Companies Consolidate Distribution Centers to Reduce Cost

Kansas City Business Journal
April 15, 2011

There is a paradigm shift underway from 100,000 +/- sq. ft. to 400,000 sq. ft. and bigger distribution centers as businesses consolidate to save on transportation cost. Kansas City is the LOCATION for the next generation of these big box distribution facilities.

Worker productivity, business costs, an educated population, good infrastructure and transportation systems; on national surveys, Kansas City is consistently ranked high in these areas of interest to business. Economic development officials tout these aspects to site selection consultants and distribution center managers considering locating in the Metro. Another prime consideration is turnaround time for occupancy of 90 to 120 days. This predicates the need for an existing facility or developable sites.

Transportation costs carry the most weight among the factors listed above. Transportation accounts for 50 percent or more of the logistics costs of most companies. Depending on the company and their product, the location of their distribution centers come down to inbound or outbound transportation cost. The considerations here are fuel cost and speed to the market.

Retailers have been driving down these ex- penses by consolidating distribution centers. Home Depot joined Target at Central Crossing Commerce Park in Topeka, KS in 2009 with the building of a new $25M, 465,000 sq. ft. facility on 75 acres of free land. This is one of 20 new Home Depot “rapid distribution centers” being constructed across the country to improve their supply chain.

Pure Fishing completed construction of their 400,000 sq. ft. distribution center in the SkyPort Industrial Park in September, 2008. Four smaller distribution facilities were consolidated into this KCI Airport submarket site. BNSF brings 65% to 70% of Pure Fishing’s inbound traffic from Pacific Rim countries via the deep water Port of Los Angeles/Long Beach. SkyPort is close enough to the BNSF intermodal site to meet their inbound logistic requirements.

Pure Fishing chose the SkyPort site due to outbound transportation cost. Pure Fish- ing determined SkyPort’s location met their goal of delivering products via UPS to 95% of the country with a three day turn around from order to delivery. UPS Air delivers Pure Fishing products to the United States, South America and parts of Europe from uncon- gested KCI.

BNSF, KCI and Kansas City’s location at the crossroads of I-35 and I-70 closed the deal. Icing on the cake is SkyPort’s location in a foreign trade zone providing tax exemption for incoming goods.

Another consideration for this site was speed of delivery of the building. Speed to market for the SkyPort site was assisted by aggressive site preparation by SkyPort’s developer. SkyPort’s McAninch Corp. began site work under good faith long before the deal was signed to meet Pure Fishing’s rapid speed to market requirement. Speed to the market was also a consideration for Coleman’s selection of Midwest Commerce Center in Gardner, KS for their new 1.1 million sq. ft. distribution center.

Coleman’s final considerations came down to inbound and outbound transportation cost and speed to the market. Coleman consolidated six existing boat distribution facilities into this one new facility along with their various products that travel BNSF rail from LA / Long Beach from manufacturing plants in Pa- cific Rim countries. Coleman consolidated 15 distribution centers across the country down to six. Speed to the market was accelerated by development permitting being in place, site development underway and cooperation from the County and surrounding community.

O’Reilly Auto Parts constructed a new 215,000 sq. ft. distribution center on a 16-acre site at Century and Gardner avenues in Executive Park in 2009. This site is about two miles east of their previous East Bottoms distribution facility.

O’Reilly built a new distribution center because no suitable buildings of adequate size were available in the Kansas City market. The site proximity to their previous location and incentives made this deal for O’Reilly. O’Reilly received 100 percent tax abatement on improvements for 10 years and 50 percent abatement for 10 years thanks to Kansas City, Missouri.

LOCATION LOCATION LOCATION - Kansas City sits at the heart of the nation geographically and in terms of population density. We’re at the crossroads of north-south bound Interstates I-35 / I-29 and east-west Interstate 70. Five major railroads serve Kansas City making it the largest rail hub in the nation in terms of freight tonnage. Kansas City offers several existing and proposed rail, interstate highway and air intermodal sites and industrial business parks for business to choose from.

Pat Murfey, CCIMPat Murfey, CCIM specializes in Industrial Properties with Kansas City, Missouri-based real estate brokerage The Land Source. Pat can be reached at 913-951-8402 or Pat@TheLandSource.com.

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