The State of On-Demand

Warehousing
A comprehensive look at
on-demand warehousing and
how it is reshaping businesses’
logistics strategies.
Table of Contents
Introduction 3
I. The state of the industry: Key challenges retailers and
4
brands face in warehousing and fulfillment
Challenge 1: Real estate is tight 5

Challenge 2: Fluctuating inventory levels affect capacity needs 6

- Why does inventory fluctuate? 6

- When does inventory fluctuate? 7

- How are businesses solving for inventory fluctuations? 8

Challenge 3: Operations are only getting more complex 9

II. A new solution: Modern logistics for warehousing and

10
fulfillment
Applications for on-demand warehousing 11

III. FLEXE on-demand warehousing: Marketplace trends and

12
pricing
Where is the demand for on-demand warehousing? 12

2018 FLEXE marketplace pricing 13

VI. Conclusion 16

Appendix 17
 Introduction
The advent of eCommerce and omnichannel retail have increased the demands on retailers
and brands. Entire businesses, and the supply chains that power them, have had to change
and adapt. What hasn’t kept up? Warehousing.

The traditional warehousing model is static. It requires long-term leases and substantial fixed
operating costs. In a time when businesses need to be dynamic and responsive, having to
rely on outdated models creates tension and challenges.

Retailers and brands are faced with the choice of either adapting their existing logistics
infrastructure, or using solutions that are not designed to handle modern logistics challenges
like omnichannel retail and fluctuating market demands.

In “The State of On-Demand Warehousing,” we explore:

• Key challenges the retail industry faces in warehousing and fulfillment

• How on-demand warehousing can best address warehousing and

fulfillment challenges

• Trends in pricing and usage across the FLEXE marketplace

Key learnings in this report:

• There is a clear need for alternative warehousing solutions: 90% of businesses who
deal with inventory fluctuation need more capacity throughout the year.

• Managing inventory fluctuation is a challenge for businesses: 74% of survey

respondents report that fluctuating inventory levels result in excess capacity, or
excess inventory without a place to store it.

• Inventory fluctuation is getting harder to control and predict: 49% of survey

respondents report that the drivers of inventory fluctuations are increasing.

• Businesses are forfeiting money: The majority of respondents (44%) accept excess
capacity as a “sunk cost.”

• Available capacity exists: More than half (54%) of respondents with excess
warehouse space have between 10,000-100,000+ square feet available.

• The applications for on-demand warehousing are evolving: In 2019, 77% of

businesses that use on-demand warehousing services use it for fulfillment, a 48%
increase from 2017.

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 I. The state of the industry:
Key challenges retailers and brands face in
warehousing and fulfillment
Decentralized demand. Faster movement of goods. Higher order volumes. While eCommerce
has democratized the retail industry—making room for new entrants and more opportunity—
it has also introduced new complexities that traditional supply chains weren’t built to
accommodate.

Brands are faced with building out larger warehousing networks, which directly impacts
inventory load balancing and demand planning—all of which is made even more difficult by
a tight industrial real estate market and fluctuating inventory levels.

Key challenges are:

• Space is costly and competitive

• Inventory management across distributed networks is hard

• Operations are only getting more complex

7,925,249 ft 2

of retail space is being

converted into

10,914,794 ft 2

of industrial space
CBRE Analysis (WSJ)

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 CHALLENGE 1: REAL ESTATE IS TIGHT
Warehouse availability is low and rents are high. The demand for warehousing has outpaced
1
supply since 2010 . According to CBRE, as of Q4 2018, only 7% of U.S. industrial and logistics
2
real estate is available . Meanwhile, rents have risen to their highest price in 30 years—$7.37
per square foot on average.

In the United States, rent grew 8% in 2018, which is 2% more than the global average, according
3
to the Prologis 2018: Broadening Global Growth study . The shortage of warehouse availability
has created a competitive market, leading buyers to bid more aggressively to procure space.

We’ve had an extraordinary

Markets with the highest rent growth: demand cycle since the recession
ended in 2010... The way an
• San Francisco, CA / Bay Area eCommerce supply chain is built,
• Seattle, WA it requires significantly more real
estate, it tends to require more
• Southern California locations, which has absorbed
almost all of the available supply
• New Jersey / New York City in the market. There’s demand
• Austin, Texas for industrial warehouse space
in places that warehouse spaces
For context, economic changes such as Brexit and just do not exist.
the tariffs on Chinese goods led some retailers and
brands to stockpile goods in an effort to reduce Dave Egan
Head of Industrial & Logistics Research,
costs and avoid import fees, further burdening an Americas & Global, CBRE
4
already-tight market for warehouse space .

74%
of respondents said a key
warehousing challenge is
managing inventory fluctuation.
And 90% that do require additional
capacity to manage the increase
in inventory.
FLEXE WCET Respondents

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 CHALLENGE 2: FLUCTUATING INVENTORY LEVELS
AFFECT CAPACITY NEEDS
In the FLEXE Warehouse Capacity Economics and Trends (WCET) survey, 74% of respondents
said a key challenge for their business was inventory fluctuation. Year over year, this remains
true. From 2015 to 2018, there was only a 1 percentage point improvement.

90% of respondents who deal with this challenge, are left with excess inventory as a result.
In order to manage it, they require additional warehousing capacity that is both difficult to
find and prohibitively expensive.

Meanwhile, 48% of survey respondents that identified themselves as third-party logistics

providers (3PLs) said their inventory fluctuation leaves them with excess capacity. Sixty
percent have an extra 10,000-100,000+ square feet of capacity going unused when inventory
levels are low.

One challenge is that fluctuations are getting more difficult to predict. In 2017, 62% of
respondents said that their inventory fluctuations were usually expected. That number
dropped to 57% in 2018, indicating variations are becoming more difficult to predict.

Additionally, nearly 50% of respondents that experience fluctuation said the drivers of their
inventory variations are increasing. In a given year, one-third experienced a difference in
inventory levels of 51-100%, relative to their minimum levels. That’s a considerable swing.

Why does inventory fluctuate?

Traditional drivers of inventory fluctuation include events like seasonality and product
promotions. However, drivers that are more indicative of eCommerce retail, like expanding
into new markets and introducing new products, are increasing compared to previous years.

In 2018, the top three drivers of inventory variations were:

• Seasonality (84%)

• Forecasting issues (34%)

• Introducing new line(s)/product(s) (31%)

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 Year over year, seasonality and forecasting issues remained the top two drivers of inventory
variation. Notable changes include a 77% YOY increase around introducing new products,
and a 53% decrease in product promotions.

DRIVER OF INVENTORY VARIATIONS

APPENDIX A

100%

75%

50%

25%

Seasonality Forecasting New line Lead-time Supply End of Forward-buying Product

issues or product variability uncertainty quarter/ year discount-based promotions

2017 2018

When does inventory fluctuate?

Warehouse capacity is tightest in the months leading up to the Q4 peak season (July, August,
and September). But, it’s also a year-round problem.

In each month, at least 30% of respondents reported having excess inventory and at least 20%
reported having excess warehouse capacity, indicating both excess inventory and capacity
are year-round challenges.

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 EXCESS INVENTORY VS. EXCESS CAPACITY PEAKS
APPENDIX B AND APPENDIX C
60%

40%

20%

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec.

% RESPONDENTS REPORTING EXCESS INVENTORY % RESPONDENTS REPORTING EXCESS CAPACITY

How are businesses solving for inventory fluctuations?

Fifty-seven percent of respondents manage excess inventory with short-term leases, a 42%
increase from 2017. (Appendix D)

For those with excess capacity, the number one solution is to accept that excess space as a
“sunk cost.” However, from 2015 to 2018, more businesses are now selling excess capacity
(34%) and subleasing (33%) to offset the sunk costs associated with underutilized capacity.

SOLUTIONS FOR MANAGING UNEXPECTED EXCESS WAREHOUSE SPACE

APPENDIX E

80%

60%

40%

20%

2015 2017 2018

ACCEPTING IT AS A SUNK COST SELLING EXCESS CAPACITY SUBLEASING SPACE DOWNSIZING

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 CHALLENGE 3: OPERATIONS ARE ONLY GETTING
MORE COMPLEX
eCommerce and omnichannel distribution have exponentially increased the complexity of
warehousing and fulfillment operations.

Traditional warehousing networks were designed to replenish goods to retailers and

distributors—bulk shipments in and bulk shipments out. Now, warehousing operators are
faced with more piece picking and single-line orders to accommodate direct-to-consumer
(D2C) shipping—processes that require more time, capacity, and resources to complete.

The main constraints to operational efficiencies5:

46% 38%
Lack of sufficient workforce Adapting inventory workflow
to handle the work volumes on the warehouse floor

40% 21%
Operating discreet
Not enough floor space warehouses and DCs

*HONEYWELL INTELLIGRATED RESEARCH BRIEF

Additionally, rising fulfillment costs make it more difficult to improve operations. According to
the survey respondents, the top three areas of cost increase are freight and transportation
(79%), labor (75%), and warehousing, distribution, and inventory costs (68%).

As eCommerce fulfillment volume continues to increase, businesses will have to figure out
how to find and procure space, how to best manage their fluctuating inventory throughout
the year, and how to create efficiencies within the warehouse itself. That’s no small feat.
Thankfully, there’s a better way.

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 II. A new solution:
Modern logistics for warehousing
and fulfillment
On-demand warehousing is a flexible alternative to traditional warehousing models that
makes it possible to overcome tight real estate trends, the challenges of fluctuating inventory,
and the increased complexities of eCommerce fulfillment operations. It solves these challenges
in two ways:

Known as on-demand
• Provides access to a network of warehousing warehousing, the idea is to tap
and fulfillment providers that enables retailers into unused space in a crowded
and brands to add capacity and services when U.S. industrial real-estate
and where they’re needed market where distribution
centers near population
• Warehouse providers can optimize existing centers are fetching a growing
price premium .
6
warehouse capacity throughout the year to
maximize their revenue
Jennifer Smith
The Wall Street Journal

Instead of requiring long-term leases and having to rely on disconnected warehouse providers,
on-demand warehousing provides programmatic access to warehousing and fulfillment
services on a pay-as-you-go basis—businesses only pay for the space and services they use.

Tenets of on-demand warehousing:

• Availability: Access to warehouses that have available capacity

• Variety: Warehouses have varying capabilities to support different types of projects

• Flexibility: Pay-as-you-go model that is scalable, and negates the need for fixed,
long-term contracts

FLEXE on-demand warehousing includes a network of 1,000+ warehouses, a technology

platform that standardizes operations and workflow across traditionally disconnected
providers, and a team of operations and client success experts to continually optimize
client solutions. The FLEXE network includes best-in-class providers that have
a broad set of capabilities, including food-grade handling, hazmat, refrigeration, and
FDA certification.

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 As a solution, FLEXE provides an unprecedented level of flexibility to warehousing and
fulfillment, enabling businesses to better respond to market demands by giving them the
ability to scale their networks.

APPLICATIONS FOR ON-DEMAND WAREHOUSING

On-demand warehousing has three major use cases for retailers and brands: eCommerce
fulfillment, retail distribution, and inventory overflow.

eCommerce fulfillment
On-demand warehousing for eCommerce fulfillment gives retailers and brands the flexibility
to scale their fulfillment networks, as needed, to enhance their D2C strategy. Retailers and
brands can pop up fulfillment centers to improve their delivery promises, test new markets,
and create short-term product promotions.

Retail distribution
For brands who distribute their products to retail partners, on-demand warehousing helps
sellers offset inventory storage fees and shorten last-mile transportation by storing goods
closer to intake centers.

Inventory overflow
For planned seasonal peaks or unexpected excess inventory, on-demand warehousing allows
retailers and brands to quickly add additional capacity as it’s needed. It’s a turnkey solution
for recurring storage problems.

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 III. FLEXE on-demand warehousing:
Marketplace trends and pricing
WHERE IS THE DEMAND FOR ON-DEMAND WAREHOUSING?
Unsurprisingly, retailers and brands have the greatest need for additional capacity in the
areas that are seeing the highest growth in industrial rental rates.

Industrial rental rates vs. on-demand warehousing requests

California, Texas, and Washington State had the most on-demand warehousing requests and
topped Prologis’ list of highest market rental growth.

TOP FIVE MARKETS FOR INDUSTRIAL GROWTH AND FLEXE REQUESTS

PROLOGIS FLEXE

Fastest-growing Warehouse requests Warehouse requests

rental market by state by region

San Francisco/Bay Area, CA California (22%) Southwest (29%)

Seattle, WA Texas (7%) Northeast (18%)

Southern California Washington (7%) Midwest (17%)

New Jersey / NYC Illinois (6%) Southeast (16%)

Austin, TX New Jersey (6%) Northwest (9%)

Requests by region vs. on-demand providers by region

A key benefit of the FLEXE on-demand warehousing network is the access to warehouse
providers. The Southwest has the highest number of requests, but also the highest share of
warehouse providers, indicating that on-demand warehousing provides access to capacity
and services in even the tightest markets.

In fact, when we look at the FLEXE match rate, the track record of finding warehouse providers
that can manage the scope of clients’ projects and meet their service levels is 90+%.

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 FLEXE WAREHOUSING REQUESTS AND SHARE OF MARKET BY REGION

Requests by region Share of providers by region

Southwest 39% 28%

Northeast 18% 20%

Midwest 17% 24%

Southeast 16% 19%

Northwest 9% 9%

2018 FLEXE MARKETPLACE PRICING

In the FLEXE marketplace, storage pricing is determined on a per-pallet level to create a
standard unit of measure between the various warehouse operators within the network.
The average per-pallet rate varies depending on the type of pallet position and the region in
which it’s stored.

TYPES OF PALLET POSITIONS AND 2018 AVERAGE PAID PRICE/PALLET

Stack Rack Floor

Depending on the product
and packaging, pallets can
be stacked on top of one
another. Stacked space
is the most cost-effective
storage option.
Many warehouses have
rack storage systems
and software that make
their storage space highly
efficient. Rack storage often
enables providers to store a
higher volume of pallets.
Pallet storage on the floor
allows inventory to be more
accessible, floor space is
usually the most expensive
of the three and may be
required for large items like
mattresses and furniture.

$7.45/pallet $9.87/pallet $10.91/pallet

Regional pricing
By region, the Northwest has the highest average monthly storage cost per pallet at $10.98/mo,
but when you break it down by storage type per region, the Northeast is the most expensive
for rack storage ($13.69/mo), the Southeast is highest for stack storage ($9.58/mo), and the
Midwest is highest for floor storage ($15.84/mo).

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 AVERAGE MONTHLY STORAGE COST PER PALLET BY REGION
APPENDIX F

$15.00

$10.00

$5.00

Midwest Northeast Northwest Southeast Southwest

STACK RACK FLOOR

Pricing fluctuations
Prices reach their peak in Q3 as retailers and brands stock up on inventory ahead of the
holiday season, then drop significantly in Q4 and remain steadily lower throughout Q1 and Q2.

AVERAGE QUARTERLY PAID PRICE BY TYPE

APPENDIX G

$15.00

$10.00

$5.00

Avg Q1 Avg Q2 Avg Q3 Avg Q4

STACK RACK FLOOR

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 AVERAGE QUARTERLY PAID PRICE BY REGION
APPENDIX H

$12.00

$10.00

$8.00

$6.00

$4.00
Avg Q1 Avg Q2 Avg Q3 Avg Q4

MIDWEST NORTHEAST NORTHWEST SOUTHEAST SOUTHWEST

On-demand warehousing is evolving

Aside from supporting just inventory overflow, FLEXE on-demand warehousing has rapidly
evolved to support eCommerce fulfillment. As of 2018, 71% of on-demand warehousing is
used for fulfillment, which includes a combination of storage, retail distribution, and D2C
fulfillment in order to get goods closer to end customers and reduce last-mile expenses. This
is a 30% increase from 2017.

ALLOCATION OF ON-DEMAND WAREHOUSING APPLICATIONS

APPENDIX I

100%

75%

50%

25%

2017 2018

FULFILLMENT INVENTORY OVERFLOW

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 VI. Conclusion
KEY TAKEAWAYS:
• The real estate market is tight, but on-demand warehousing provides
access to a network of available capacity

• Inventory fluctuation remains a challenge for businesses—leaving them

with either too much capacity or not enough

• Driving efficient operations is getting more expensive, but is paramount to

improving D2C delivery

• FLEXE marketplace trends indicate availability throughout the year

• As delivery expectations change, retailers and brands are using on-

demand warehousing to get goods closer to customers and cut down on
last-mile costs

It’s a challenging time for retailers and brands. Industrial real estate has record-
low vacancy rates and record-high pricing. Meanwhile, 74% of retailers and
brands experience inventory fluctuations that leave them with either too much
space, or not enough.

Efficient logistics operations hinge on warehousing and fulfillment networks.

However, traditional warehousing solutions can’t provide the flexibility required
to keep up.

On-demand warehousing empowers retailers and brands to create an

unprecedented level of flexibility in their logistics networks. In today’s market,
businesses that don’t have the ability to adapt to both the current and coming
changes are at a massive disadvantage.

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 Appendix
Methodology
The data in this report includes response data from the 2015, 2017, and 2018 FLEXE Warehouse Capacity
Economics & Trends surveys, in which hundreds of retail and logistics professionals participated. It
also includes FLEXE marketplace data from our network of 1,000+ warehouse providers, and industry
data on vacancy rates and price-per-sqft in key North American markets.

Appendix A

2018 Drivers of Inventory Variations % Responses 2017 % Responses 2018

Seasonality 77.19% 84.00%
Forecasting issues 34.00% 33.33%
Introduction of new line/product 31.00% 17.54%
Lead-time variability 25.00% 29.82%
Supply uncertainty 19.00% 22.81%
End of quarter/year 19.00% 29.82%
Forward-buying, discount based 18.00% 26.32%
Product promotions 15.00% 31.58%
Recalled/Returned inventory 10.00% 7.02%
Opening a new territory / market 7.00% 8.77%
Other 4.00% 3.51%

Appendix B

In which months does your company % Responses 2017 % Responses 2018

have a shortage of capacity?
January 28.07% 33.82%
February 28.07% 30.88%
March 28.07% 39.71%
April 28.07% 33.82%
May 22.81% 32.35%
June 38.60% 38.24%
July 28.07% 42.65%
August 21.05% 50.00%
September 40.35% 47.06%
October 43.86% 36.76%
November 52.63% 33.82%
December 35.09% 30.88%

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 Appendix C

In what months does your company % Responses 2017 % Responses 2018

normally have excess warehouse
space?
January 48.48% 51.33%
February 30.30% 50.44%
March 27.27% 46.90%
April 12.12% 36.28%
May 18.18% 34.51%
June 39.39% 33.63%
July 48.48% 35.40%
August 42.42% 26.55%
September 18.18% 20.35%
October 18.18% 22.12%
November 21.21% 27.43%
December 45.45% 41.59%

Appendix D

What solutions has your company % Responses 2017 % Responses 2018

utilized to deal with unexpected excess
inventory?
Lease additional space - short term 40.35% 57.35%
Off-site storage 52.63% 42.65%
Lease additional space - long term 14.04% 26.47%
Shifting inventory among distribution centers 29.82% 25.00%
within network
My 3PL manages it 8.77% 14.71%
Other (please specify) 10.53% 11.76%
Inventory reduction sale 17.54% 10.29%
Shift inventory downstream 10.53% 7.35%
Shift inventory upstream 8.77% 4.41%

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 Appendix E
What solutions has your company
utilized to deal with unexpected excess % Responses 2017 % Responses 2018
warehouse space?
Downsizing 21% 18%
Selling excess capacity 15% 34%
Accept as sunk cost 52% 44%
Sublease your space 6% 33%
Other (please specify) 18% 19%

Appendix F
Average monthly storage cost/pallet
Stack Rack Floor
by region and storage type
Midwest $7.66 $7.03 $15.84
Northeast $6.86 $13.69 $9.71
Northwest $8.78 $10.72 $11.82
Southeast $9.58 $10.52 $13.50
Southwest $7.39 $9.29 $12.59

Appendix G

2018 FLEXE marketplace: Average quartelry paid price by type

Type Q1 Q2 Q3 Q4
Floor $8.26 $8.71 $13.19 $8.90
Stack $7.15 $7.02 $10.61 $10.99
Rack $6.38 $7.60 $7.60 $6.24
*The above pricing is for storage fees only. Those using FLEXE for eCommerce fulfillment, pricing is based on the number of units picked plus
additional storage fees, and is billed at the cost-per-unit level.

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 Appendix H

2018 FLEXE marketplace: Average quarterly paid price by region

Region Q1 Q2 Q3 Q4
Midwest $7.20 $7.11 $10.77 $8.23
Northeast $7.99 $7.07 $10.37 $9.99
Northwest $10.52 $10.43 $11.60 $11.16
Southeast $8.61 $9.98 $10.83 $11.83
Southwest $9.26 $9.55 $10.11 $10.06
*The above pricing is for storage fees only. Those using FLEXE for eCommerce fulfillment, pricing is based on the number of units picked plus
additional storage fees, and is billed at the cost-per-unit level.

Appendix I
Allocation of FLEXE on-demand 2017 2018
warehousing solutions
Inventory overflow 47.6% 29.5%
Fulfillment 52.5% 70.5%

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 ABOUT FLEXE
FLEXE is reinventing warehousing and fulfillment to optimize the
global delivery of goods. As the leader in on-demand warehousing,
FLEXE helps forward-looking brands create dynamic eCommerce
fulfillment networks and resolve warehouse capacity constraints.
Based in Seattle, the FLEXE team is dedicated to transforming the
logistics industry and helping clients create structural flexibility
in their businesses. For more information, please visit www.
flexe.com and connect with us on LinkedIn, Facebook, Twitter,
and Medium.

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