Flowspace helps smaller companies find warehouse space by exploiting vacancy gaps

The public statistics that show all-time record low vacancies for U.S. industrial property mask the reality that a decent chunk of the country's warehouse space, while it is leased, is not being utilized.

That view comes from Ben Eachus, co-founder and CEO of Flowspace, which was founded 10 months ago to help small to mid-size businesses locate warehouse space on an as-needed basis without having to commit to long-term contracts. Eachus acknowledged that industrial vacancy rates are historically low. However, of the warehouses that have listed with Flowspace, an estimated 20 percent of their space, on average, sits vacant, he said.

His comments highlight an irony in the collection and analysis of industrial vacancy data. The activity levels published in myriad quarterly reports reflect the amount of space acquired or leased, but not the amount of space actually used. A business will lease, say, an 800,000-square-foot facility but may end up using only 600,000 square feet of it. Yet it's the former figure that ends up in the databases that track vacancy rates and other macro trends. "The space on our platform is already leased and therefore doesn't appear on standard industrial vacancy reports," Eachus said.

The differential between the quantities of leased and utilized space creates opportunities for Flowspace, based in Marina del Rey, Calif., and its main, if not only, competitor in the warehouse-by-the-drink segment, Seattle-based Flexe. Both are exploiting market inefficiencies for the benefit of companies that have warehousing needs but neither the budgets nor the constant flow of inventory to commit to multi-year contractual agreements for space and additional expenditures for labor. The key difference between the two, Eachus said in a phone interview yesterday, is that Flexe focuses on larger customers while Flowspace hits the smaller businesses, which will typically store 50 to 100 pallets.

In addition, Flowspace's customers, because of their size, will sell on Amazon.com Inc.'s website, whereas Flexe's larger customers typically will not, Eachus said.

Smaller businesses, on their own, hold little negotiating sway with developers and landlords, and often face frustratingly long waiting times to occupy a facility. Eachus encountered problems with timely facility access at his prior job, where he ran fulfillment center operations for Santa Monica-based consumer goods retailer The Honest Co., whose warehousing needs he described as at the higher end of mid-size. It was Eachus' encounters during his three-year tenure there that compelled him to build the model for Flowspace, he said. Today, a customer can bring goods into a warehouse location within as little as 24 hours after agreeing to take the space.

Flowspace customers encompass a cross-section of businesses and warehousing needs. At the start, most customers used Flowspace to store their overflow inventory, which doesn't have a dynamic replenishment schedule. Recently, however, a larger percentage of inventory is being held for more rapid replenishment, Eachus said.

Flowspace works on a month-to-month schedule and takes a monthly transaction fee for its services. When a prospective customer approaches Flowspace, it helps it define the scope of the work, projects how much space will be needed, and what fits the customer's budget. Customer also have access to a Flowspace-built warehouse management system (WMS) linked to the warehouse locations, Eachus said.

Most of its customers have stayed with it from the start, although their inventory levels will fluctuate month-over-month, Eachus said. It is in every major metro area, though southern California is its largest market. Most of its warehouse suppliers are third-party logistics (3PL) providers and large retailers.

Though there isn't much customer overlap between Flowspace and Flexe, Eachus said. Still, each is capable of playing in the other's sandbox. For example, Flowspace can handle as many as 2,000 pallets per customer, or even more. These are quantities that would put it within hailing distance of the Flexe customer base.