Consider location, price and size, of course. But what else?
Choosing a site for your first warehouse can be a bittersweet milestone to hit as a small business owner. On one hand, you’re probably seeking more storage because you’re growing or seeing an increase in sales; on the other hand, you’re getting into the daunting real estate game.
Here are three important factors to consider when scouting for
is likely the most important factor when it comes to deciding where to
store your inventory. You’ll need to think about a location’s proximity to your
customer base as well as your suppliers, says Dana Madlem,
vice president of client services at Rush Order, a Gilroy, Calif., order
fulfillment company for startups. “For most businesses, that means the coasts,”
he says. That’s because the
population is six times denser on the nation’s coasts, and many businesses
receive product from overseas suppliers, which means choosing a coastal
location can yield significant savings on shipping costs, Madlem says.
Brand perception is another, albeit less crucial, point to think about
when selecting a warehouse location. Depending on the nature of your industry, you
may want to tie your brand to a specific geographic location. For instance, an
apparel company may want to link its image to New York. “A lot of times,
customers’ only interaction with your company is with your shipping department,”
Madlem says. “So that becomes their perception of who you are and where you’re
Although warehouses on one of the coasts might be ideal, they come with high real estate prices. But Madlem says the savings on freight costs, especially for companies that ship in high volume, may offset the property prices. Madlem says business owners should also take labor costs into account. If a specific state has more desirable wage and hour laws, look into properties in smaller towns outside of that state’s major cities. “Even within a state, real estate and labor prices can fluctuate,” he says.
Local political and economic climate can also affect prices. For
instance, certain states may offer tax incentives that offset the initial price
of the property. Sales tax is another point to consider because you’ll need to collect
and remit taxes to the state government where your warehouse is located.
How much space you need depends on a few key parameters, most important of which is the size of your product. “It’s the difference between storing refrigerators and microchips,” Madlem says. The nature of your product also determines how you organize it within the warehouse. One common option is stacking product from floor to ceiling using metal racks to save storage space, which is ideal for piecemeal items. But Madlem cautions that racking can be close to a six-digit investment. The alternative is to organize inventory on the floor, which is suitable for product that is packaged in stackable pallets, but the downside is it occupies more space. “It’s tempting to use racks, but sometimes just paying for extra floor space can work out better financially,” Madlem says.
Another crucial consideration is sales volume and the resulting rate
of product turnover. For industries such as technology and consumer
electronics, where demand is consistently high and inventory moves in and out of
the warehouse within a month, racking may not be worth the initial investment
and effort. For products that sit longer because demand is spotty or linked to
seasonality, racks may make more sense.