It’s certainly old news to say that the Internet is changing the way we do business today. And most assuredly, we’ve only seen the tip of the iceberg. It’s not so farfetched to imagine a world where virtually everything is delivered, well, virtually. Maybe in the 2060s, the decade in which the futuristic Jetsons cartoon was set. Until then, while eCommerce is having a growing impact on where and how people shop, the fact of the matter is that goods still have to get to the consumer.
So what are the drivers in today’s growing eCommerce-driven world for selecting distribution locations? It’s intriguing to consider Amazon.com, the world’s largest online retailer with projected sales of $100 billion by 2015. With 80 fulfillment centers worldwide and more to come in 2013, it is eye opening to learn how they’ve made decisions with regard to fulfillment center locations. To quote a January article titled “Amazon.com Distribution Network” written by the logistics consulting company MWVPL:
“Amazon.com’s distribution network strategy is interesting because it does not necessarily reflect an optimized distribution network in terms of serving the U.S. population from the optimal geographical location. Until recently location decisions in the U.S. have been made based on proximity to customers in concentrated areas and state tax implications.”
Amazon has, for years, been able to avoid charging customers sales tax. Those days may be coming to a close as states are following suit behind New York, which passed what has been dubbed the “Amazon tax” that requires out-of-state retailers to collect sales tax even when they do not have a physical presence in the state but do have affiliates in the state. The law was just recently upheld by the New York Supreme Court.
Tax incentives have also played a major role in Amazon’s location selection in the past. Tennessee, home of five Amazon distribution facilities, is among the states that have used incentives to entice the company.
But Amazon’s strategy is changing, with the goal to optimize same-day delivery for as many customers as possible. Not quite virtual delivery, but think about it. Order it in the morning and have it delivered to your doorstep before the day is out. It’s a last-minute shopper’s paradise.
This “absolutely have to have it now” distribution strategy certainly bodes well for major urban centers, (though I’m betting the cost to the consumer for this same-day luxury will be steep.) But the fact remains that only nine U.S. MSAs have populations of more than 5 million. That leaves the bulk of the U.S. population, a huge percentage of which lies within 24 to 48 hours’ delivery time from Memphis. And who knows what Memphis-based delivery giant FedEx will do over the next decade to further reduce delivery times? Given the significant logistics advantages offered by the Memphis MSA, my money is still absolutely, positively on our market to continue attracting major distribution centers, even those that service eCommerce, direct-to-consumer companies.
Andy Cates is executive vice president of Brokerage Services for Colliers International in Memphis.