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VOL. 8 | NO. 31 | Saturday, July 25, 2015

Memphis Sole

Nike’s $301 million expansion makes Memphis its largest distribution center in the world

By Bill Dries

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The football field measurements are perhaps inevitable in describing just how big Nike’s Northridge distribution center in Frayser is after its $301 million expansion.

The 2.8 million-square-foot facility – the equivalent of 49 football fields – is Nike Inc.’s largest distribution center in the world.

“You can stand at the end of one field,” Nike community and business investment director Willie Gregory said of the football field measurement, “and not even see the last field. So yes, there is some capacity.”

Nike formally opened the expanded facility in late June on the northwest corner of New Allen Road and New Frayser Boulevard.

In one corner of the center is a restored Volkswagen bus, one of several reminders of the global sports shoe and apparel company’s late-1960s origins. Through the van’s rear hatch window, you can see stacks of Nike shoeboxes with the iconic swoosh.

For the record, Nike cofounder and board chairman Phil Knight first sold his shoes out of the trunk of a 1964 Plymouth Valiant. Nevertheless, the van is one of many decorative accents, including photo walls and works of local art, in what is formally known by Nike as the North America Logistics Campus.

In the Frayser center’s cafeteria, there is an art installation of the words “Bo Knows” in lights, a tribute to the end of the 1980s ad campaign featuring Heisman trophy winner and Major League Baseball and National Football League player Bo Jackson.

As another way of comparing the expansion’s scale: The Mitsubishi Electric Power Products plant in southwest Memphis, which makes electrical transformers to power entire cities and includes a “lightning room” to simulate lightning strikes, cost $200 million. The nearby Electrolux plant came in at $266 million.

MEMPHIS, NIKE ARE FAMILIAR PARTNERS
The shoe giant wouldn’t be in Memphis and specifically in Frayser without Knight’s consent and involvement, Gregory said several times. And Nike’s culture has intersected with the city’s well beyond a global corporation hanging its shingle out.

During his first retirement from basketball, in August 1994, Michael Jordan visited Memphis to dedicate a playground at the old Lemoyne Gardens public housing development. Nike built the playground using 25,000 recycled Nike shoes, including 800 donated by its Memphis employees.

BY THE NUMBERS

Nike’s North America Logistics Campus

2.8 million square feet, or 49 football fields

33 miles of conveyor belt

73 outbound doors

96 receiving spurs

Source: Nike

Jordan drew a large crowd in the public housing project that would be demolished four years later.

The eternally competitive Jordan even challenged then-Mayor Willie Herenton to a free throw competition with Jordan agreeing to make a large, charitable donation for every basket Herenton made. Herenton missed all 10 of his shots.

And Nike certainly is no newcomer to the arc of the Memphis’ economic storyline.

The sports shoe and apparel giant has been in Memphis for more than 30 years – starting in 1982, pre-Air Jordan – when its annual revenues were around the $700 million mark. (Nike recorded revenue of close to $28 billion in 2014.)

“Bo Knows” was still seven years away. Sharp Manufacturing had opened its Shelby Drive plant assembling color televisions five years earlier. FedEx Corp. was 10 years old.

Nike’s largest workforce outside of its Beaverton, Ore., headquarters is now in Memphis. A total of 1,850 jobs are centered in one of the poorest and most blighted areas of the city that is staging an epic comeback attempt.

During June’s opening festivities, state Representative Antonio Parkinson – who represents the general area in the Tennessee state legislature – said he hopes to see more Nike residents make Frayser and Raleigh their homes, and perhaps walk or bicycle to work.

He and other elected leaders see Nike’s presence as a way of further strengthening the hard-fought efforts of homeowners in an area hit hard by the first of several economic body blows in the 1980s, when traditional manufacturing exited en masse.

Those plants, including International Harvester and Firestone, had workers who bought homes nearby and walked to work.

NIKE’S SHIFTING STRATEGIES
Nike Northridge distributed 46 million units around the world in 2014, according to Marcus Buford, the facility’s general manager. And the expansion is built to handle 271 million units a year; a two-mile perimeter surrounds the mammoth building.

The new building represents a change in Nike’s shipping strategy.

“That’s what the customer base asked for,” Buford added. “These guys got tired of us shipping three boxes to their houses to get one pair of shorts, to get one shirt, to get one pair of shoes.”

The Memphis center’s proprietary secret is under the generic heading of WMS – Warehouse Management System.

WMS uses technology to group orders and release them together with a process called “wave picking.” It involves better management of workers as well as using barcodes, mobile computers and even radio frequency IDs to watch and adjust the flow of products through the center and beyond.

On its journey through the expanded Frayser center and its warehouse management system, Nike’s footwear, apparel and equipment under the Nike and Jordan brands is distributed directly to customers who order online or to wholesalers or Nike’s retail channels. The three markets are part of the same supply chain.

“It’s the most advanced technological warehouse system that there is on the market,” Gregory said. “The same system that is used here in Memphis is used in our other distribution centers around the world.”

Nike is changing on broader fronts these days.

Four days after the Memphis opening, Knight announced he was stepping down as chairman.

Knight hasn’t set a date yet for his departure from the board, and while he won’t be board chairman, he will still guide the company through stock transfers to his Swoosh LLC. Swoosh had about 15 percent of outstanding shares of Nike Class A and B common stock when Knight announced the coming leadership change on June 30.

Mark Parker, whom Knight reportedly favors to be his successor, talked in an earnings call the day before the Memphis plant’s opening about advanced manufacturing and Nike moving more of it back into the U.S.

“I think you’re going to see the overall supply chain geographically shift a bit here and there, with the advancements of new manufacturing and innovation that is a major priority for Nike,” Parker said during the call. “It will give us the flexibility to create more localized manufacturing over time. And that will put us closer to market, and again, allow us to advance products, particularly in the customization area, and to meet more local demand as well.”

MEMPHIS MATCHING NIKE’S APPROACH
The city’s approach to the type of economic development it pursues also is changing. Greater Memphis Chamber president Phil Trenary is leading a civic charge that would shift the attention to advanced manufacturing jobs that pay better as a specific path to growing the city’s middle class.

Trenary has said the shift doesn’t change or diminish the dominance and long-term importance of logistics and distribution in the Memphis economy.

The business relationship between City Hall and Nike has never missed a step even with a growing civic and political debate about tax incentives in general.

Consolidating 8400 Winchester Road with Frayser, or combining the two elsewhere, has been a goal for Nike since 2010.

Nike secured a 15-year payment-in-lieu-of-taxes agreement in late 2012 from the board of the Memphis and Shelby County Economic Development Growth Engine that amounted to a $57.8 million tax break.

Nike got a 13-year PILOT from the old Memphis-Shelby County Industrial Development Board in 2007 for the original 1.1 million-square-foot Northridge plant. The PILOT saved Nike $21 million in local property taxes. Northridge cost $107 million to build.

At the time, the Greater Memphis Chamber described it as the first large industrial project in Frayser in 40 to 50 years.

Gregory said there also was a lot of competition from other places, and the company’s site consultants at one point favored those other places.

“Some consultants are very short sighted and they are very bottom line,” he said in 2009. “They don’t know our community. … We did have consultants that actually recommended against us locating here in Memphis. They were doing what we paid them to do.”

A matter of days after getting the second PILOT agreement for the expansion, Nike executives in Beaverton announced the “Northridge” plant in Frayser would be expanded, not only keeping the combined 1,600 jobs on Winchester and at Northridge but adding 250 more.

“We built a whole world out here,” Memphis Mayor A C Wharton Jr. said recalling the city’s role in moving utility lines and other infrastructure challenges that came up once construction on the expansion was underway.

“There’s a whole bunch of jobs out here,” Wharton said.

The expansion was a function of Gregory’s influence and advocacy for Memphis along with other Memphis executives who have risen through the ranks in the last 30 years. It’s also about momentum.

“There was a lot of competition form the neighboring states,” Gregory said. “By the fact that we were already here, that really helped. … We like the workforce. We’ve got rail. We’ve got air. We’ve got boat.”

And Buford points out that Nike can reach 45 states by truck from Frayser in two days.

“The question I think we asked ourselves is why would we go anywhere else?” he added.

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PROPERTY SALES 89 344 19,573
MORTGAGES 110 422 22,914
FORECLOSURE NOTICES 2 8,305 8,305
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