Is a Phoenix Distribution Center a Lower-Cost Alternative to an LA Warehouse?

In the face of continued supply chain disruption from COVID-19, retail shippers should consider a Phoenix distribution center as a more cost-effective alternative to Southern California to reach customers in the Southwestern and Western United States. An eCommerce boom and ongoing supply chain disruptions created record low vacancy and historically high rents for industrial real estate around the country. The situation has become even more desperate in busy international port cities like Los Angeles.

Given these factors, the task of running a distribution center out of LA has become prohibitively expensive. Many eCommerce and omnichannel sellers have elected to move or establish fulfillment operations in secondary markets to control fulfillment costs. When you need to reach Southern California, there are few secondary markets better than Phoenix, Arizona.

How Can a Phoenix Distribution Center Save My Business Money?

The Phoenix market offers significant cost-cutting opportunities for eCommerce fulfillment businesses without sacrificing easy access to LA and other prominent Western U.S. markets. Notable cost benefits of a Phoenix distribution center include:

• Lower cost of ownership. In the Greater Phoenix area, average operating costs are 36% lower than the California average. Logistics costs are also more than 30% less, notably reducing total spend for a fulfillment operation.
• Cheaper taxes. Arizona has a 4.9% corporate tax rate, compared with an 8.84% rate in California. Arizona also features no inventory tax and offers numerous tax credits that warehouses may benefit from, such as the Quality Jobs Tax Credit, Renewable Energy Tax Investment Program, and Qualified Facilities Refundable Tax Credit.
• Reduced labor costs. Los Angeles County has a $15 hourly minimum wage for businesses with 26 or more employees, while the minimum wage in Phoenix is $12.15 per hour. This constitutes a huge labor cost delta when applied across a large-scale fulfillment operation. It also provides significant savings during peak periods when warehouses make greater use of minimum-wage temporary workers.
• Economical building costs. Constructing a new 500,000-square-foot Phoenix distribution center is about 60% cheaper than it would be in Los Angeles and about 30-40% cheaper than Portland and other high-profile West Coast options.
• More affordable real estate. Los Angeles has experienced record industrial real estate activity as shippers of all types strive to snap up warehouse space near the Port of LA and the Port of Long Beach. Construction costs in Los Angeles rank among the most expensive nationwide, and industrial LA rents have more than doubled. Rent growth in Phoenix has remained more reasonable, allowing businesses to keep fixed storage costs down.

Indirect Cost Benefits Associated With Phoenix

Aside from the direct cost-saving opportunities listed above, Phoenix offers some indirect benefits that will positively impact your fulfillment operation’s budget.

1. Low risk of weather disruption. The weather in Phoenix stays predictable, with more than 300 days of sun per year. This stability offers a significantly reduced chance of disruption to operations from severe weather events.

2. Minimal business regulation. Arizona has gone to great lengths to make itself a business-friendly state by taking a minimalist approach to licensing and regulatory hurdles and implementing Right-to-Work labor policies. In contrast, California’s South Coast Air Quality Management District has implemented stringent air pollution standards affecting warehouses larger than 100,000-feet.

3. Reasonable cost of living. Though average wages are lower in Phoenix than in LA, the value of a dollar stretches further in Phoenix thanks to a much lower cost of living. Because of this, warehouses can pay standard market rates without causing undue stress on warehouse associates.

4. Heavy industry presence. The Greater Phoenix region is home to significant operations of UPS and FedEx and large-volume shippers like Amazon, Chewy, REI, and more. The presence of these businesses incentivizes local governments to maintain a robust transportation and logistics infrastructure.

5. Access to many markets. A Phoenix distribution center serves many more key markets than Southern California. Phoenix provides same-day or one-day access to about 33 million consumers spread across the Southwest, West Coast, and Mountain regions of the United States.

Establish Your Phoenix Fulfillment Operation With Staci Americas

Staci Americas has operated a Phoenix distribution center spanning two adjacent facilities since 2010, with a primary focus on direct-to-consumer fulfillment. Check out this video on the Staci Americas Phoenix location. Staci Americas' Phoenix warehouse is part of Staci Americas' nationwide fulfillment network of 15 facilities. To see how we can help you cut costs while maintaining reliable distribution to your customers in the Western US and nationally, please get in touch with us today.