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Annual revenues of more than $280 billion make clear that Amazon is an e-commerce giant, but it’s the online retailer’s two- and even one-day shipping period that shows it’s more than an online retail powerhouse; it’s a guru of logistics.
Timing was on Amazon’s side when it established more than 5 million square feet in distribution centers across southern and southeastern Wisconsin in recent years (including the recently completed four-story, 2.5 million-square-foot fulfillment center in Oak Creek), as the coronavirus pandemic has only heightened consumers’ online purchasing habits, which tilt heavily in Amazon’s favor.
“The analytics that (Amazon) uses to help them understand workforce and logistics are among the most advanced that we’ve ever seen,” said Jim Paetsch, vice president of corporate relocation, expansion and attraction for Milwaukee 7. “I can remember sitting in meetings with Amazon where they were telling us things about our workforce that even we didn’t know.”
With the pandemic and subsequent safer-at-home order, businesses have renewed their focus on e-commerce. Yet, retailers and manufacturers still struggle to adapt to the new landscape. Their biggest challenge is managing direct-to-consumer logistics systems, said Jeff Peterson, co-founder and chief executive officer of Delevan-based Geneva Supply, an Amazon and e-commerce strategy and fulfillment provider.
For a company to fully leverage e-commerce, a well-planned process that includes warehousing, packaging and shipping is critical. But logistics are only half the battle – branding, retail pricing and freight cost are all part of the equation.
“A lot of people are forced into having an e-commerce presence, but they didn’t calculate the cost of the pick, pack and ship,” Peterson said.
Businesses cannot expect to have the same freight pricing as Amazon because UPS and FedEx, for example, base freight cost on volume. Companies are now retooling their strategy as they navigate the nuanced process of getting a product to a consumer at scale while maintaining profitability, Peterson said.
Amazon has set the bar incredibly high for consumers who expect the speed and convenience of two-day freight free delivery. As businesses chase these expectations, they soon realize the extent to which their business is exposed in the era of COVID-19.
In Wisconsin, the pandemic revealed a trucking shortage related to getting e-commerce products to their destination, Peterson said. Across all categories, some manufacturers may not be prepared for a 40% to 60% growth in e-commerce, he added.
U.S. retail e-commerce reached $211.5 billion in Q2, up 31.8% from the first quarter and 44.5% year-over-year, according to a U.S. Census Bureau Q2 2020 report. E-commerce also accounted for 16.1% of total retail sales in Q2, up from 11.8% in the first quarter of 2020.
In fact, the rate at which experts believe e-commerce would grow three years from now may arrive within six to 12 months, Peterson said. This fourth quarter and holiday season will be a test for manufacturers and retailers, he said.
“Everyone has prepared as well as they could, but I would say if you’re trying to make sure you’ve got your Christmas presents arriving on time, I would do your shopping a little bit early,” Peterson said.
Milwaukee’s proximity to Chicago creates a unique dynamic given that few regions across the country have a population of 10 million within 90 minutes of them. With Wisconsin’s favorable taxes and business climate and Chicago’s reputation as a global city, it makes sense for Amazon to establish a distribution hub in the southeastern Wisconsin region, Paetsch said.
“One of the reasons you started to see much more distribution here is because of the busyness of Chicago and how much volume comes in and out of there. There’s a lot of bottlenecks that are there,” Paetsch said.
The same assets that draw distribution companies like Amazon to the I-94 corridor between Mitchell Airport and the state line also attract manufacturers, Paetsch said. And because manufacturing is the vertical with the highest multipliers in terms of job growth, the industry has always been a major focus for M7, Paetsch added.
Five million square feet of speculative industrial building has occurred in the M7 region over the past two years – developments that began before COVID-19, said Jeff Hoffman, principal with Cushman & Wakefield/The Boerke Co.
“The industrial real estate boom will only accelerate as supply chains are reconfigured and the mass consumer migration to e-commerce platforms continues,” Hoffman said.
But even as the demand for industrial real estate increases, the Milwaukee region is challenged by a lack of developable industrial land with access to labor markets and freeway systems that industrial tenants have come to expect, Hoffman said.
“There’s some things as a region and as a state that we need to start to think about in terms of, how do we make infrastructure investments that enable us to play in that space all the more?” Paetsch said. “You can tilt all you want against global trends and it’ll be to the detriment of the region.”