Why does Red Stag have just two warehouse locations?

We are well aware, as you probably are, that many of our competitors aggressively advertise that they have a lot of warehouse locations …

‘40+ fulfillment centers around the globe!’
‘Split your inventory across our [many] locations so you can reach your customers quickly!’

You might reasonably ask, why does Red Stag have just 2? It doesn’t sound like many. Perhaps you reasonably wonder if that’s all we can afford to build. Or, how we can possibly serve your customers with such a paltry number.

Serving our clients, and their customers, from just two locations, is intentional. 

It’s a decision our founders made early on in our company history after careful consideration about what was best for our ability to create the right fulfillment solution for our customers.

We also don’t take this for granted—in Summer 2024 we did a detailed study examining whether adding a 3rd facility would allow us to serve our clients better. 

Each time we ask the question, the answer is that 2 warehouses—our location outside Knoxville, Tennessee, and our location in Salt Lake City, Utah, is the optimal solution for many brands. (There are exceptions, we’ll note those at the end of this post.)

But, why? The answer starts with asking a question that has nothing to do with drayage, shipping zones, or anything else directly related to logistics and fulfillment …

Start with what the end consumer wants

We need to start by asking: what do customers of ecommerce brands want when it comes to shipping? And, what are they willing to pay for?

Our thesis is that for most ecomm brands, 2-day shipping is adequate and, in most cases, customers do not want to pay for, or bear the cost of, a faster option.

This thesis is supported by Amazon’s own studies, which you’ve probably seen as a consumer. That option to get same day or next day delivery for 99 cents? Turns out less than 10% of people will pay even a dollar to get their Amazon boxes faster. And, many will accept low-dollar-value digital credits to get their stuff slower. 

If almost no one is willing to pay Amazon a dollar to get their stuff faster than 2-day, do they really need what your company sells faster than that?

We’re not Amazon and don’t try to be (it’s a fool’s errand)

Amazon is in a category of one when it comes to logistics capabilities. They spent 570 billion dollars on logistics in 2023, according to Fortune. The complexities of this model and scale this requires make matching or chasing Amazon’s speed an untenable option—we’ll leave attempting that to our competitors.

If your brand wants or needs Amazon’s speed of delivery, you can and should use Amazon’s FBA or first-party fulfillment options. But, this comes with cost—both in fees and in Amazon’s lack of flexibility and customer service to brands fulfilling with them.

This also isn’t a decision that’s mutually exclusive—we serve customers that sell 1P on Amazon and fulfill their D2C orders through Red Stag.

So, for brands that do not want to fulfill through Amazon …

Build the fulfillment network that most optimally serves 2-day delivery with ground shipping

When we follow this path to its logical conclusion, it results in a key tenet of our strategy: build a fulfillment network that optimizes for cost-effective 2-day fulfillment to the lower 48 U.S.

What about the folks in Alaska, Hawaii, and rural Montana? If our 96% stat leaves you wondering about people in the 4%, the short answer is: they’re used to receiving packages slowly. If you try to delight them with faster shipment, you will hurt your bottom line.

A BRIEF NOTE ON SHIPPING OUTSIDE THE US: Red Stag is built to serve brands who ship the majority of their packages within the U.S. However:

1. Many of our customers ship a small % of their orders from our warehouses beyond the U.S. borders. Until you reach critical volume that justifies storing inventory outside the U.S., this is likely the right move from an economics standpoint.

2. We have partner 3PLs in Canada and the UK, our team is happy to advise on when spreading inventory makes sense for your brand.

What happens when you add a 3rd, 4th, … or Nth location to serve the U.S.?

For U.S. (lower 48) fulfillment, adding locations beyond the 2 required to reach most of the population in 2 days adds cost and complexity for both the brand and the fulfillment partner.

For the brand… hard and soft costs add up. And for most brands, inventory management and supply chain are likely already challenging, time intensive endeavors.

More locations = more complexity:

• Inbound logistics and drayage—inventory imported to the U.S. must be split and mapped to more locations. As this number goes up, so does the likelihood of needing to split containers and send pallets to smaller/less popular locations via LTL 
• Inventory balancing—as number of locations increases, so do the chances of inter-fulfillment-location balancing (or sending parcels from a non-optimal location)
• Split shipments—for brands with multiple SKUs, chances of fulfilling partial orders from 2 or more locations increases. This can easily create a negative experience for the end customer

Running the numbers on the hard costs above may surprise you—and often offsets the promise of lower costs provided through lower shipping zones allowed by warehousing and shipping goods closer to your customers.

And your brand may experience more soft or indirect costs—the need for a larger logistics department, increased mindshare on logistics, and increased customer service volume due to split shipments and other challenges

For the 3PL … and remember: one way or another, your 3PLs costs are your costs

Each additional location decreases overall efficiency as, generally, fewer, larger locations is optimal:

• A general manager and other administrative functions must be location-specific, so your 3PL loses the economies of scale provided by a more centralized organization
• As the number of locations increases, the average size of each location is likely to decrease. And, smaller locations are less efficient compared to larger ones for several reasons, including admin people functions, heating, cooling, and other building-related costs per square foot of warehouse space: the cost to serve out of an 80,000 square foot facility is high.
• Higher real estate and labor costs drive up total cost of fulfillment. When you add a 3rd, 4th, 5th and so on location in the U.S., you want to locate these closer to population centers to decrease parcel shipping time. But the tradeoff to doing this is that locating warehouses nearer populated areas is more expensive—higher real-estate costs, higher labor costs.

And this is why Red Stag operates 2 large warehouses—700,000 square feet outside of Knoxville, Tennessee, and 450,000 square feet in Salt Lake City—balancing locations that are ideally situated to serve the largest population areas of the U.S., while keeping real estate and labor costs.

Since costs the 3PL must bear will eventually get passed to the brands it serves (or result in an untenable business), a less efficient 3PL is a problem for its customers.

Where should you place your warehouses (and where we placed ours)

Red Stag chose to locate our fulfillment centers in Knoxville and Salt Lake City for a few reasons…

1. They work together to allow us to cover 96% of the U.S. with ground shipping
2. Our locations are inland—not close to ports. While this does increase inbound costs, in nearly all cases, this increase in drayage cost is more than offset by lower delivery costs to customers
3. Knoxville and Salt Lake City follow the rules we reference above for ideal warehouse location placement—lower real estate and workforce costs, close to major interstate trucking routes

What matters: total cost of fulfillment, and how fulfillment impacts how your customers experience your brand

Bringing all of this together—the math, the serving D2C customers in the way they expect, and the impact an unsustainable fulfillment solution can have on your business—brings us to our thesis that fulfilling from just 2 locations is the right solution for many ecommerce businesses. 

Fulfillment strategies are as unique as the brands they deliver for. We’ve built a team of people who understand fulfillment, as well as supply chain logistics, who can help you understand whether we’re a good fit for your business (and make a recommendation if we’re not). Get started with a conversation with our knowledgeable sales team (they’ll reach out within 4 business hours).

Wait … but does this apply to my brand?

Red Stag is a 3PL designed to be dead-center of the efficiency target for a certain set of ecommerce companies and brands. We recognize that all companies are different, and we are NOT for everyone.

Let’s cover a few examples of instances where we’re not the right fit:

• Because we’re optimized for fulfillment across the lower 48 states, we’re the best fit for brands who have customers that represent a fairly normal distribution of customers in the U.S. (Or, if you serve customers mostly in the Western U.S., you can leverage just our SLC facility, and vice versa). However, if you sell snowblowers to customers in the Northeast, or surfboards to customers in California and Hawaii, we’re unlikely to be a good fit.
• Red Stag is generally optimized for brands with lower SKU counts. If you have thousands of SKUs or more, we’re not a fit.
• Red Stag is not built to serve apparel companies. If you sell apparel as your main product, we’re not your 3PL, though talk to sales, we’re happy to recommend some great partners
• Generally, we’re optimized to fulfill for brands that sell larger items. Since Red Stag was originally built to serve our founders’ ecommerce brand, big, heavy, or bulky fulfillment is in our DNA. There are exceptions (one of our top 5 clients is a protein powder company) and nuances, so talk to our sales team—we take a consultative approach, aren’t pushy, and will be happy to refer you to one of our partners if we’re not a fit.
• At some point, a company’s scale may justify more locations or in-house fulfillment. If you’re a billion-dollar brand, we may not be a fit.

Again, we’re not a fit for everyone, but when we are, we think we’re often the best fit. Let’s have a conversation and find out.