In the process, they're driving one of the biggest real estate trends in years – a warehouse boom that's adding hundreds of jobs and cachet as a regional e-commerce hub.
At least eight major warehouse sites have opened or expanded in the past two years, run by companies aiming to get their products to consumers faster and reduce shipping costs. Their names are as well-known as the food, fashion and furniture they deliver: Amazon, Groupon, eBay, Overstock and Wayfair.
Landing in communities from Warren to Boone counties, the new distribution sites fill at least 1.86 million square feet of industrial space – think 32 football fields. They're pushing industrial real estate vacancies in some areas to near-record lows and bolstering local logistics industry.
"Take a look at the consumers, it's all that instant gratification," said Paul Verst, president and chief executive of Boone County-based Verst Logistics. "At the end of the day, the consumer speaks." He said his company's revenue is up 25 percent in recent years.
Nowhere is the warehouse and distribution boom more concentrated than in Hebron, near the Cincinnati/Northern Kentucky International Airport.
Distribution centers that have located or expanded there are drawn by easy access to the airport, DHL and United Parcel Service hubs and major interstates that put merchandise within a one-day truck trip of 60 percent of the the nation's population.
Location, location, location
Forrester Research predicts U.S. online retail sales to reach $294 billion this year, about 9 percent of all sales. By 2018, online sales could reach $414 billion, or 11 percent of the total.
The growing online shopping and information hunting has upended the how, when and where people buy things – meaning the delivery model had to change too.
"The old paradigm is everything had to be shipped out of a specific warehouse," Tobias Hartmann, eBay Enterprise interim president, said. "The new paradigm, is that (goods) can be shipped from anywhere to anywhere." The closer the warehouse is to customers, the faster the delivery and the cheaper the transport costs, he said.
"You can't be somewhere on an island."
For Overstock.com and other e-commerce firms, real estate decisions are based on how well supply chain costs can be cut, said Alec Wilkins, a company vice president. Overstock opened a 51,000-square-foot distribution center in Hebron last year, its first outside its Salt Lake City home base.
If a customer in Cincinnati wants to return a defective mop, Overstock.com can process a new mop in Hebron and send it right out, avoiding a long-distance delivery from Utah.
For nearly a decade, Amazon has had a presence in Northern Kentucky, leasing warehouse space at multiple sites. The Seattle-based online retail giant has completed several expansions and grown its local employment base from a few hundred people to more than 2,000.
"We're so well-positioned in the country to be the repository for that because of the great types of access we have," said Dan Tobergte, president and chief executive of the Tri-County Economic Development Corp.
Tobergte said the increasing presence of e-commerce firms is helping cement the region's position as a warehouse and distribution hub, a distinction expected to grow as the retail landscape evolves.
Finding opportunities for growth
Duke Realty, Prologis, IDI and Paul Hemmer are among developers that helped kickstart the region's industrial development in the past two decades, said Bill Poffenberger, executive vice president at Jones Lang LaSalle in Cincinnati. Poffenberger expects developers to continue working on development deals as the real estate market improves.
In the first quarter, industrial vacancy rates dipped below 6 percent for the first time in seven years, according to commercial real estate firm Cassidy Turley. The Northern Kentucky submarket also has the lowest industrial vacancy rates in the region.
A 639,116-square-foot warehouse building under construction off Dixie Highway in unincorporated Boone County could be completed by July 1, said Doug Armbruster, IDI's Cincinnati regional managing director.
A tentative deal is in place for eBay to lease the space at the 300-acre Park South complex. IDI and eBay wouldn't comment on the deal.
A larger warehouse building also is under construction at IDI's Park North complex in Monroe.
New warehouses are being built with several key differences from 10 years ago, Armbruster said. However, The Boone County building is tailored for e-commerce users with higher dock heights for trucks, better insulation to assist in reducing energy costs, higher strength flooring and more expansive parking to support larger employee counts.
Building the sites isn't cheap, and the region has few areas with large tracts of easily developable land, said Brian Leonard, a JLL senior vice president in Cincinnati. CVG is landlocked and development around the airport has largely been completed.
Some real estate brokers say there aren't enough large industrial spaces – those 500,000 to 1 million square feet – ready to market to companies. In many areas, the infrastructure such as roads and sewers haven't fully been developed.
Armbruster said developers believe there is pent-up demand for space, but construction has been difficult to finance following the real estate market collapse.
In cities such as Columbus, Louisville and Indianapolis, options are more plentiful, and Leonard said that gives companies more options when making site selection decisions.
"The good dirt that's easily built upon is pretty much built upon," said Leonard, who is part of the JLL's supply chain and logistics team.
Retail responds to trends
Consumers may want their online purchases as soon as possible, but retail companies say few are willing to pay a premium for it. The competitive pressure is that consumers will quickly find items elsewhere if their first retail preference is slow to deliver.
"We are seeing a shift in consumer mentality of expectations on time to delivery," Wilkins said. "That's where you're seeing the competition in e-commerce now. Being within the two- to three-day range, it's not a wow factor. It's an expectation on consumers."
Traditional brick-and-mortar retailers also have had to be creative as lines blur between in-store and online shopping.
Macy's spokesman Jim Sluzewski said that since 2009, the Cincinnati- and New York-based retailer has been executing an "omnichannel" strategy to make it easier for customers to get products whether they are shopping in stores, online or through an app.
Macy's also is equipping 650 of its 800 full-line stores to handle in-store pickups for online ordering. In most cases, there's no impact on the store's shoppable area either.
"We'd want you to buy whatever we have, and it is up to us to get that product to you," Sluzewski said.
As part of its strategy, Macy's has been investing more in building large megacenters with distribution space, rather than traditional mall or free-standing stores. The retailer recently broke ground on its fifth large U.S. warehouse, a $170 million site in Tulsa, Okla.
Local logistics firms are seeing an uptick in business, too. Verst said brick-and-mortar retailers are increasingly tapping third-party trucking and shipping companies to sort, label, package and distribute merchandise.
Retailers also are investing more money on information technology systems to reduce inventory management and distribution costs.
"We've seen a surge in demand for those solutions," Hartmann said. "It's absolutely something that brands are looking for. They need to leverage the inventory in their stores. You have to know inventory and route the order to where customer wants it."