2009 is well on the way to becoming a year to reflect on right-sizing, or more precisely, a year to consolidate operations into fewer distribution centers (DC) that service more markets. The challenge is determining which markets to serve from the Los Angeles warehouse base. One segment that we are suggesting at Encon Commercial is consolidating, under one roof, the local and regional sales operations.
With a warehouse site selection agenda focused on right-sizing and incorporating a direct sales operation, the DC stands to generate more revenue from the public and vendors, reduce or eliminate the need for costly retail space and provide an outlet for returned products on the racks. You do not have to search far to find that consumer spending is down and meager sales orders persist. In view of warehouse space sitting idle and stale stock occupying square footage, the CEO of Pure Linen Bedding, Derrick Zhong makes a clear observation, "A warehouse with stock in racks is no good for a distribution company". By teaming up with Encon Commercial, Pure Linen Bedding implemented a "Do All" strategy for their DC in Los Angeles that reduced overhead expenses for the rough economy ahead.

By understanding local market trends in Los Angeles, we take into account an established trend of warehouse direct consumerism, both the propensity to hunt for a discount in the local market and also an equally fervent trend for vendors to return items for any and all concerns. With twelve million consumers within one hour of Los Angeles County the "Warehouse Direct" point-of-sales channel is thriving and proves to be a powerful tool to national distributors.  As in any consumer product line, Pure Linen Bedding product lines are faced with deteriorating cash and credit conditions of vendors and increasingly complex supply chain systems supporting major wholesale clients.  Any problem can be magnified by a breakdown in the wholesale supply chain, backing up product in Los Angeles with no cost effective way to deal with stock. Inevitably these products bog down at the U.S. point of entry, Los Angeles. As a reverse logistic concern these products represent a significant logistical component that can account for up to 9% of all shipping costs. How many companies can manage returns in a cost effective way? Pure Linen Bedding's overstocked and blemished items are viewed as perfectly viable products at the appropriately discounted price. To Pure Linen Bedding, these products make more sense finding a new home through warehouse point-of-sales then moving product back up the supply chain, a logistical challenge that can run six times the cost already invested to deliver the product to the U.S. market.

At Encon Commercial, we are aware that the recent market downturn presents too many properties to choose from in any of the nine industrial markets in Greater Los Angeles. Adopting a variety of search parameters, including square footage, rate, ceiling height, office size, dock door count, sprinklers calculations, truck yard turning radius' and landlord incentives, there is still one savings often overlooked, warehouse point-of-sales.  Should the opportunity be pointed out, a few warehouse locations on your list provide a configuration ideal for a distinct warehouse point-of-sales showroom, a portion of the distribution warehouse that can substitute for traditional retail space. Often municipalities allow up to 10% of floor space for sales, enough to achieve the intended use.

Simply doing the math brings the economic numbers in perspective. Pure Linen Bedding inked a lease at a below market rate of $6.00 per square foot annually on a gross basis (all inclusive rate) in Chino, California, that fixed their rental overhead for the next six years. Encon Commercial offered a location that incorporated a seamless but separate operation for retail sales (see photo). Naturally, the rental on a proposed 2,500 square feet earmarked for direct sales came in at the same lease rate as the warehouse. Being familiar with the net charge pass-through expenses on retail space, the $6.00 per square foot inked on the warehouse space was even below the net pass-through operating expense costs for a retail location! Finally, take the going base rate for retail at $30.00 per square foot annually on a triple net basis, Pure Linen Bedding reduced overhead by a savings of $60,000 per year or $360,000 on the entire lease term, not to mention eliminating the ongoing operational costs to run a retail storefront.