now decreasing their leasing activities or reducing space to adapt to the changing economy.

The Journal highlights that even e-commerce behemoth, Amazon.com, which had doubled its fulfillment network size during the pandemic, started to curtail its expansion last year as sales slowed down. According to logistics consultant MWPVL International, the company has closed, postponed or delayed work on 115 warehouses in the U.S. within the past year.

In addition, the Journal reveals that this contraction has impacted employment in the warehouse sector. According to the Bureau of Labor Statistics, payrolls in the sector decreased by 1,900 jobs in May, reaching their lowest level since January 2022, and have dropped by over 41,000 jobs in the past year.

The WSJ mentions Walmart, stating it is reducing its workforce at fulfillment centers across the country, as confirmed by notices filed with several states under the Worker Adjustment and Retraining Notification Act. A spokesperson from Walmart mentioned in March that the company aims to optimize its network of stores and fulfillment centers “to deliver items for online customers, when and how they want them.” This action is in response to the change in customer preferences for smaller package sizes and store brands as a cost-management strategy.

The Journal further reports that Ashley Furniture Industries, a leading furniture manufacturer and retailer in the U.S., also closed a distribution center last year, which was initially opened during the pandemic. As travel restrictions eased and consumers started to prioritize spending on experiences and trips, the demand for home decor and furniture that had surged during the pandemic began to wane.

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