Monday, October 22, 2018

QVC, HSN to Open 1 Million-SF Fulfillment Center in Lehigh Valley

The parent company of home shopping retailers QVC and HSN networks, in consolidating the two networks’ operations, will close three fulfillment centers and open a 1 million-square-foot facility in the Lehigh Valley, a region of Pennsylvania that’s become a booming logistics hub.

Qurate Retail Group said that in order to streamline operations, it has decided to integrate the fulfillment and buying organizations of QVC, which is based in West Chester, Pennsylvania, and HSN, which has its headquarters in St. Petersburg, Florida.

The first phase is to open what it described as a state-of-the-art fulfillment center in Bethlehem, Pennsylvania, in mid-to-late 2019, and to shut fulfillment centers in Lancaster, Pennsylvania; Roanoke, Virginia; and Greeneville, Tennessee; in 2020, Qurate said in a statement.

The company will be leasing 1 million square feet at the Majestic Bethlehem Center at 3419 Commerce Center Blvd., according to Don Cunningham, president and chief executive of the Lehigh Valley Economic Development Corp. The developer of that industrial park is Majestic Realty Co., based in City of Industry, California.

Qurate's move is another step in the rapid growth of the industrial market in the Lehigh Valley, which has seen massive distribution-center construction and leasing.

"The Lehigh Valley has, the last five or six years, kind of been a major boom spot on the East Coast for the back economy of e-commerce," Cunningham said. "We now have about 125 million square feet of industrial in the two counties, and I think there’s another 5 million under construction right now."

A company can reach 40 percent of U.S. consumers within an eight-hour drive of the area, according to Cunningham.

"You’ve got land, labor and access to market," he said. "Those are the three factors that have driven this sector in the Lehigh Valley. We pretty much have now every national developer and broker in here scouring for land because it’s a good opportunity with the right factors."

Qurate site consultants met with the Lehigh Valley economic agency earlier this year about finding a location for its new fulfillment center, Cunningham said. Majestic Realty had already started constructing a speculative building that Qurate decided was suitable and opted to lease.

"The market for large-footprint fulfillment, primarily fulfillment and e-commerce driven, has been so hot in the Lehigh Valley and throughout the region that a lot of developers are doing spec buildings," Cunningham said, referring to commercial properties that begin construction without tenants lined up for the space.

The Qurate fulfillment center building is located in an industrial park built on a former brownfield, the Bethlehem Steel property, that is also home to distribution centers for Crayola and Walmart e-commerce, Cunningham said.

In its announcement, Qurate didn't specify exactly where its Bethlehem facility, which will employ 1,200 to 1,500 people, will be located. Officials at Qurate and Majestic Realty didn't return requests for comment.

With all the changes outlined in the announcement, about 2,000 employees total will lose their jobs, including 1,725 at the closed fulfillment centers. The Lancaster QVC facility at 1000 Stony Battery Rd. totals 589,000 square feet, according to CoStar records, and HSN's fulfillment center at 1 Avery Rd. totals 387,000 square feet. In addition, HSN has been leasing 515,000 square feet at a 1.1 million-square-foot facility at 1915 Snapps Ferry Rd., according to CoStar data.

Qurate also said it will close the Long Island, New York, facility of Ingenious Designs, an HSN company led by inventor Joy Mangano, whose life was the subject of a movie starring Jennifer Lawrence.

Liberty Interactive Corp., QVC's original owner, acquired rival HSN for $2.6 billion last year, promising to cut costs by taking advantage of synergies between the two networks, which together generated $8.5 billion in revenue in 2017.

A new division was created, Qurate, to run QVC, HSN and roughly a half dozen other retail companies. Now Qurate is combining the domestic HSN and QVC networks into a new business unit called QXH, "while still maintaining the unique identity of each brand," Qurate said in its statement.

Once completed, the integrated QVC-HSN fulfillment network "is expected to increase average delivery speeds to customers by two days, enable more items to be consolidated into single shipments to improve customer convenience, and deliver significant savings in freight and fixed costs," Qurate said.

The company also said it "will evolve toward a leased-versus-owned model for many of its fulfillment facilities, to increase flexibility and reduce longer term capital requirements."

Qurate will have a $200 million, "one-time net capital investment through 2022 for new fulfillment centers, automation, and technology investments, net of anticipated proceeds from [the] sale of existing facilities," according to its statement.

Qurate currently operates four HSN and five QVC fulfillment centers in the U.S., with many of them "dedicated to specific categories, such as hard goods or apparel," the company said.

The new strategy is to combine and integrate HSN and QVC fulfillment centers so that they carry "the full product assortments of both brands, in order to combine shipments to the customer and lower operating expenses," according to Qurate.

For example, the new facility in Bethlehem will handle both QVC and HSN products across multiple product types, and fulfill roughly 25 percent of total network volume, Qurate said.

Qurate projected that its incremental annual leasing costs will rise to $20 million in 2022 from $10 million in 2019 because of the shift from owned to leased fulfillment centers.

HSN's headquarters at 1 HSN Dr. in St. Petersburg will remain open, according to Qurate. But there will be 350 non-fulfillment-center layoffs, and the majority of them will be employees in St. Petersburg, the company said.

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