UPS United Parcel Service

By Jennifer Smith 

Some big retailers are looking to become as flexible as short-term apartment renters when it comes to managing warehouses.

This holiday season, Walmart Inc. used Flexe Inc., a Seattle-based marketplace that connects warehouse operators with businesses in need of storage, to secure about 1.5 million square feet of temporary space to handle the mounting demands of e-commerce fulfillment.

The warehouse operators that Walmart found through the platform handle hiring and other administrative tasks for the pop-up spots, spread out across three facilities in Pennsylvania, Illinois and Nevada, and Walmart avoids paying year-round for space it would only use during peak season.

Known as on-demand warehousing, the idea is to tap into unused space in a crowded U.S. industrial real-estate market where distribution centers near population centers are fetching a growing price premium. Retailers and manufacturers are trying to position goods closer to customers without getting locked into long-term contracts or multiyear leases when rapid changes in buying patterns and trade conditions have made forecasting demand more difficult.

Walmart's biggest volumes come from Thanksgiving to Christmas, Justin Schuhardt, senior director of operations for Walmart e-commerce, said at an industry conference earlier this year. "You don't always want to build the church for Easter."

Flexible warehousing startups often pitch their services as a way for midsize retailers and online startups to compete with Amazon.com Inc. without having to build their own distribution networks.

But larger companies are taking an interest, including those with established logistics operations.

Retailers and manufacturers are using such pay-as-you go arrangements to cope with everything from hurricanes to global trade tensions. Ace Hardware Corp., for example, used Flexe to stage generators and other disaster-relief items during the 2018 hurricane season after scrambling last year to get supplies to regions damaged by Hurricanes Harvey and Irma.

The interest comes as growing e-commerce sales sharpen competition for warehouse space and push up prices. The industrial availability rate fell to 7.1% in the third quarter, its lowest since 2000, according to real-estate brokerage firm CBRE Group Inc.

Companies don't want to commit to multiyear contracts "without knowing how consumer demand is going to shake out," said Adam Mullen, who leads CBRE's industrial and logistics business for the Americas. "They know they are going to see peaks and valleys, and they're tired of making investments over the whole year."

The strategy is also a way to address the uncertainty from global trade tensions. Stord Inc., an Atlanta startup with a network of more than 250 warehouses across the U.S., helped a Chinese solar-panel supplier temporarily expand its New Jersey storage capacity by fivefold earlier this year when the Trump administration imposed stiff levies on foreign-made solar panels.

"The tariffs were hitting, and so they were trying to bring in 248 containers all at once, all of a sudden," Stord Chief Executive Sean Henry said.

No single warehouse in the company's network near the Port of New York and New Jersey could accommodate the surge on just two weeks' notice. So Stord, which also helped arrange trucking from the port, split the goods between three locations, eventually shifting all the client's inbound product to a shared facility operated by Seldat Inc. in Burlington, N.J.

Fast-food chain KFC used a British warehouse-renting service called Stowga to help line up replacement facilities in the U.K. after supply-chain problems with Deutsche Post AG's DHL and another provider disrupted chicken deliveries to hundreds of restaurants.

"They needed eight warehouses. We typed into the search and we had them instantly," Stowga founder and Chief Executive Charlie Pool said. Stowga provides a standardized contract and charges warehouse operators for listings, but unlike some U.S. warehouse platforms, doesn't get involved in operations.

A spokesman for KFC U.K. confirmed the company used Stowga as part of its recovery efforts, and said restaurants there have been back up and running with a full menu since May. DHL declined to comment.

Facilities known as public warehouses have offered space on a short-term basis for years. But many of the new on-demand platforms offer a high-tech twist, incorporating software that simplifies the cumbersome process of integrating the customer's order management technology with the provider's systems.

With the overall market for public storage and warehousing projected to hit $28.7 billion by 2023, according to researcher IBISWorld, more companies are piling in.

In April XPO Logistics Inc., one of the largest logistics firms in North America, launched a flexible distribution service that it expects to generate $1 billion in revenue over the next few years.

Delivery giant United Parcel Service Inc. launched its own warehouse platform in August, an offering called Ware2Go that matches companies with vetted fulfillment providers. The offering was designed for small to medium-size merchants, though larger companies also have used the service, UPS said.

Write to Jennifer Smith at jennifer.smith@wsj.com

(END) Dow Jones Newswires

December 23, 2018 09:14 ET (14:14 GMT)

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