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LOGISTICS & DISTRIBUTION
From Site Selection magazine, September 2011
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Points of Advantage

Department stores take a regional approach to distribution centers.

LOGISTICS & DISTRIBUTION
Macy’s is expanding its online fulfillment center in Portland, Tenn.
Photo courtesy of Macy’s.
by JOHN W. McCURRY
O

nline sales are booming for many retailers such as Macy's. As its online business has grown, Macy's has put together a regional logistics approach with three large, strategically placed distribution centers. The latest piece of the puzzle is a massive 1.3-million-sq.-ft. (129,770-sq.-m.) facility now under construction near Martinsburg in Berkeley County, W.Va.

"We did an exhaustive search of sites up and down the Eastern Seaboard," says Macy's spokesman Jim Sluzewski. "This is an online fulfillment facility, and fulfilling online orders is an entirely different business than a distribution center that serves stores."

Easy access to an Interstate highway was critical in the search, as was proximity to major markets. The Martinsburg site is about a mile off of I-81 and is about 80 miles (129 km.) from both Washington, D.C. and Baltimore.

"We looked at hundreds of sites that were near an Interstate and within easy delivery distance, both for suppliers shipping goods into the distribution center and to the appropriate shipping vendors getting goods to customers up and down the East Coast," Sluzewski says. "Martinsburg is sort of on the outer limits of exurbia — in fact there is a commuter train [Maryland Area Regional Commuter] that terminates in Washington."

Online fulfillment centers, due to their one-shirt or one-sweater-at-a-time packing and sorting nature, require much more labor than store-focused centers. They also require significantly more floor space than Macy's 20 traditional distribution centers.

"This is a big employment deal, with 1,200 full-time and another 700 seasonal employees," Sluzewski says. "It was important that there was a pool of labor to be drawn from that has a good work ethic, and we found that."

Speed was critical too, with Macy's wanting to expedite the project. Public-sector cooperation in West Virginia helped.

"We were anxious to build as quickly as we could," Sluzewski says. "Our online business is growing by significant levels, month after month, year after year, and we were looking for a ready-made site and good governmental structure to help with approvals and permits. We found particularly good state cooperation in [state capital] Charleston."

The company's first online center opened in 2007 in Portland, Tenn., a far-northern Nashville suburb. Originally built as a 600,000-sq.-ft. (55,740-sq.-m.) facility, it is now being expanded to 975,000 sq. ft. (90,577-sq.-m.). Next came a 600,000-sq.-ft. (55,740-sq.-m.) building in Goodyear, Ariz., in 2008. That building now is home to one of the largest rooftop solar installations in the U.S.

Kohl's Department Stores also has three distribution centers for its online business. The latest facility opened this summer in Edgewood, Md. The company's other online centers are located in San Bernardino, Calif., and Monroe, Ohio. The company says the 602,000-sq.-ft. (55,925-sq.-m.) Maryland site was selected for its business-friendly community, strong economy, availability of a robust work force and proximity to Kohls.com's eastern customer base. Kohl's says it will expand the building to 1 million sq. ft. (92,900 sq. m.) by 2012.

Kohl's has experienced a more than 50-percent e-commerce revenue increase in 2010, and expects to achieve $1 billion in e-commerce sales in 2011.

Boston-based CSN Stores, an online retailer, has leased fulfillment centers in Hebron, Ky., and Ogden, Utah, totaling more than 200,000 sq. ft. (18,580 sq. m.). The company, which worked with Richards Barry Joyce & Partners in its search, is changing its distribution strategy for popular items.

"A year ago, we made the decision to start stocking a small percentage of our top-selling items to go from order to delivery within two days," says Greg Konicki, director of distribution for CSN Stores. "From Kentucky and Utah, we can cover 98 percent of the U.S. population within one or two days. Because we are a drop-ship model, we don't have to stock everything. We are very selective about what we bring into the distribution center."

Konicki says CSN considered several sites for its western facility, including Boise and Las Vegas, before selecting Ogden.

"Shipping was our first requirement, and we looked at the average square foot cost of facilities and that turned out to be competitive. That was a big driver for us. What turned out to also be a good thing is the work force. It's excellent. A lot of folks who have come to work for us have prior distribution and material handling experiences, so they are ready from the get go."

Konicki says northern Kentucky has been a hotbed for dotcom fulfillment operations with its major logistics hubs. He also says the main advantage of CSN's new system is the ability to serve customers quickly.

"If a supplier happens to be in New York and you are in California and you order from us, the current process was to allow a supplier two days to fill and ship and then it could be seven to eight days before you would receive it. We felt that was too long in the dotcom world. In our new model, the order will come in and we will ship the same day, and it will be in your hands within two days."

The two centers will stock CSN's top SKUs in terms of velocity. Most are small items such as home appliances, but office furniture is also offered.

Making the Grade

Ball State University's annual Manufacturing and Logistics Report Card gave "A"s in logistics to five states: Pennsylvania, Ohio, Indiana, Illinois and Texas. States were measured on the share of total logistics industry income as a share of total state income, and the employment per capita. Ball State also examined commodity-flows data by both rail and road, and per-capita expenditure on highway construction. Following is a look at recent distribution center projects in each of the five states.

Family Dollar Stores is building an 815,000-sq.-ft. (75,713-sq.-m.) facility in Ashley, Ind. The retailer is investing $70 million and plans to create 350 jobs starting in 2012. The distribution center is the company's 10th and will serve its Midwestern stores. The Indiana Economic Development Corporation offered Family Dollar up to $2.1 million in performance-based tax credits and up to $200,000 in training grants based on the company's job creation plans.

Rockefeller Group Development Corp. (RGDC) is building a 1.5-million-sq.-ft. (139,350-sq.-m.) distribution center in Fort Wayne, Ind., for General Mills. This is the second facility General Mills has chosen RGDC to build since 2009. The first was a distribution center in Social Circle, Ga., completed in 2010. Construction on the Fort Wayne facility began in July and will be completed in the fall of 2012. The facility is on a 100-acre (40-hectare) site and will be leased to General Mills, which will use it for storing and distributing dry finished products. RGDC will seek LEED-Gold certification for the building.

Mazda North American Operations opened its Dallas/Fort Worth Parts Distribution Center in August. The new center, located in Grapevine, will supply Mazda automotive parts to more than 100 dealers across the Southwest U.S. and Mexico, and host a training center for service technicians. The facility, one of several that MNAO will open across North America over the next year, will create 30 jobs.

"Mazda is thrilled to expand our presence in Dallas/Fort Worth with this new Parts Distribution Center, enabling us to fulfill orders quickly and efficiently, as well as provide a regional supply of parts and training opportunities," said Jim O'Sullivan, president and CEO, MNAO.

The launch of the Dallas facility is one of the first milestones in a $20-million parts distribution center network expansion that MNAO announced to its dealers in July 2010. The expansion will create a network of seven centers in North America — five in the U.S. and two in Canada.

Industrial real estate firm IDI has leased a new 247,360-sq.-ft. (22,980-sq.-m.) facility to hhgregg in Aurora, Ill. The Indianapolis-based appliance and electronics retailer is expanding its retail locations across the Midwest and will use the space as a distribution center for its Chicagoland stores.

Anderson-Dubose, a supplier to McDonald's restaurants, is building a new 155,000-sq.-ft. (14,400-sq.-m.) distribution center and headquarters in Lordstown, Ohio. The company plans to employ 160 at the new location, which will supply restaurants in Ohio, West Virginia, New York and western Pennsylvania.

Ann Arbor, Mich.-based Affinia, a global automotive replacement parts company, is locating its East Coast distribution center in a leased 289,000-sq.-ft. (26,850-sq.-m.) building in East Union Township in Schuylkill County, Pa. Affinia plans to create 150 jobs.

"We selected this site because of its ideal location at the crossroads of Interstates 80 and 81, along with easy access to other major transportation routes," said David Overbeeke, president, Affinia Global Brake & Chassis.


Story in Pictures

A rendering depicts Macy’s third online fulfillment center now under construction in Martinsburg, W.Va.
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