Warehouse Expansion Guide

Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv

Table of Contents Introduction 2 Who, What, Where, When, Why 3 1. What’s your motivation? 3 2. What kind of products do you sell? 4 3. Who are your customers? 4 4. What does your labor situation like? 5 Pros and Cons of Warehouse Expansion 6 Build, Buy, or Partner? 7 Partnering with a 3PL: A Practical Alternative 9 A Logical Choice for Fulfillment Technology 10 Move, Expand – or Neither? 11 Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 1

Introduction Adding more warehouse capacity can open up important opportunities for growing your business. But figuring out exactly how much space you need can be tricky. Too much space, and you waste money on overhead. Too little, and you don’t have enough stock on hand to respond quickly to orders or to expand for growth. Here’s a handy guide explaining why (or why not) warehouse expansion could be a wise move, plus an alternative that might make smart business sense. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 2

1 Who, What, Where, When, Why While investing in warehouse expansion can open up new horizons for your business, it is also expensive and time-consuming. Before you jump into a decision, ask yourself a few important questions. 1.What’s your motivation? Identify what is wrong with your current situation. Typical answers might be: •Customers want faster shipping at lower cost. •You want to add new product lines. •You want to target a new group of customers. •A new major client wants to partner with you. •A presence in more favorable markets could boost your brand. •You’ve outgrown storage capacity, and organizing stock is cumbersome. •You need to speed up shipping times and lower delivery costs. •A merger or acquisition is coming up, changing the nature of your business. •Suppliers are pressuring you to keep more inventory on hand. All of these boil down to the same thing–growth. And you definitely don’t want a lack of space to hinder your business expansion or profitability. Expanding your warehouse space may be an ideal way to position your facility to reduce operational costs and improve your customer experience. On the other hand, maybe an agent is pushing a rental deal that’s “too good to pass up.” Perhaps you feel like a bigger facility would make your business seem more prosperous. These are not necessarily valid reasons for going through the expense and hassle of expansion–at least for now. The bottom line is that if adding warehouse space will grow your brand and bottom line, it’s probably a good idea–if and only if the benefits outweigh the risks. Keep reading. If adding warehouse space will grow your brand and bottom line, it’s probably a good idea. But before making a move, do your diligence comparing risks and benefits. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 3

Who, What, Where, When, Why Cont’d... 2.What kind of products do you sell? The type of the inventory you handle will also impact your warehousing needs, since quality control is closely tied to ecommerce business growth. For example, if you sell perishables or fragile SKUs, you’ll want a warehouse that’s close to the source of those goods to reduce the risk of spoilage or damage and to trim inbound freight costs. Similarly, inventory that is potentially hazardous may need to be stored in isolated locations to avoid unsafe interactions. Managing multiple channels often requires extra space to make you more nimble and responsive to channel-specific demands. 3.Who are your customers? Carefully analyze your customer base. •Where are they located? •Are they concentrated in specific areas or regions? •What are their main reasons for selecting you over your competitors? •Do they have issues with your current fulfillment practices? •How might changes in your existing location impact time to delivery or shipping costs? Also check for trends and groupings. Often your repeat customers bring in the most profitable business. Knowing this could help you assess the feasibility of proposed changes and evaluate potential warehouse locations. The goal is to find sustainable locations that put you closer to existing and prospective customers– especially the ones responsible for the bulk of your business. Doing so can bring down handling and freight costs, as well as improve order fulfillment timeframes. If your repeat customers are happy with the status quo, carefully consider the changes you make. You can’t afford to alienate them–or, even worse, lose them if the expansion goes south or creates a worse experience for them. Identify locations that are convenient for your most essential customers. The best place might be where you already are. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 4

Who, What, Where, When, Why Cont’d... 4. What does your labor situation like? More square footage means you’ll need more skilled workers to carry out day-to-day operations. The location of your warehouse determines the talent available to you. A facility that’s near a developed area or trading hub increases the likelihood of attracting quality employees. Conversely, you might be able to reduce salary expenses in a rural area. You also might find plenty of people eager for work in a region with high unemployment. Other factors can further complicate the situation. A competitor nearby might have already hired the most desirable workers. If you need seasonal help, your location and the availability of affordable housing could limit who will apply. Perhaps workers will object to walking longer distances in a bigger facility. They’ll be concerned about convenient parking and/or access to public transportation, too. Investigate the local labor pool carefully before making a move. And while you’re at it… A warehouse expansion is a logical time to upgrade your existing facilities, equipment, and procedures. You might explore storage solutions like multi-tier racks, mobile shelving, or mezzanine flooring. These options, particularly the latter, make use of vertical space that’s often overlooked. Hardware and software improvements could streamline operations. So could barcoding and other technology. Safety enhancements might be in order too. Pay special attention to software. The right solution can increase your flexibility and make it easier to meet customer demands for speed and reliability. Check out software that automates routine tasks, manages orders and inventory, connects various brands and warehouses, and provides visibility into all aspects of your operations. Many also integrate with third-party logistics (3PL) providers and offer directed putaway to optimize space utilization. Just remember that even the most necessary upgrades come at a cost. Resources are often tight when you’re adding warehouse space. Ensure that each and every upgrade brings a speedy return on investment, and is included in the overall budget to avoid cash flow “surprises.” Consider the impact on your working capital and make sure to plan accordingly. More warehouse space can make you more attractive to customers with improved delivery times–and boost profitability through lower shipping costs and better scalability. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 5

2 Pros and Cons of Warehouse Expansion By now you have a good idea of why you might want to invest in more warehouse space. Let’s evaluate some possible outcomes. Potential benefits •Ability to meet rising customer demand and expectations •Capacity to scale your business for an influx of orders or seasonal rushes •Lower shipping costs •Improved efficiencies and greater productivity across the board •More convenient location for vendors, logistics, staff •Competitive advantage for multi-channel endeavors •Freedom to add new product lines •Opportunities for reimagining tech infrastructure and workflow •Equity growth and appreciation in property you own •Potential to tie costs to volume and avoid large up front investments if partnering with a 3PL Potential risks •Increased labor, material, and operational costs •Large upfront capital investment unless choosing to expand through a 3PL relationship •Cost overruns and scheduling delays in construction •Lengthy process to build a new facility from scratch •Or, if buying or leasing existing warehouse real estate, lack of availability in key geographies and high purchase/rental costs •Mistakes due to lack of project management expertise •Unknowns of new location, labor force, logistics requirements Comparing the pros and cons above will give you a good gut feeling about the feasibility of adding warehouse space. Now follow up with quantitative analysis. You can easily run the numbers to predict your anticipated break-even point. Here’s how… Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 6

3 Build, Buy, or Partner? Anytime you look to expand, you should evaluate all of your options and factor in considerations of both time and money (which impact one another). Of your three options, namely to build a new facility, rent or buy an existing facility, or outsource operations to a 3PL partner, each requires a different mixture of resources. -How quickly do you need the extra space? -How much is the lack of space costing you both in revenue and in customer satisfaction? -Do you have money set aside to invest, or will you have to borrow? -How does the interest expense compare with the monthly cost due to lack of space? -What spaces are available in the geography you need? -Do you have the right expertise in-house to build out and manage your facility? The decision to partner with a 3PL may look more and more attractive as you weigh in these complications. Create a Timeline • Building your own space — This requires the most significant time investment and cost outlay. Excluding time to evaluate, negotiate, and purchase suitable property depending on your area, it will take approximately 6 months for construction, 1-3 months to set up the warehouse • Rent/buy — Allow for time to evaluate and search for property and time to negotiate the lease or purchase. Once complete, it will often take 1-3 months to set up the warehouse for fulfillment activities, plus time for equipment purchases and delivery. • Partnering with 3PL — Definitely the fastest of the options, partnering with a 3PL can take as little as a month to be up and running after finding and selecting your partner. In many cases, selection and evaluation can happen in less than a month as well if you leverage a marketplace with pre-vetted partners. Run the Finances 1. Add up the costs of the expansion itself. Include outlays for research, planning, moving, infrastructure, tenant improvements, interruption of operations, commissions, additional technology, interest on borrowed money, consultants, hiring fees, etc. 2. Estimate the increased net profits you anticipate from the new warehouse space each month. This will be additional revenue minus expenses (labor, rent, utilities, insurance, transportation, maintenance, upkeep, etc.) per month. If selecting to partner with a 3PL, factor in cost savings from shipping and any potential savings driven by paying by volume and activity versus up front investments. Do not include existing revenue or expenses unless it will be offset by your investment. 3. Divide the total investment (#1) by anticipated net profits (#2). This will give you a rough idea of how long it may take for the expansion to pay for itself. Of course, we’re dealing with a lot of unknowns here. At best we’re arriving at a guestimate. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 7

Build, Buy, or Partner? Cont’d... If choosing to build, buy, or rent, now ask whether you can afford the outlay for that duration. How will you finance the investment? Will your business be able to survive until the hoped-for profits begin rolling in? Then throw in a wild card–like a pandemic or supply chain disruption. Life is notoriously unpredictable, so be very conservative with your estimates. See whether you could hold out for double or even triple the length of time until you think you’ll realize a positive return. How would you pay for operations and extra costs in the meantime? Project your working capital over the duration to understand the impact. ROI for Warehouse Expansion Net revenue Investment Break-even Months after expanding warehouse Timing is everything. Calculate how long it will take until your investment in extra warehouse space generates a profit–and make sure you can survive any cash flow shortfall in the meantime. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 8

4 Partnering with a 3PL: A Practical Alternative You might be surprised to learn that warehouse expansion isn’t the only answer to capacity concerns. If you don’t have the funds for a full-blown expansion or can’t put together the right team to manage a transition just yet, consider outsourcing fulfillment to a third-party logistics (3PL) partner instead. Turnkey solution – A full-service 3PL warehouse supports you at every stage of fulfillment. You don’t have to manage inventory, handle returns, or worry about shipments getting out the door on time. Leading 3PLs use sophisticated warehouse management system (WMS) software to handle complex operations like ecommerce and omnichannel fulfillment. A 3PL does the heavy lifting for you, giving you more time to focus on increasing revenue, enhancing product quality, and expanding product offerings. Just hand over your inventory and they do the rest. Hidden savings – Because 3PLs pass on volume discounts and already have distribution centers close to your customers, they can reduce shipping costs. Also, the best 3PLs can adjust warehouse allocation based on real-time needs, so you only pay for the space you’re actually using and for the inventory received and picked, packed, and shipped. Additionally, most 3PLs bring years of logistics expertise that can also drive efficiencies in speed to fulfillment and customer unboxing experiences. This eases stress on your cash flow and ties costs to volume, letting you save up for other important investments in the future. Delay the warehouse decision – Outsourcing to a 3PL makes it possible to stay longer in your existing space. You can devote attention to operational and product line upgrades without having to scout for properties, compare designs, manage new construction and renovations, obtain financing, or hire and train a new workforce. Instead, you can sit tight until you’re sure the time is right. Not all 3PLs are created equal, however. Do your homework before selecting a partner. Look for a provider with a strong track record, innovative systems that integrate with your order management systems or shopping carts, ability to scale, proven return on investment, and values that align closely with your own. A 3PL partner can help you turbocharge your fulfillment efficiencies, so you can concentrate on adding product lines, improving customer satisfaction, and building your brand. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 9

5 A Logical Choice for Fulfillment Technology Extensiv is a leader in omnichannel fulfillment. Through a network of more than 2,000 connected 3PL warehouses and a suite of integrated, cloud-native warehouse, order, and inventory management platforms, we allow modern merchants and brands to fulfill demand anywhere with superior flexibility, and scale without painful platform migrations. Extensiv offers solutions designed specifically for growing e-tailers: • Extensiv Fulfillment Marketplace helps you source a 3PL with a directory of pre-vetted vendors to meet your specific needs. • Extensiv Warehouse Manager is a leading cloud-based WMS system designed for in-house fulfillment. With features like inventory management, order management, shipping integration, and reporting, you’ll be able to streamline your warehouse operation and improve efficiency. • Extensiv Order Manager powers fulfillment, inventory, and business intelligence. It unifies data across channels, warehouses, and point-of-sale (POS) systems. Direct-to-consumer (D2C) retailers, marketplace sellers, and early-stage brands use it for faster and more efficient workflows. It can be up and running in as little as a few weeks. • Extensiv Integration Manager integrates with most leading ecommerce and marketplace partners. Our Extensiv Integration Manager makes it easy to create, add, or customize an integration that is right for your business. Extensiv solutions track inventory, manage your warehouse and coordinate orders between multiple locations–your own or a 3PL warehouse. You get real-time visibility into operations, and easy-to-understand insights on inventory. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 10

6 Move, Expand – or Neither? Just the fact that you have some doubts about expanding your warehouse might mean that a move is premature. You owe it yourself to check out alternatives like a 3PL. Book a free no-obligation demo today with Extensiv to find out whether outsourcing might work for you. Extensiv is a visionary technology leader focused on creating the future of omnichannel fulfillment. Through our unrivaled network of more than 2,000 connected 3PL warehouses and a suite of integrated, cloud-native warehouse, order, and inventory management platforms––we allow modern merchants and brands to fulfill demand anywhere with superior flexibility and scale without painful platform migrations. REQUEST A DEMO For more information, please call us at 833-983-6748. Follow Us © 2023 Extensiv I All rights reserved. Time to Expand Your Ecommerce Warehouse? A Guide from Extensiv 11