What is a Private Warehouse? (Pros and Cons)

Private Warehouse with cargo inside

Each growing company will sooner or later have to choose: Whether to choose Private Warehouse as a method of warehousing, or it can use a different solution on the market. But is it really worth it? Is this the moment? Why don’t you think it over again and not get yourself into trouble? Here are many questions that arise that we will answer in this article.

A private Warehouse is a storage facility that usually contains one or more separate buildings with all infrastructure around it, which is in possession of a Private Company. The company is usually owning such property or is renting it under certain conditions.

Private Warehouse stores the company’s goods and raw materials. From there, they also travel to customers or to external company locations.

Most often, the Private Warehouse is a larger object that requires some financial outlays on the side of the business owner, which may scare off smaller companies and be a reason why not to scale your E-commerce or Classic business.

Private Warehouse is highly profitable in the long term. It also gives great opportunities for development and a certain flexibility. On the other hand, it binds you to one place for years and imposes certain obligations. It’s harder to give it up or reduce its size if necessary. Also, You have to take care of all the infrastructure that comes with it.

Speaking of the infrastructure around the building itself, we are talking about truck ramps, awaiting zones for loading, employee parking lots, entry gates, and outdoor storage areas for larger goods.

Difference Between Public and Private Warehouse

Private Warehouse is fully owned by a Company or the Company that rents the property to you. It is you who bear the entire cost of constructing and maintaining such facility/building if You choose to build it. You also need to remember about the maintenance of the building and costs such as heating or cooling the building, electricity, cleaning, garbage collection, and possible watering and mowing the lawn outside the company.

Public Warehouse is a warehouse facility owned by the Government or the Third Party Company. They rent such a facility to private companies to store their products.

Most often, such Warehouses are chosen due to the affordable rental prices and favorable conditions. Often both the storage of goods and their transport are included in the price.

At Public Warehouses, you can rent all or part of a warehouse or even a bookcase. You pay for the space you occupy and your goods are transported and shipped as needed.

Types of Private Warehouse

Production warehouse

These are the warehouses where the production of products takes place. Usually, these facilities have separate storage space for already manufactured goods and production zones.

In Storage areas products are waiting for transport to wholesalers, shops, and individual customers.

Retail Ecommerce Warehouse

These are typical warehouses where online stores keep their products. It is here that goods from various suppliers are imported. It is stored until sale and then, after the customer orders, the products are packed by employees and sent by courier.

Satellite Warehouse

Sometimes when a company operates in a larger area, it is easier to locate its goods in several places

Reloading Warehouses

This model is used by courier companies. Goods are transported to such warehouses, which are then picked up by another forwarder or other drivers. In this way, drivers only follow certain routes and do not transport all the goods unnecessarily.

One main load is delivered to such a warehouse and then the goods are distributed locally by smaller trucks.

Main Warehouse

This is where products leave for smaller satellite warehouses. Usually, such a warehouse is located in the center of a country or some area, and around it there are smaller “satellite” warehouses.

Cold Storage

It is a specific type of warehouse, adapted to the storage of products that require different thermal conditions than ordinary products. The most common are food products such as fruit, vegetables, meat and other common products that can spoil easily.

There is a certain temperature in the Cold Storage warehouse, which, depending on the needs, can only be slightly lowered, or it can keep temperatures below freezing point.

Advantages of private warehouse

Location

The biggest advantage of Private Warehouse is that You can choose this property in a convenient area for You. This has a huge impact on the ease of delivery, facilitated commuting of employees from home to work, and also gives an advantage from the point of view of logistics.

Independence

This is perhaps one of the main reasons why companies decide to have their own warehouses. Nobody tells you, what to do and it is up to you to decide how You are going to develop it, optimize, and change things inside the warehouse.

Flexibility

Imagine that your sales suddenly doubled because your product has become fashionable and your Warehouse is full. You can then rearrange the entire warehouse, shuffle the racks, build another warehousing building (if You still have land), or rent additional for the time of expansion if it is seasonal.

The situation can also be the opposite and e.g. you no longer need a part of the warehouse. Then you can simply rent half of the space to another company, reducing maintenance costs.

You can also start manufacturing products. After all, you have warehouse space, so why not? There will always be an idea of how to optimize the area of the building. It can also grow with your business.

Expandability

I have already mentioned this. When you start an E-commerce business, you need a small warehouse where you will keep some products on the shelves. As you grow, you can gradually expand the warehouse, add racks, and social rooms and react to the development of your business.

Renting out a part of the warehouse

This is the best option when something goes wrong, or when you already have a large warehouse that you do not need to use fully yet. In order to wait and not expose yourself to costs, rent the warehouse to someone else.

It is also a good option for seasonal businesses. If you know that your warehouse racks are regularly full in winter and sales drop drastically in summer and You have a Private Warehouse, try to find a seasonal tenant, e.g. from the horticulture industry, who will sublet a piece of your warehouse in summer.

If you go bankrupt, you can rent your warehouse to someone else. (if you succeed) – Make a tempting offer to rent your warehouse. If you find a tenant, this way you will be able to at least partially pay off the debt. Another ultimate way is to simply try to sell Your property to pay eventually debts.

Ability to run several businesses at once

Your Warehouse – Your Business. In your own warehouse, it is very easy to divide the space into zones, each of which will serve a different branch of your business. That type of warehouse arrangement is commonly used in Private Warehouses.

Disadvantages of private warehouse

Usually, disadvantages of private warehouses come into the sunlight when business problems are emerging. It is easy to imagine a situation where our business suddenly ends for some unforeseen reason.

There can be many reasons for this, but in any case, when our business is on the verge of the abyss, Private Warehouse can be our salvation, or on the contrary. It can be an anchor that will bring us down.

Fixed Costs

First of all, a Private Warehouse is a lot of Fixed costs. And it’s not a small cost. I assume 2 possibilities. The first is that you pay for the rented warehouse, and the second is that you built the warehouse by yourself on your own plot.

In the first case, even if your business has just ended, service charges for rent, heating, gas, electricity, and people serving the facility have not ended. In the second case, you have land tax to pay.

If you have rented a warehouse facility to someone else, it is important what contract you have with the legal owner of the property. If you have the right to cancel the contract with a short notice period, it is not so bad because you can move to smaller premises or stop your activity altogether.

It is worse when you are bound by long-term rental contracts for this property. Then you can try to rent property to someone else for a short while. Otherwise, you will be eaten up by the costs.

Maintenance Costs

The downside of Private Warehouse is also the cost of maintaining the building and fixing technical malfunctions. Examples include a leaking roof or a faulty electric instalation or water system. In Public Warehouse you don’t have to worry about any of these costs as the owner has it included in the costs. You pay and you require. On the other hand, if you own the warehouse, everything falls on you rapidly and randomly.

Low Flexibility

Yes, I know that this point was also in Advantages. But as always it depends on Your situation. Quite often you don’t have a way to scale an object. Despite the fact that under favorable conditions you are able to do it, in most cases, your warehouse will be surrounded by neighbors, which will prevent you from expanding it. You will have to look elsewhere for new locations.

High Construction Costs

The biggest disadvantage of having Your Private Warehouse is that you have to buy or build it if you want to own it. And these are considerable costs related to projects, preparation of permits, and the construction itself.

Long Preparing Time

When building your own E-commerce warehouse or warehouse for classic local business, you have to take into consideration the long awaiting time for the construction of such a facility. It may happen that we will need a warehouse “right now” and this will not be possible in the case of the construction of a new facility, which usually takes a long time. You will then need to use the other storage solutions we talk about in the article below, where we summarize all the types of warehouses and how to use them:

Article: 10 different types of Warehouses

FULL RESPONSIBILITY

By excluding the rental of a private warehouse, when building your own warehouse, you will have full responsibility for everything related to the use, operation, and safety of the building and the area in which it is located. Usually, it is an investment of many years that strongly binds you to a given place and building.

TIP: When building the facility, consider your emergency plan in case your business fails. Perhaps you can adapt the property on the face of construction to make it easier to rent out to another company or easier to sell.

Things to Consider Before Investing in a Private Warehouse

If you seriously think about your own Warehouse, then you should take into account several issues and confront them with your business situation.

Can you afford to build such a facility?

First and foremost building a Private Warehouse is expensive and can put a heavy strain on your company’s financial condition. If you have to, it is worth considering financing from private investors.

In some cases, the costs are so high that it is not profitable to build it. In such case, it is better to rent such a facility or part of it.

It may turn out that the costs incurred for such a large investment will never pay off. A lot of it depends on the type of business you run and its seasonality, the size of the margin, and your other financial obligations.

Predict needed area in the future.

When deciding to build a warehouse, you need to know not only what space you need now for your Ecommerce business, but also how much space you will need in a year, two, or five years from now.

Knowing the average growth rate of your business, the company’s strategy, forecasts of the company’s turnover, and taking into account other external factors, You will be able to determine how much more warehouse space you will need realistically.

A possible solution is to leave the facility to expand. However, not every company has such opportunities. It depends on the land area that You have left after a warehouse construction.

Find the best location.

A very important issue before investing in a Private Warehouse is the very fact of where our warehouse will be located. An important issue is not only our convenience and proximity to courier centers but also the ease of employees’ commuting to work, and locating the necessary producers nearby.

The price of building or renting a property also has an impact on the location. Hence, you need to balance these issues and find a balance. A solution that will satisfy all interested parties.

Plan order processing and product paths.

Think about what the whole process of collecting products, packing, receiving goods, and storing them will look like. Think where to put Packing Stations and where will be the zone where the products will be stored in order to wait for the courier.

All this will give you an idea of ​​what you need. And what you need will determine the design of the warehouse hall.

Summary

This topic is very personal. Many decisions depend on Your Ecommerce Business financial situation, niche requirements, the location that You are in, and the legal requirements of Your State and/or City. That is why always try to adjust everything to Your personal situation and invest carefully. And remember, sometimes small steps are better than a big jump into deep water.

Jakub Szulc

I am an active Ecommerce Manager and Consultant in several Online Stores. I have a solid background in Online Marketing, Sales Techniques, Brand Developing, and Product Managing. All this was tested and verified in my own business activities

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