E-commerce: A sea change in retail

Columbus has been very attractive to many West Coast e-retailers that need a presence on the East Coast, like Seattle-based Zulily, says Kenny McDonald, CEO of Columbus 2020. As e-commerce grows, many companies are discovering Columbus works well for their fulfillment centers, even as they struggle to control supply chain costs.

“When you’re pulled to the Eastern market of the U.S. and Canada, Columbus makes an enormous amount of sense,” he says. “And what most people find once they get their boots on the ground is that the talent base is really pretty strong, from top to bottom, and it’s a good value to boot.”

The company doesn’t have to be headquartered on the West Coast, either. For example, New York City-based Gwynnie Bee recently chose the Columbus region for a new fulfillment center.

“Columbus is a centralized location that allows us to service our customer better from a shipping standpoint; customers receive their shipments faster and at a lower cost to execute,” says Robert Escobar, vice president of operations at Gwynnie Bee. “Second, Columbus’ overall infrastructure is geared towards fluid and just in time supply chains like ours. Although labor is getting tight as the economy improves, the Columbus talent pool is great, from senior managers to warehouse associates. The market is an epicenter for distribution and logistics companies.”

McDonald feels that e-commerce is more than just a trend.

“It’s really a sea change in corporate business models,” he says. “Companies like Zulily don’t even have storefronts, and those business models really didn’t exist in that fashion 10 years ago.”

 

Watching shipping costs

Keeping costs down is certainly something that is important to all retailers, but it can be particularly imperative for e-commerce companies.

Jeff Zimmerman, director of the Columbus Region Logistics Council, calls this the Amazon effect — where you need to deliver goods to the customer for free, unless they have expedited needs.

“More consumers are buying through e-retailers expecting access to product selection, a Web interface, that allows them to place an order and source goods without the cost of transportation,” Zimmerman says. “So, that e-retailer wants to be as close as they can.”

The natural location that Central Ohio has to reach dense population centers with a one-day truck drive means e-retailers want to use the Columbus area to reach customers east of the Mississippi.

“Retail doesn’t really have a rosy picture in general. I think we’re probably headed for another sub-standard year in terms of double-digit growth,” says Katy Keane, an adjunct logistics professor at The Ohio State University and president of Koncatenate. “That’s really going to be important as retailers, and all companies, look to control costs wherever they can. A lot of people are re-thinking their shipping strategy.”

 

A crisis in trucking

When any retailer does a market study, it’s easy to see that transportation costs are only going to go up, making it critical to manage them closely, Keane says.

“Where labor market and cheap land used to be the No. 1 guiding principle of the results of a network study, now it’s often transportation because diesel has gone up and we are in a crisis in terms of trucking,” she says.

The federal government recently put in new safety regulations, limiting truck drivers’ hours. This sounds good on paper but likely will have far-reaching consequences, Keane says.

It puts more traffic on the roads during the same hours as the rest of the population, as opposed to traveling a lot at night. This in turn could impact the road infrastructure and increase the need for construction — and some already call Columbus the Orange Barrel City.

It also creates some practical problems. For example, Keane says during the test phase of these new service hours several years ago, she received a phone call in the middle of the night.

“The store manager called me at three in the morning and said, ‘I can see the truck. I have my crew of 15 people here waiting to unload this truck and he refuses to back up.’

“And I said, “What do you mean ‘you can see the truck?’”

Keane learned from the president of the trucking company that the truck driver was in the parking lot but had run out of hours. He had an on-board recorder and didn’t want to start the truck and back up because he would be in violation of hours of service.

Keane says it was a ridiculous situation, but that’s how serious it was to violate the regulations.

 

Learn more about logistics with a related story: Playing on Columbus’ strengths — A focus on workforce is paying off in logistics, but more remains to be done

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