America’s biggest warehouse is running out of room. It’s about to get worse

Date: Thursday, August 4, 2022
Source: Reuters

America's largest warehouse market is full as major U.S. retailers warn of slowing sales of the clothing, electronics, furniture and other goods that have packed the distribution centers east of Los Angeles.

The merchandise keeps flooding in from across the Pacific, and for one of the busiest U.S. warehouse complexes, things are about to get worse.

Experts have warned the U.S. supply chain would get hit by the "bullwhip effect" if companies panic-ordered goods to keep shelves full and got caught out by a downturn in demand while shipments were still arriving from Asia.

In the largest U.S. warehouse and distribution market - stretching east from Los Angeles to the area known as the "Inland Empire" – that moment appears to have arrived.

"We're feeling the sting of the bullwhip," said Alan Amling, a supply-chain professor at the University of Tennessee.

The sprawl of Inland Empire warehouses centered in Riverside and San Bernardino counties grew quickly in recent years to handle surging demand and goods imported from Asia.

That booming area, visible from space, anchors an industrial corridor encompassing 1.6 billion square feet of storage space that extends from the busiest U.S. seaport in Los Angeles to near the Arizona and Nevada borders. That much storage space is nearly 44 times larger than New York City's Central Park and 160 times bigger than Tesla Inc's (TSLA.O) new Gigafactory in Texas.

But a consumer spending pullback now threatens to swamp warehouses here and around the country with more goods than they can handle - worsening supply-chain snarls that have stoked inflation. Retailers left holding unwanted goods are faced with the choice of paying more money to store them or denting profits by selling them at discount.

Inland Empire warehouse vacancies are among the lowest in the nation, running at a record 0.6% versus the national average of 3.1%, according to real estate services firm Cushman & Wakefield.

The market is poised to get even tighter as shoppers at Walmart (WMT.N), Best Buy (BBY.N) and other retailers retreat from early COVID-era spending binges.

BINGE TO BACKLOG

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

Last week, Walmart said surging food and fuel prices left its lower-income customers with less cash to spend on goods, and Best Buy said shoppers were curbing spending on discretionary products like computers and televisions. Those cautionary signals followed Target Corp's (TGT.N) alert that it was saddled with too many TVs, kitchen appliances, furniture and clothes.

Suppliers - ranging from barbecue grill maker Weber Inc (WEBR.N) to Helen of Troy Ltd (HELE.O), a consumer brands conglomerate that includes OXO kitchen tools - also have warned of slowing demand and an urgent need to clear inventories.

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