Skip to content
Search AI Powered

Latest Stories

operations insight

let's make a deal!

Free land! Tax incentives! Payroll assistance! Companies out scouting for DC sites are demanding and getting all this and more. But there's more to finding the right site than squeezing breaks from the locals.

let's make a deal!

It's a deal that would quicken the pulse of even the most jaded real estate broker. To get Todd A. Noethen and Hal Wilson to sign on the dotted line—thus committing their company, Big Lots, to build its fifth distribution center in Durant, Okla.—economic development officials offered them the sun, the moon and the stars—or at least their site selection equivalents. In exchange for locating their new $70 million distribution center on Durant's fertile soil, Big Lots was promised free land—137 acres' worth, to be exact—and a host of infrastructure improvements. What's more, the county would throw in some needed road work and foot the bill for the construction of a one-million gallon water tower.

And that was not all. The city of Durant and Bryan County sweetened the pot with tax incentives. For example, Big Lots gets a five-year property tax abatement, sales tax exemptions on construction materials used at the site, a land tax credit that allows Big Lots to accelerate the depreciation on its investment by 40 percent, and a sales tax exemption on utilities. There's also an annual inventory tax exemption, meaning Big Lots won't be taxed on the products stored in the DC at the end of each year.


But wait, there's more: Big Lots' new employees will be trained at no cost to the company. Its new hosts will pick up the tab. In addition, the city of Durant took the highly unusual step of agreeing to a "quality jobs cash payment." Under the rare agreement, the city will reimburse Big Lots for 5 percent of the DC's total payroll on a quarterly basis for 10 years.

All told, the incentive package from Bryan County and the city of Durant totaled $13.3 million for the sprawling 1.2 million-square-foot DC that opened three months ago. And the tab's still running. Durant officials expect the total incentive package to reach $20 million when the costs for all of the infrastructure improvements are tallied.

Welcome to the world of economic development incentives. In what amounts to a war between the states, counties, cities and even rural hamlets, local economic development authorities are vying with one another to create the most lavish incentive packages. And the breaks aren't just offered to small players and startups, which might actually need the assistance. They're going to the big players, like Big Lots and Wal-Mart, as well. In fact, a recent study estimates that Wal-Mart—the king of retailers—has received more than $624 million in economic development subsidies to build 91 distribution centers, including a whopping $48 million for one facility. The study, conducted by non-profit research center Good Jobs First, states that 90 percent of Wal-Mart's DCs have received government funding of some kind.

Competition is particularly intense for DCs. Unlike retail stores, distribution centers require highly skilled workers, which means the jobs they bring to a community pay higher wages. Big Lots, for example, guaranteed the Durant community a starting wage of $10 an hour, including benefits.

Get the big picture
It's easy to see the appeal of all those handouts to Big Lots, purveyor of everything from cut-price fruit cocktail and tortilla chips to living room furniture. To compete in the white-hot deep-discounter market, the Columbus, Ohio based retailer, which operates 1,400 stores in 46 states and reports annual revenues that exceed $4 billion, has to land not only the best deals on the products it sells—everything from packaged food to sofas to row boats—but the best deals on building new distribution centers as well.

That's not to say that Big Lots made its decision based solely on incentives. Before selecting the Durant location, Noethen, who is vice president of distribution support services, and Wilson, who is senior vice president of logistics, conducted a rigorous search, investigating dozens of sites in several states and analyzing a detailed transportation model. In the end, "Durant met our strategic plan for our existing store base and future growth," says Noethen.

In fact, Noethen cautions that as enticing as they may be, incentives are only part of the site selection picture. "People tend to focus on the multi-million dollar incentive package but overlook the bad news—you need to spend $3 million to make the site usable," he says. "The incentive package can't be the single deciding factor. You need to understand the entire site development impact, and consider how much site work will be involved." A $15 million incentive package might not be such a great deal if excessive infrastructure work is required on the site, resulting in increased construction costs and delays in completing the facility.

For example, almost all sites require soil grading, and it's imperative to rule out sub-soil issues. Noethen suggests hiring geotechnical professionals to assure the site is DC-worthy, with no hidden rock ledges that could require costly blasting. In addition, you need to make sure there are no drainage issues or even protected wildlife in the area that could lead to a costly battle with environmentalists.

Another potential hitch is the availability of labor. In the end, no matter how highly automated the facility, it takes people to make a DC run. And unlike the Field of Dreams, you can't assume that if you build it, they will come. Therefore, it's important to research the potential labor pool before deciding on a location for your next DC.

Big Lots, for example, wasn't content to simply accept verbal assurances concerning the Durant area's labor pool. Because it's so dependent on labor availability (as the chain continues its expansion, the workforce in Durant is expected to double from its current 250 associates to nearly 500), the company contracted with Kurt Salmon Associates to conduct a thorough examination of the employee base in Durant and the surrounding communities. The company contacted 15 other employers and inquired about average wages, the presence of unions, insurance claims, how long it takes to fill job openings, and the overall work ethic of employees. "A dependable labor pool is one of the top issues," says Noethen. "You need a good employee base; it's one of the top decision factors."

A well-educated workforce is essential for operating some of the state-of-the-art material handling equipment installed at the Big Lots facility. Big Lots expects the Durant facility to become the most efficient of the company's five DCs, based largely on the sortation conveyor system from Intelligrated Inc. The system operates at a rate of 630 feet per minute, which Noethen claims is the fastest of its kind when it comes to a carton sortation operation. With 40 shipping lanes, the facility can process 235 cases per minute, or 14,000 cartons per hour. "Nobody is running that fast," says Noethen. "Others will be soon, but nobody is right now."

Despite the rapid throughput that many DCs achieve, site selection experts emphasize that it's important to choose a site that will allow you to expand. Quite often, it's economically advantageous to add on to an existing facility, as opposed to opening a satellite operation. All too often, however, companies purchase sites with existing requirements in mind, only to find they've become land-locked when it comes time to expand a few years later.

The Latest

More Stories

nimble smart robots for fedex

FedEx picks Nimble for fulfillment automation

Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.

The size of FedEx’s investment wasn’t disclosed, but the company was the lead investor of Nimble’s $106 million “series C” funding round, announced last week. The round was co-led by existing shareholder Cedar Pine LLC.

Keep ReadingShow less

Featured

Logistics gives back: October 2024

For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.


Keep ReadingShow less
siemens logistics airport buggage

Vanderlande to acquire Siemens Logistics for $325 million

The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.

The acquisition has received approval from the Supervisory and Management Boards of both Vanderlande and its parent company Toyota Industries Corporation (TICO) as well as the Management Board of parent company Siemens AG.

Keep ReadingShow less

Resilience is a daily fight

I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.

But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.

Keep ReadingShow less
AI tops digital supply chain investment priorities

AI tops digital supply chain investment priorities

Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.

AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.

Keep ReadingShow less