As e-commerce growth slows, physical stores rebound, and BOPIS models surge, retailers and brands face unprecedented logistics challenges in the post-pandemic era. The warehouse economy, once a red-hot sector, now stands at a crossroads.
Jeff Berman of Logistics Management recently interviewed Karl Siebrecht, CEO of Flexe, a Seattle-based leader in programmatic logistics that provides technology-driven omnichannel solutions for major global retailers and brands. Their discussion sheds light on the current state of warehouse economics, the impact of BOPIS models, and challenges retailers face during peak seasons.
Warehouse Economy: Navigating Dynamic Uncertainty
Siebrecht describes the current warehouse economy as "highly dynamic." While vacancy rates hit historic lows over the past two years, macroeconomic shifts and softening consumer demand suggest relief may come for strained warehouse capacity—a trend already showing early signs.
Major players like Amazon have paused new facility openings or declared surplus space in existing buildings. This shift ultimately impacts REITs, property owners, and developers. The softening trend will likely continue, though its extent and duration remain uncertain—dependent on macroeconomic soft landing possibilities and interest rate trajectories that directly affect development and new capacity.
Consumer behavior equally influences warehouse economics. Key questions include:
- Will shoppers return to physical stores or maintain online shopping habits?
- How will e-commerce growth rates stabilize?
- Is BOPIS (Buy Online, Pick Up In-Store) a pandemic phenomenon or here to stay?
- What delivery speeds do consumers now expect—same-day, next-day, or 2-day?
Consumer Demand Reshapes Warehouse Networks
Siebrecht explains that faster delivery expectations require decentralized warehouse models placing inventory closer to consumers. Early pandemic predictions of permanent e-commerce dominance proved inaccurate—retail sales data shows 2020's online shopping surge was temporary, with growth rates returning to pre-pandemic trajectories after several quarters of volatility.
This whiplash created operational challenges. Initially facing product shortages from shuttered factories, retailers overcorrected by stockpiling inventory via ocean freight to hedge against future disruptions. While initially successful—yielding record revenues for many—the strategy soon backfired as excess inventory accumulated.
Retailers then faced difficult choices: discount surplus stock or preserve premium inventory for future sales? The latter option created new costs for additional storage space. Siebrecht views COVID-19 as an extreme supply chain disruption unlike any in modern history, though businesses constantly navigate uncertainties like port strikes or canal blockages alongside unpredictable demand shifts like BOPIS adoption.
Flexibility as Competitive Advantage
Flexe's value proposition centers on helping large enterprises enhance agility amid rapid market changes. Their omnichannel logistics solutions help companies manage dynamic business components more flexibly—an approach developed pre-pandemic to address various operational disruptions.
The platform complements fixed infrastructure like leased facilities or 3PL-managed spaces under multiyear contracts—solutions still effective but ill-suited for uncertain or variable needs like seasonal peaks, supply chain disruptions, or forecasting errors.
Siebrecht notes that consumer tolerance for delivery times has dramatically compressed: "Where five-day waits were once acceptable, most shoppers now abandon carts if facing anything beyond two-day delivery—typically opting for Amazon instead."
Peak Season Challenges and Opportunities
The National Retail Federation forecasts record holiday sales this year, with e-commerce reaching $270 billion—a quarter of total sales. However, online growth rates now trail overall retail growth, reflecting the unsustainable pandemic surge. After Q4 2021's e-commerce peak, growth continues but at moderated rates.
Siebrecht identifies three key peak season challenges:
- Forecasting complexity: Predicting e-commerce growth trajectories and pandemic's lasting behavioral impacts
- Discount dilemmas: Balancing surplus inventory clearance against preserving premium stock margins
- BOPIS adaptation: Responding to rapid BOPIS growth while projecting its future potential
BOPIS delivers superior economics by eliminating last-mile delivery costs, boosting unit profitability. However, accurately predicting demand remains critical—the model requires more frequent store replenishment as online-purchased goods increasingly flow through fixed retail footprints.
Warehouse Regionalization: The New Imperative
Siebrecht identifies regionalization as today's dominant logistics network trend, driven by two factors:
- Accelerated store replenishment: BOPIS and ship-from-store models demand faster inventory turnover
- Faster e-commerce fulfillment: Rising consumer expectations require positioning top SKUs closer to end-users
This shifts networks from centralized distribution centers toward decentralized models that reduce last-mile costs and delivery times—crucial for minimizing cart abandonment when competing with Amazon's speed.
Most large enterprises now recognize they overbuilt capacity in suboptimal locations. Early strategies favored massive centralized facilities for economies of scale at high utilization—but forecasting errors and changing demand patterns rendered this approach obsolete. Flexibility becomes paramount.
Navigating Uncertainty
Citing Warren Buffett—"Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future"—Siebrecht advises companies to improve forecasting while acknowledging error margins and preparing contingency plans.
Amid macroeconomic uncertainty, Flexe's clients are:
- Avoiding long-term leases when existing contracts expire
- Seeking flexible solutions to manage unpredictability
Siebrecht cautions against long-term lease commitments until macroeconomic clarity emerges. Geographic strategies also evolve—some companies now shift inventory inland to secondary markets 50-150 miles from ports, where space costs up to 50% less than in primary port markets.