Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
Growing web retailers have options when it comes to adding capacity.
Among the challenges e-retailers face is how to operate warehouses efficiently. Several experts at this year’s Internet Retailer Conference & Exhibition spoke about their experiences and the options they have considered.
It’s a safe bet that many e-commerce operators understand Seven Times Six’s warehousing predicament. Brandon Harden, owner of the web-only pop culture-themed goods retailer, launched his operation in 2005, and this year expects to take in between $7 million and $8 million in gross sales, up from less than $2 million in 2007. But warehouse labor costs can be a headache. “Employees can be such a big expense,” Harden said, adding that his company has 12 workers.
That’s why he relies on Fulfillment by Amazon. Smaller retailers can pay Amazon.com Inc. to use its distribution network of more than 40 U.S. warehouses to store goods and have Amazon employees prep and ship the packages. So far this year, he has shipped 50,000 orders via Fulfillment by Amazon, and that outsourcing his warehousing and shipping to Amazon is saving him money on labor costs, he said.
Other retailers at the conference also discussed the pros and cons of Amazon’s service. Jon Greenwood, president of shoe and home goods retailer Virtual Exchanges, employs 20 workers and said he had sales similar to those of Harden’s company. Fulfillment by Amazon enables him to “pay as you go” for warehouse space, he told attendees. But he also noted some of the downsides: Fees can range from $3 to $5 per return, cutting into margins, for instance.
In order to avoid those costs, many online retailers operate their own warehouses. As they move into new facilities, some of them have picked up valuable lessons.
One is to ask about local regulations, said Mark Venezia, director of sales and senior vice president for North America of Spreadshirt.com, a subsidiary of Spreadshirt Manufacturing Deutschland GmbH of Germany. Spreadshirt signed a lease in May 2012 for a 36,000-square-foot warehouse near Las Vegas. The e-retailer moved a lot of machinery into the facility without being fully aware of local fire codes, which caused some problems, he said.
“Find out the rules and regulations for the county and state you’re building in,” Venezia said. He also advised retailers to consider how high the ceiling is, as that will determine the height of the forklifts that will be required. Because the Nevada facility is large, he added, Spreadshirt gives workers walkie-talkies so they can communicate with each other.
Building up in a warehouse can be a way to add usable space without paying for more square footage, said Karen Kang, vice president of e-retailer AccessoryGeeks.com, who spoke with Venezia. For example, AccessoryGeeks.com recently built a mezzanine that added 7,500 square feet of space to its 17,000-square-foot building in Southern California.
Added warehouse capacity will be a requirement for many e-retailers, and these IRCE sessions illustrated there are many ways to fill that need.