This is why Ohio is becoming the e-commerce capital
This is why Ohio is becoming the e-commerce capital ·CNBC
Courtney Reagan
Updated
Few consumers stop to think about e-commerce having a physical footprint because part of the beauty of online shopping is that it can be done nearly anywhere, anytime.
However, fulfilling an online order takes a massive facility and big investments. The e-commerce hub for retail is not a major shopping area, but the Buckeye State.
"For new development fulfillment centers, Ohio is usually at the top of the list for retailers," according to Frank Layo, a retail consultant at Kurt Salmon, who advises retailers on supply chain and logistics planning.
Ohio checks off a number of key items for e-commerce: geographic location, a key transportation network, tax incentives and skilled labor.
All of those combined have been enough to convince many retailers to locate e-commerce fulfillment operations in the heartland state including Amazon (NASDAQ: AMZN), J.C. Penney (NYSE: JCP), Home Depot (NYSE: HD), Victoria's Secret (NYSE: LB), Fanatics.com, Zulily.com and many others.
Ohio certainly isn't the only state that retailers choose for their fulfillment and distribution centers. Tennessee and Pennsylvania are also often high on the consideration list. But the Buckeye State is home to roughly 760 warehouse establishments, according to the Bureau of Labor Statistics. Nearly double Tennessee's 387, but less than Pennsylvania's 855. However, Ohio has gained share in the industry since 2011, by adding at least 79 new establishments.
A key reason for locating a distribution center in Ohio is its proximity to the rest of the country, and key population centers. That was the case for Home Depot, when it was choosing a location for its recently opened Troy Township, Ohio, fulfillment center. From that locale, the retailer can deliver to 90 percent of its customers within two business days.
"Warehousing is best done where goods are consumed," said Ward Fitzgerald, CEO of Exeter Property Group, the largest private equity warehouse and logistics space owner in the U.S. "Seventy-five percent of the population is in the middle."
Fitzgerald also notes that states are highly competitive when it comes to offering businesses incentives for choosing to set up shop in their state. Ohio is a Rust Belt state that was hit hard as manufacturing left the area. As a result, "[Ohio] gives a lot of tax incentives, abatements or infrastructure loans to companies in order to attract business."
Between land prices that could be 25 percent less than other states and tax breaks, "savings could be 15 to 20 percent of total operating costs," he said.
Ohio's transportation network has also proven an attractive draw for many retailers looking to get goods to consumers quickly.
Ohio is home to 6,735 total interstate lane miles, according to the Ohio Department of Transportation, including I-75, I-71, I-77, I-70, and I-80. While trucks are certainly a key vehicle for transporting goods, the Buckeye State also has 13 intermodal railroad terminals and 5,200 miles of rail lines. Further, the state transportation department said Ohio's shippers can get to 60 percent of the U.S. and Canadian population within 600 miles of the state's borders.
There also are four dedicated air cargo terminals, including UPS (NYSE: UPS) and FedEx (NYSE: FDX) locations, according to Jobs Ohio, a private, not-for-profit economic development company. Businesses also can leverage the flexibility of commercial aircraft belly freight at Ohio's seven commercial airports to transport goods.
While retailers' fulfillment centers are certainly infused with technology, human labor is a key part of daily operations.
U.S. government data show the growth rate for warehouse jobs has outpaced total job growth since the Great Recession. In the first nine months of 2015, more than 100,000 warehouse jobs were added throughout the country. In the same period, Ohio gained more than 3,200 of these jobs, which marks the largest gain for the state since 2007.
The pool of applicants in Ohio is considered by businesses to be quite strong.
"Our clients who have a distribution or fulfillment presence in Ohio typically have a more tenured or more skilled workforce and the way that manifests itself is the labor productivity," said Layo.
Home Depot's Troy Township fulfillment center brought nearly 600 new jobs to the area, and the retailer calls the local labor market "very good" when it comes to the availability of high-quality employees.
"One of the other benefits Ohio has is the culture, since there has been so many warehouse jobs historically, people can see that as a career path forward," Layo said.
The state's many colleges and universities are also investing in supply chain and logistics certificate and degree programs, some with the help of federal grant money, to keep those jobs within the state's borders.
"We've just opened up what we call our Supply Chain Career Development Center and it covers a variety of different training and development opportunities in the supply chain/logistics area," said Doug Bowling, Cincinnati State Technical and Community College dean. "We offer training from forklift operation, industrial truck certification and global logistics certificates to one-year certificates and associates degrees."
Bowling agreed that Ohio's labor pool attributes and history complement the growing e-commerce and fulfillment industry, noting Ohio is the third-largest manufacturing state in the country, and No. 1 for consumer products.
There is also good news when it comes to wages for fulfillment center employees located in Ohio. According to data from employment advisory firm Korn Ferry, wages are an average of 2 percent higher for Ohio warehouse workers compared to the nationwide average.
And there are other, less tangible factors that make Ohio attractive for retailers, according to Layo.
"Ohio seems like a fraternity or a sorority, people from Ohio really stick together," said Layo, noting there's a lot of cooperation among retailers in Ohio when it comes to supply chain. "When the West Coast port crisis was going on last year, there were a group of Ohio retailers that said 'let's just charter our own trains' and then just shared capacity intermodally to save costs."
