California is a hot market for the eCommerce boom thanks to world-class ports, hungry online shoppers, and a strong labor force. It’s an irresistible mix that can ensnare fulfillment businesses looking to start or expand as online sales continue to grow. When studying the California market with an eye on expanding fulfillment operations, four clear risks stand out and pose significant threats to excited entrepreneurs.
Overlooking the complex labor market
The California job market is challenging to understand fully, especially if you’re just starting a business. Potential employees often have remarkably high costs of living, and offers need to address this. At the same time, you have pockets where the job market is competitive and other areas where many workers seek quality employment.
Labor costs are significant for many fulfillment companies, and you’ll need to balance access to talent with people’s expenses. Shifting a site outside of the Bay Area, for instance, may increase some inbound transit times but allow you to make that up with faster order processing and pick and pack thanks to a larger workforce on the same budget.
Rushing into a decision on space
California is notorious for having expensive real estate and high business taxes. Neither is excellent for a fulfillment company, especially if your target customers are in price-sensitive areas. Your business must be able to support customers and afford to keep the lights on and running.
The most crucial decision in balancing revenue and cost will be your warehouse or fulfillment center’s size and location. Being closer to the Port of LA, for example, can help you offer a compelling service for companies that import products. However, because prices tend to scale with that proximity, you will need customers who can afford to pay a premium for that increased speed.
Not having a solid marketing plan
Fulfillment companies can combat California’s high costs by presenting clear benefits to potential customers. Fast turnaround times, improved order accuracy, cutting shrinkage, and more make a significant difference for fulfillment offers. But it requires more than just these capabilities. You need to advertise your guarantees and strengths to the right market.
Companies need a robust marketing strategy that targets the best possible customers. If a fulfillment center specializes in supporting high-volume companies with thousands of SKUs, the website and paid campaigns must target those companies. Existing fulfillment brands need to demonstrate how a California expansion ensures they keep existing promises while giving customers faster access to more Americans.
Ignoring growth on the other coast
California operations require a significant investment but offer significant returns. Many companies in various fulfillment models will try to start with the region because of high demands for freight and parcel shipping. The trap can be building a business model that doesn’t work for other parts of the country. Not every location has truck-only lanes like the I-5.
While California businesses are coming back after the pandemic, so are many regions in Middle America and on the East Coast. Eventually, companies will start looking for your help to reach customers there. If your business model can’t scale or relies too heavily on a broad network of partners, you can quickly run into losses just to keep those customers.
Build a fulfillment business that’s flexible enough to scale in multiple regions while still addressing the California market’s nuances.
Author bio: Jake Rheude (pictured) is the Director of Marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of ecommerce. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.