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Critical Site Selection Factor #8: Proximity To Major Markets Provides Access To Customers & Workforce Talent

Today’s expectations of next-day delivery make proximity to markets critical, but it also helps in recruiting workforce talent.

Q4 2015
This series examines the top-10 location factors from Area Development’s Q1/2015 Corporate Survey that determine where our readers will locate and/or expand their facilities. Highway access is their primary concern, followed by occupancy and construction costs. Our readers are also looking for available land and available buildings. Find out what else companies like yours should consider when making your next location/expansion decision.

Customer service is what’s behind the importance of proximity to major markets. Proximity has, of course, always been an important location factor, but as expectations regarding customer service change, so does the need for proximity.

Consider customer service with regard to online shopping. “Ten years ago when you ordered a shirt online, or a book, it got to you in five to seven days and you were pretty happy,” observes Richard H. Thompson, who leads the Global Supply Chain & Logistics Solutions team for JLL. “Now, you’re kind of thinking you’re going to get it next-day. The customer-service requirements continue to escalate.”

Enabling next-day delivery once meant locating distribution within reasonable proximity to an airfreight hub, such as the major FedEx facilities in Memphis or Indianapolis. But back in the day, next-day customers were more willing to pay extra for such a quick turnaround. Now that buyers not only want faster, but also cheaper, fulfillment needs to happen with the kind of proximity that allows next-day delivery at regular parcel rates.

That, says Thompson, is one reason why Amazon has about five dozen distribution centers, not just a handful. They’re all over the map. To serve the New York area, for example, Amazon has fulfillment centers not just in New York, but also four in neighboring New Jersey. There are five in California and seven in Texas. That kind of proximity is now allowing Amazon to offer same-day service at reasonable rates in many major markets.

Consider customer service with regard to online shopping. Ten years ago when you ordered a shirt online, or a book, it got to you in five to seven days and you were pretty happy. Now, you’re kind of thinking you’re going to get it next-day. The customer-service requirements continue to escalate. Richard H. Thompson, team leader for Global Supply Chain & Logistics Solutions, JLL Increases in transportation costs can boost the prominence of proximity as a location factor, too. “When transportation costs soared, gaining market access by locating in close proximity was common,” says Mark Sweeney, senior principal with McCallum Sweeney Consulting. Does that make it less of an issue now that oil prices have returned to Earth? Not necessarily. “Even with abating transportation costs, proximity to major markets is growing in importance.”

Intersection of Location Factors
Here’s a good example where different location factors intersect and influence each other. Proximity to major markets isn’t just a matter of being close to customers. Increasingly, it’s also about being close to where employees live — or want to live. Sweeney says employers hoping to appeal to millennials are finding that younger employees like more urban environments. “We see that a lot in our headquarters projects. They’re going to major metros from smaller metros because of access. A lot of headquarters projects have been going from second-tier cities to big cities,” he says.

Bob Hess, executive managing director and head of Global Consulting for Newmark Grubb Knight Frank, has also observed a bit of a shift in thinking when it comes to team-building in headquarters and other talent-heavy environments. Technology increasingly allows remote working arrangements, but some companies are wondering whether something important gets lost in the process. “I’m seeing more people interested in a campus environment and bringing people together. More and more innovation doesn’t happen on WebEx — it happens in a room,” he says. That’s one more factor driving the need for proximity to major markets, where the executives and creative staffers often live.

In any case, close proximity allows better access, but not just access to the buyer, Sweeney says. “There’s a little more sensitivity to access — access to talent, access to customers, and for your headquarters, access to other major facilities.”

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