Retailers Are Shrinking Logistics Operations in a Changing Consumer Market

Discount retailer Big Lots and big-box chain Walmart are among companies that have closed warehouses or laid off distribution workers as part of a broader realignment of logistics operations. The cutbacks are helping cool down a market for warehousing demand that had grown red-hot during the pandemic and quieting a rush to add logistics labor to handle a flood of consumer goods.

Big Lots closed four forward distribution centers, smaller facilities located closer to customers than typical warehouses, last month amid declining sales.Jonathan Ramsden, chief financial and administrative officer at Big Lots, said the retailer opened the facilities, which handled bulk products such as furniture, during the pandemic “to support a period of high growth for our business."

“In the current economic environment we no longer need the additional capacity," Ramsden said.

Big Lots executives said on an earnings call May 26 that the Columbus, Ohio-based company cut $100 million in annual costs in the first quarter with measures including closing the distribution centers. The retailer’s net sales dropped 18.3% year-over-year to $1.12 billion in the quarter while inventories on its balance sheet were down 18.8% in the quarter compared with last year.

Retailers are re-evaluating their logistics operations, including warehouse space, as consumer expectations for fast shipping have cooled, said Rob Handfield, a supply-chain management professor at North Carolina State University, and consumers have directed more spending to services rather than goods.

“You’re starting to see demand slowing and they’re realizing, ‘Maybe we don’t need as much inventory, and if we don’t need as much inventory, we don’t need as many [distribution centers],’" Handfield said.

Retailers during the pandemic bulked up logistics networks as they sought to get around supply-chain bottlenecks and to speed up deliveries to meet surging e-commerce demand. That drove a land rush for distribution space and sent the vacancy rate for industrial real estate down to a multiyear low of 2.9% in the second quarter of 2022.

Vacancy rates are ticking back up this year and companies have slowed their leasing decisions or cut back space to adjust to a changing economy.

Amazon.com, which had doubled the size of its fulfillment network during the pandemic, began pulling back on its expansion last year as sales slowed. The e-commerce giant has closed, canceled or delayed work on 115 warehouses in the U.S. over the past year, according to logistics consultant MWPVL International.

The contraction is hitting warehouse employment. Payrolls in the sector declined by 1,900 jobs in May to their lowest point since January 2022, and have fallen by more than 41,000 jobs over the past 12 months, according to the Bureau of Labor Statistics.

The industrial real-estate vacancy rate ticked up to 3.6% nationwide in the first quarter from 3.3% in the fourth quarter of 2022, according to real-estate services firm Cushman & Wakefield. That was the third straight quarter vacancy increased after two years of declining availability, though still far below the 5% average vacancy rate in 2020.

Walmart is laying off more than 2,200 workers at fulfillment centers across the country, according to notices filed with several states under the Worker Adjustment and Retraining Notification Act.

A Walmart spokesperson said in March that the company is looking to maximize its network of stores and fulfillment centers “to deliver items for online customers, when and how they want them."

“We recently adjusted staffing levels at our FC in select markets to better prepare for the future needs of customers," the spokesperson said.

The retailer’s U.S. comparable sales, those from stores and digital channels operating for at least 12 months, grew 7.4% in the quarter ended April 28 compared with a year earlier. But Walmart Chief Financial Officer John David Rainey said sales slowed as the first quarter progressed as shoppers chose smaller package sizes and store brands in an attempt to manage their spending.

Ashley Furniture Industries, one of the largest furniture manufacturers and retailers in the U.S., closed a distribution center late last year that it had opened during the pandemic, according to a recent report in the Newark, Ohio, Advocate.

Furniture and home décor sales surged during the pandemic as homebound consumers spent big on home improvements. As pandemic travel restrictions eased, people pulled back on those purchases in favor of spending on trips and other experiences.

Representatives for Ashley Furniture didn’t respond to requests for comment.

—Sarah Nassauer contributed to this article.

Write to Liz Young at liz.young@wsj.com