Wal-Mart abandons plans for Merced, CA warehouse, blames e-commerce

Dive Brief:

  • Wal-Mart canceled plans to build a 1.2 million square foot distribution center in Merced, CA, the Merced Sun-Star reported last week.  The facility was originally proposed in 2005 and would have employed 1,200 people. 
  • While the city welcomed the retailers' expansion, the distribution center was delayed by legal challenges until 2013, when the California Supreme Court declined to hear the case brought by the Merced Alliance for Responsible Growth. The citizens' group protested increased air pollution that would result from increased truck traffic.
  • Wal-Mart won the case, but ultimately decided to abandon the project due to a changed retail landscape. The company told the Sun-Star it was balancing its online fulfillment capacity with brick-and-mortar stores.

Dive Insight:

The Merced, CA distribution center cancelation is likely not the last to strike a large logistics warehouse as delays from local opposition are common, and shifts in the retail landscape appear inevitable.

In another example of local opposition, the World Logistics Center in Moreno Valley, CA, is currently seeing heavy resistance from Earthjustice and other environmental groups protesting increased truck traffic and air pollution. Both the citizens of Merced and Moreno Valley, CA, cite the California Environmental Quality Act to oppose construction of new logistics facilities.

Local opposition was but an indirect cause of the cancelation, however, as the story yields greater insight as to what the logistics landscape will look like in the new world of e-commerce. 

Having purchased four large online retailers within the past year — Moosejaw, Jet.comShoeBuy, and most recently Modcloth — Wal-Mart is investing heavily in its e-commerce offerings. Yet, with a wider availability of merchandise, the need for an additional distribution center would seem more, rather than less, likely.

But where the merchandise is coming from, and going to, is just as important as distribution capacity. Wal-Mart, like many of its retail counterparts, is transitioning to dedicated e-commerce fulfillment centers as well as ship-from-store features to deliver on the omnichannel promise. This requires careful site selection for its big box warehouses, often within hours of various major markets.

The Merced project, located a two hours' drive from San Jose, Salinas and Sacramento, CA, would typically fit the bill. Yet, as the project was canceled, the "business decision" must have been made for a non-site specific factor. One indicator could be the site's brick-and-mortar traffic. If the Merced Wal-Mart's traffic was on the decline, the retailer could stock less items for brick-and-mortar clients and instead dedicate the space to ship-from-store clients. This way, the retailer would be able to service those markets, at least in part, without a massive distribution center. 

Such hybrid models are becoming common among retailers as the costs and benefits of physical stores are weighed against the promise of e-commerce. In a market as saturated as the Bay Area, Wal-Mart may be betting on other distribution centers and stores for its fulfillment needs. Regardless, the decision shows the drastic effects e-commerce is having on the nation's logistics footprint. 

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Filed Under: Logistics Operations
Top image credit: Wal-Mart