Transcript- Living in the Liminal Space: State of Industrial Development, with Jake Stefan of ARCO Design/Build – BTS, Inc.

Voice Over: 00:01 Welcome to AEC Marketing for Principals brought to you by Smartegies, where we help design and construction firms navigate sales and leverage marketing to win more projects. Here are your hosts, Katie Cash and Judy Sparks.

Katie Cash: 00:17 Hi everyone. And welcome to another episode of the AEC Marketing for Principals podcast. This is Katie Cash, your host, and today I’m excited to bring to you my partner in strategy, Judy Sparks, as well as fan favorite from season one, Jake Stefan, President of Arco Design/Build, BTS. Welcome to the show, Jake and Judy.

Jake Stefan: 00:39 Thank you very much.

Judy Sparks: 00:40 Thanks for having us.

Katie Cash: 00:40 Jake I have to share with you, you were one of our fan favorites in season one. Just sharing your perspective on the industrial and warehouse market. I think a lot of our listeners really enjoyed how candid and how honest you were with some of your feedback. And so when we reached out to you for season two, we were so excited that you had some availability to share with us what’s been going on in your world. For our listeners that may not know who Arco Design/Build BTS is, could you maybe spend a minute or two and just give them an update on what you guys do and where you work?

Jake Stefan: 01:16 Sure thing. Sure. And it’s great to be back I’m flattered that people found me interesting, but, uh, I don’t know what that says about your audience, but we’ll assume they’re wonderful people. Um, no. So Arco Design/Build, uh, BTS is, is one company within the Arco Design/Build group of companies, which is based in Atlanta. We’ve got offices scattered about the East Coast from Philadelphia, New York, Baltimore, all the way down through Charlotte, Atlanta, Houston indie. Um, so there’s, there’s a bunch of us. We’ve got design firms as well in house. Mmm. And Arco Design/Build is one major branch or one major arm of the Arco enterprise, which is, it just came out actually as the seventh largest design builder in the country, according to (Engineering News-Record) ENR. So, Mmm. We’re big piece of a, of an even bigger entity, um, if you would. But so our core focus, uh, out of Atlanta and within the ARCO Design/Build entity is, is really industrial buildings. A warehouse is distribution, cold storage, manufacturing, those sorts of things of buildings and that sort of product type, uh, which has seen some very interesting times here, you know, kind of over the last, a few months, along with the rest of us. Uh, so it’s, it’s kind of been somewhat of a changing, uh, morphing, not sure, uh, sort of landscape for us, uh, but what has been great in the whole scheme of things is kind of, we’ve been very strong. Our relationships have been very good and going to the first podcast, I talked a lot about how we are a customer service company that just happens to build buildings. And in times like this, that is really a powerful piece in those partnerships help us kind of keep chugging along, regardless of the turmoil, that’s kind of going around us. So it’s been good and it’s been great. And, uh, we’re just, we’re just happy to keep moving.

Judy Sparks: 03:22 So Jake, in times like these, I always want to get a glimpse into, you know, the boardroom discussion. I can only imagine the amount of effort you all put in to your business plan for 2020, maybe back in third or fourth quarter of last year. And then, you know, here comes COVID and just talk to us a moment about how, um, maybe you’ve had to pivot as an organization to be able to, um, continue to live with that brand promise of being a customer service company. You know, obviously the demands of your customers have changed dramatically over the last, you know, maybe three or four months. Um, talk to us a little bit about how, you know, things have had to change internally there, at Arco.

Jake Stefan: 04:04 Yeah. It, you know, it really is. It’s shocking how much time you can spend and you get so comfortable on what the direction is that you’re going as a company. And then literally in a couple of weeks, you’re kind of like, Oh my God, what’s, what’s going to happen here and what are we going to be around that sort of mentality? And you know, it, uh, it did cause a lot of, uh, consternation I’ll use that word. I think I know what it means and in the right context here, but Mmm. It, uh, there was a lot of trying to figure out what we were in. And what those impacts really were going to be to us. And, and to us, when I say that we really mean our client base because as long as they’re comfortable, we’re moving along. Mmm. And, uh, yeah, there was, I don’t want to say that the business plan got completely thrown out the window, but it definitely got revisited, uh, quite a bit and, yeah. I think, I think for us, Judy, we didn’t shy away from what we do and what our core is. And, and the great part about our business strategy is it’s really driven and focused around industrial manufacturing, distribution, that kind of work. And the one thing that we all felt fairly confident in, in going through what we were going through was there was going to be another side of it. We were going to come out of it at some point. And when we did, because we went in, uh, with a really strong industrial market and because so many of the perceived problems and issues that were occurring were due to manufacturing issues and more so manufacturing not being here in the States, and do to healthcare related issues, not having enough supplies in different places or distributed around and just generally not having the right amount of storage. In the places that you needed it to keep the supply chain flowing without a blip, those things, the reaction that we expect and, and have seen and will see from the country and from the supply chain and everything out there, we really expect to be the typical U.S. Overreaction in one direction, which is going to be, we need more of all that stuff. Mmm. Which for us is great because that’s the world that we live in. And, Mmm. Our biggest worries were not so much in our clients, but more so in what the government was going to do and mandate, uh, you know, there was a period of time in that whole thing that we were trying to figure out what we were going to do with a massive payroll. Uh, that potentially was all going to be told to sit down and do nothing some period of time. Now, that never fully came to fruition. Mmm. For us at least. But that was a concern. And we ultimately got past that. And once we got past that, we knew we wanted to keep everybody on the team because our expectations and what our clients were telling us was that we were going to be moving. And we were going to be moving at the same rate or very similar rate to what it was before all this started. And so our strategy has been keep the team together and keep everybody healthy and safe and move the ball forward as far as you can, during these really difficult times until we get to where we’re coming out on the other side. That was a little bit of a different focus than how we usually attack a project. But at the end of the day, the, the, the foundation of, of Arco Mmm. Really remained pretty close to the same. For our group and for what we do, now other groups that specialize more in other areas like entertainment and things like that. They’ve had different conversations and different yeah different discussions on how they’re attacking their business and what’s going on there. But, uh, you know, speaking for our group, I know that we’ve, we’ve been able to stay very close to our core.

Judy Sparks: 08:17 Absolutely. I’m sure it’s a very different story if you’re a hotel builder or stadium builder right now. Yeah. It’s funny. I stumbled upon this word luminol, and I just love the word. And in fact we branded the first three episodes of season two, you know, living in the liminal space and liminal being this time of transition where you know where you’ve been, And you know, you’re not going back there definitely a time of transition. And I think our entire industry, regardless of what market you are in, are living in this liminal space right now where, you know, there’s a lot of uncertainty, but there are some things that we are certain about. They don’t exactly know what it’s going to look like on the other end, but we’re confident in the direction. And when I think about your space being primarily focused in products to consumers, you know, basic essential things, food, supplies. Mmm. Talk to us a little bit about how things have changed really short period of time. I feel like we’ve accelerated 10 years in three months, so kind of being pushed forward. Talk to us a little bit about some of those transitions that’s happening while you’re living in this liminal space.

Jake Stefan: 09:40 Yeah. No, absolutely. And first off, thank you for defining the word, because I didn’t know what you were talking about. So, so that’s helpful.

Judy Sparks: 09:49 (Laugh) Think of English, AP English, Jake.

Jake Stefan: 09:53 I’m an engineer, Judy. I don’t do English so good.

Judy Sparks: 09:58 I use math as a verb, so, you know, we’re even.

Jake Stefan: 10:01 There you go. So, so, uh, uh, yeah, there’s really been, it’s, it’s a great observation. The word is very well placed, um, in terms of what’s going on and, and you’re right, that the 10 year timeframe that you just mentioned, that’s there like, it’s pretty apropos really in the whole scheme of things, because for many years now, well, there’s, there’s two big things that I’ve seen. And I am seeing, that’s kind of changing and flexing a lot here right now. And the first one is there’s this term in, in, um, distribution that’s, that’s been referred to as just in time delivery. The concept is get the product to the consumer just in time, whoever that consumer has a business, uh, you know, you and I, whoever.. Mmm. And the, the beauty behind that system and that concept, and the reason why everybody grabbed onto it so much, uh, over the last 10, 15, 20 years, it has really been because it allows people to manufacture just what they need and sell just what they need. And not keep more stock than they need to which allows them to keep their costs down from their manufacturing and overhead standpoint, the distribution centers hold only what they think they need for the time that they need it. And it’s just as a trickle down where you don’t need as much overstock and you don’t have as much expenditure for an extended period of time until you get paid back. The thing that’s really accelerated just in time deliveries has been this creation of big data. Uh, and the fact that Amazon knows that I like to buy my toilet paper every two weeks. They know exactly what type I like. They know exactly the quantity of rolls that I buy and I buy it repeatedly over and over and over. And me and everybody else around there, they’re accumulating that data. And it’s not just Amazon, it’s all across the industries. So that has really been able to fine tune what’s been happening. The problem is this, this COVID epidemic just kind of punched just in time deliveries in the face, because what, what big data doesn’t account for, and hasn’t accounted for are things that have never happened before. And we’re going through that right now. And the reaction of people and the consumers was to acquire, in some cases, tens or hundreds of times more than what they needed, and that throws the entire system off. And so it exposes the weakness of just in time delivery, which is flexibility. There’s just not a lot of it in there. And so when you’re talking about a shortage of puzzles, okay, maybe that’s not great, but Hey, you know, it would have been nice had there been more, but it’s not the same thing as a shortage of a respirators or a shortage of masks at a time when you need it from that standpoint.

Judy Sparks: 13:16 Or toilet paper, let’s be serious. Right.

Jake Stefan: 13:18 That’s true. But at least you’re at home. But, so there’s a complete difference in those things versus the items that we’re talking about or food, what have you. And so, uh, so that issue is really, it’s been highlighted during this pandemic and in, I’m seeing a lot of people in warehousing and distribution, uh, in the pharmaceutical industries, in, in food, all really thinking a lot more about what their, what their overstock should be and how much they need to have and how much can they get and what items they need to stock a lot more of, uh, and what items, okay, well, we can keep the same system we have. And so, so that’s a really interesting thing.

Judy Sparks: 14:10 So, you know, I’m wondering if just in time delivery gets re you know, rebranded as just in case delivery. Yeah. Yeah. That struggle is real. There’s a lot of data out there that says that most of the consumer decisions are made by the women of the household. You know, being a wife and a mother myself. I can tell you, the struggle is real when I’m looking for disinfectant wipes, or I’m looking for toilet paper, I’m looking for a certain brand or certain item, and it’s just simply not available because we don’t manufacture it here in this country. Or the demand is just really outweighing the supply. I’m just wondering it’s, you know, just in time turns into just in case, but then. Well, you know, once you get past that, I also think about that whole last mile delivery changes quite a bit as well. Right. Because it’s one thing to say, Hey, there’s an increased demand, but now you’re telling people “don’t leave your house. Everything needs to be delivered.” Right. So talk to me a little bit about the impact you’re seeing in terms of how do you from the warehouse to that last mile to that doorstep?

Jake Stefan: 15:28 Yeah. It’s, it really is interesting, um, in terms of how that works in the whole scheme of things, you’re, you’re still gonna have your main distributions to things like your Publix’s and your Target’s and your bricks and mortars, right. That’s probably not going to change much. It might, people might look at it. I mean, there really wasn’t a shortage of toilet paper. There was just, we couldn’t get it to the shelves in large enough quantities and keep it stocked in the stores to overcome the paranoia purchasing that was happening. Mmm. Just like there hasn’t really been a big shortage of proteins in foods. It’s somewhat of a perceived issue that’s going to happen out there. And it’s, it’s a product. It’s the process of getting it from the manufacturers to the points that they’re going, um, into the stores. And then people just purchasing on a normal scenario as opposed to buying out of, out of being scared. But in terms of the, so, so that process is going to be there and, and that the way they deliver it, I don’t know that there’s a lot of change in that process. You know, Publix is still going to get their one truck a day, and they’re going to get chicken on this day, and they’re going to get beef on the next day. And they’re going to get pork on the next day, and that’s still likely going to happen. And they can try and change that from a quantity of deliveries when they need to and build in some flexibility to their schedule. They’re still only going to get so many trucks a day. The, the real interesting part is the, what happens when you’ve got the everybody’s sitting at home and now all of a sudden, every residence becomes a, a distribution point. It taxes tremendously the UPS, the FedEx, the what have you. And I know that companies, you look at Amazon, Amazon multiple times was going out and hiring, you know, hundreds of thousands of people, I think the first published thing they put out there was we need a hundred thousand people and, and UPS was trying to get people and all of that was happening. And they were using odd sources. You know, they had previously used Uber and Lyft drivers before, but they became darn near the entire for a period of time, all Uber and Lyft drivers doing we’re delivering products for Amazon or Jet or whoever. And that I, there is, there is room in the distribution world to figure out and to have this dedicated kind of consumer small package delivery type system, uh, you know, historically that’s been Couriers. And, and now that’s, I think that that method is something that’s going to change a little bit because anybody with an Uber app and a, and a driver’s license can become a driver, but I don’t know that that’s sustainable, Judy to, to answer, to really kind of look at it. I mean, this was pretty unprecedented, and I think there’s going to, there’s going to continue to be there already, was this uptick on e-commerce, there’s going to continue to be this growth. And I don’t think we’re going to pull back from what has happened, you know, the, the blip, the jump up, so to speak of people, buying for e-commerce versus going to bricks and mortar. Some people are going to go back to bricks and mortar. A lot of people are going to continue to feel comfortable buying things online. I just don’t think what you’re going to see maintained is that huge pressure on delivery, uh, to the homes. Because I think that purchasing is going to pull back a little bit. We’re not going to panic by quite the way we were panicked buying before, uh, which will relieve some of that pressure. But I think it’s still going to be there. There’s a lot of stuff going on and Amazon is trying to figure out themselves how to deliver all of these packages internally.

Katie Cash: 19:38 So maybe Jake, let’s talk about a different type of panic buying and that, of those, you know, major retailers and suppliers, do you think they’re gonna quote unquote ‘panic buy’ and swing the other way for all this built in automation? Um, where are you going to see the labor force kind of go away and turn to machines? What do you see in there?

Jake Stefan: 19:56 So we, we had started to see some automation occurring within the, uh, distribution world. And I think, uh, Katie that’s a very astute point and, there were a lot of problems in these warehouses and in these process facilities and things along those lines with a pandemic, because it was taking out the workforce. The reason previously that some of this automation wasn’t going into place or was getting looked at, but ultimately not getting selected, had a lot to do with just capital costs and businesses make capital expenditures based upon performance and what they think they can, uh, ultimately turn into revenue. And what’s going to be the most profitable for them during the long haul. What a of companies did not ultimately put faith in, in some of the automation that was out there was the fact that there was, there were enough labor savings, but what they never really considered was what happens when the labor market doesn’t show up, or what defense do you have against the labor market, holding you hostage to producing things, because they don’t want to come to work or they want a raise, or they’re sick, or they’re going to strike or whatever it is. Now, all of a sudden this pandemic has kind of opened their eyes to the fact that boy, automation gives you a little bit more of flexibility on hours worked generally. Although we refer to viruses in computers, generally, they don’t get sick, automation doesn’t. Mmm. And so now all of a sudden, there’s this other value proposition, that’s a lot more at the forefront of the automation, uh, opportunities that are out there. And so we’re seeing, especially in food and storage and the cold environments, I’ve got a lot of projects that are going with some form of automation to either densify their warehouses or to eliminate some of the, uh, the picking that needs to happen. People on forklifts with whether it’s automatic forklifts, whether it’s cranes, whether it’s moving rack systems, whether it’s conveyors. Over the last three months, Um, we’ve had a very large uptick in not just the curiosity, but the commitment to those sorts of systems. And I see a lot of that also being the case for dry distribution as well in terms of the opportunity and the needs there. And you’ve already got people like an Amazon and people like a Walmart that were already making large investments in that for their relative small pick type items and maximizing their footprints, uh, in these buildings. But I think now you’re going to see more and more of it, uh, as the systems themselves get better, uh, you know, they’re not just brand new, but also as the realization of the need for these systems to be a reliable producer. I think that that is also going to continue to drive that, that a stake in the ground, so to speak for automation and really keep it moving, uh, in a direction we’re going to see more and more of it. Historically, it hasn’t been the case because the U.S. Has large land. You can put distribution centers anywhere and you can go ahead. And the labor forces are generally not that terribly expensive. Both the combination of the last mile delivery, where you want it to push DCS as close as possible to the consumer, as well as the, the concerns on things like pandemics and labor force reliability. These are really stacking up to be the benefit of automation and making those things, their systems much more justifiable.

Judy Sparks: 23:46 So Jake, when you talk about densifying the warehouse, you know, um, something that comes to mind is with last mile distribution, trying to get, You know, these DCS as close to the rooftops as possible. And most of those rooftops being in metropolitan areas where the cost of land is more expensive.

Jake Stefan: 24:04 Yep.

Judy Sparks: 24:05 Um, do you see two story distribution centers becoming a real trend in the future?

Jake Stefan: 24:10 Yes. And, and, you know, Judy, it’s a great observation. Um, and I do. I think it’s part of the future that’s coming out there and we’ve actually got one of, we’re working on one of the first ones in the country. Mmm. Right now that’s actually out in New York. Um, and the whole concept of these multi-stories make a lot of sense when you think of the cost of land and the need to get product to people in what, you know, some of it, some of the offers and some of the plans and business models are, they want to have deliveries from the time of order to the time of delivery, you know, in under, under four hours the whole same day, same afternoon sort of concept. And if you’re going to do that, and you’re going to go down that path, you’ve got to have the distribution center close by. Mmm. Yeah. It’s going to be that, or it’s gotta be drones. Right? The, these multi-story distribution centers though, are very expensive. Uh, and it makes a lot of sense when you think about it, you’re, you’re talking about getting trucks in the multiple levels. You’re talking about elevators and lifts. You’re talking about moving products and, and just that, that whole overall cost aspect of being vertical and not just the product, but all the infrastructure being vertical on multiple different levels is, is complex and it’s expensive. Mmm. But as time will tell, and as I think the, the U.S. consumer has illustrated in the past, we want our stuff when we want our stuff. Uh, and that’s going to drive this need for this, these types of buildings to be near the consumer. I don’t know that that’s going to be a, we’re going to have a bunch of these in a year or two. I think we were probably looking 10 years down the road and you’re going to start seeing more and more of them. Uh, but it’s definitely coming. And it’s definitely in the forefront for, for what’s going to get built. It’s just a matter of when that cost model tips to, making it worthwhile,

Judy Sparks: 26:20 It sounds like it really only makes sense where the land cost is really prohibitive.

Jake Stefan: 26:24 Yeah. You’re going to see it in the major markets, the places like the urban New York’s and the LA’s and the, the, the, Chicago’s the, the real dense cities where it’s pricey, that’s where you’re going to see it.

Katie Cash: 26:36 So, Jake, when you were on the show with us last year, we asked you, you know, how can our listeners who would love to meet you and start building a relationship with you? How can they reach out and how can they connect with you? So I want to ask you that again today, what, what’s the best way for our listeners to get to know Arco and to try to start building a partnership relationship with you, and as a followup, if you could share with us anything that might be different in terms of how you are selecting and looking for certain characteristics of your ideal partners in today’s business climate.

Jake Stefan: 27:10 Well, it’s a good question, Katie. We’re always looking for the right partners and we’re always happy to talk with people that are, either looking to join our team, or whether that be, you know, and an associate level and part of Arco, or whether it be, uh, one of our partners and vendors and what’s going on. Uh, I like to steer people to the websites first and foremost, cause that’s usually the easiest point to aggregate information and get it to the right people. And so for us, that’s www.ArcoDB.com. Uh, and on that site, you can find a bunch of different things, but there’s a contact us button. And, uh, clicking on that and sending what the, what your requests are is always a good way to go. Mmm. There’s a lot of different Arco offices scattered around the country. Some of them, I represent, some of them, I don’t, uh, but if that information comes into our website, we can distribute. Even if it’s not us, even if it’s one of the other offices that really it needs to go to. Mmm. We can make sure that we steer you in the right direction to those offices. Um, so that that’s, that’s the best and easiest starting point. Mmm. I’m always happy to have people reach out to, to us and call us, I mean, know nowadays, Hey, if, if you want to pick up the phone and be one of those people that actually talks on the phone, as opposed to texting, we’re happy to do that. Mmm. But, uh, so you can always call our office as well and, uh, kind of reach out and let us know what you’re looking at and kind of go from there. So that’s the easiest, uh, in terms of what’s changed now, not much has really changed Katie. You know, we, we hold ourselves to our core and, uh, our core values are, are focused around treating people fairly and doing the right thing and, and creating fans in what we do and how we do it. And that mentality is still the same with everybody that we come in contact with. So in terms of who we’re looking for, and we’re just looking for the right people to partner with. And the great thing about this country is it’s so big. And we travel all over the place that work religiously getting to find and meet people that we didn’t know before that are great partners. So I like to, uh, I like to just say that you know, open, honest, and partnership- oriented companies. Those are the ones that we like to, to meet and talk with. So from that standpoint, if you got something positive though, so offer them, come on, bring it. We’ve got lots to do.

Katie Cash: 29:48 I love that, you heard it here. Folks. Jake says, bring it. So look him up, reach out to him. If you are in the warehousing distribution industrial market, Arco Design/Build BTS is a great partner. Um, they have tremendous experience and a great portfolio of projects across the Southeast and across the country. When you look at the broader Arco family. So Jake, I really appreciate you being on today’s show. And, um, Judy, if you don’t have anything else, we’ll just wrap it up.

Judy Sparks: 30:16 Well, we appreciate your time, Jake. I have no doubt you will be a fan favorite again this season. And then I would close with saying, um, that I did go to your website today. I think it’s a fairly new website and very, very impressive. And my favorite sentence on the entire website is “we go where you grow.” And, um, I thought that that was so appropriate with, you know, what’s going on today in the, um, in the country and you know, how you continue to help our favorite brands get their products too, the consumer. So thank you, Jake. And, um, we are, we really appreciate your time.

Jake Stefan: 31:03 Ladies, it’s great talking with you as always, really enjoyed it.

Katie Cash: 31:06 Thank you, Jake. I really appreciate you being on today’s show of the AEC marketing for principals podcast. Everyone who has listened, we hope you enjoyed today’s discussion. Just a quick wrap up. As Jake spoke, the world of industrial continues to move forward. As he’s seeing more and more companies look at ways to maximize their footprint in their warehouse and distribution facilities looking at ways to use that, what we call just in time or as Judy liked to mention, just in case delivery, as you are both delivering products, as well as delivering design and construction. And of course, if you are interested in building a relationship with Arco Design/Build BTS or with Jake, make sure you check out their website. We will also include some important links on our podcast Page @smartegies.com. Everyone out there have a great day. We’ll talk to you soon.

Voice Over: 31:59 You’ve been listening to AEC Marketing for Principals brought to you by Smartegies. If you liked this episode, please let us know by visiting AEC marketing podcast.com, where you can learn more ways to position your brand and sell to owners. [inaudible].