The rules of supply and demand don’t discriminate, and commercial real estate is in short supply. What little space is available is often leased before many even know about it, sometimes even before ground is broken on new construction. With such limited vacancy, warehouse rents have skyrocketed with historical increases that are forcing renters to increase client fees in order to continue doing business.
Add to that the ongoing supply chain crisis, which is further straining market conditions, requiring companies to keep more inventory on hand, therefore requiring more warehouse storage. It’s a tricky mix. If you’ve acquired warehouse space in the past two years, this is not news, but it may come as a shock to others. As a brand seeking new or more space, here are some ways to mitigate costs.
Don’t wait for new fees to hit.
Talk to your warehouse partner to get a handle on where your rents are headed and figure out how to start increasing your prices using methods that are digestible for your customers. For example, add value for them in ways that don’t hurt your profit margins, such as creating product bundles with slow- or non-moving inventory. This is a total win-win because your customers are receiving value in the form of goods and experience, and you’re able to move items you’d otherwise have to pay to store or liquidate.
Another option is to raise prices only on certain items–specifically fast-moving products that account for a large portion of sales. This minimizes the potential for ruffling customers’ feathers while maximizing additional revenue potential.
Or, instead of product price increases, initiate a flat fee that covers rising costs. Take this opportunity to be transparent with customers, as it’s something they truly value. By explaining why costs have increased, you’re providing them with information and respect, paving the way for them to digest and accept this change more easily rather that feeling duped or blindsided by any cost increases.
Get rid of sluggish inventory.
There are few things more detrimental to the success of a retail business than slow or non-moving inventory. The longer inventory sits, the more expensive it becomes, and the higher the risk of it becoming outdated.
Generally speaking–not taking into account niche retail categories–SKUs that haven’t moved in 90-plus days are dead weight. This stock becomes an excessive expense because it ties up capital you could be investing in more productive avenues while occupying increasingly expensive warehouse space.
Understanding your customer base is the key to unlocking the best ways to offload these leftovers. Leverage historical customer data to design and promote targeted discounts, bundling and cross-selling deals to get things moving. Also consider adding lower-value items as a gift-with-purchase. If there’s a chance it might not move anyway, you’ll get more value out of the loyalty and retention you’ll earn from improving your customers’ experience.
Employ JIT.
Just-in-time (JIT) is an inventory management system that minimizes inventory and increases efficiency. Sounds great, right? It is, but it only succeeds in conjunction with highly accurate demand forecasting. It works by aligning product purchases and deliveries with forecast sales activity, reducing excess storage fees unnecessary inventory costs.
The downside of this system, of course, is that you run the risk of being undersupplied in the event of any supply chain disruptions. But short of that, with a JIT system, you’re setting up a process by which your warehouse only receives goods on an as-needed basis for the production process. As such, you avoid superfluous storage costs.
Follow warehouse guidance.
Adhere to the systems and processes your warehouse partner has in place to maximize the picking, packing, and shipping of your orders to customers, improving overall efficiency to ensure incoming products are received and put away as fast as possible. Even though labor is expensive, it’s not increasing at the same rate as commercial space.
With so many variables contributing to what happens in the economy, the nature of commercial space is precarious. To offset costs, be as efficient as possible in other areas of operation, and work with your warehouse partner to maintain high visibility–as well as reciprocal generosity–as conditions evolve.
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