Digi-Key's $400M expansion makes Thief River Falls key employee destination

THIEF RIVER FALLS — In this small northwestern Minnesota city, one of the country's 10 largest warehouses stands next to fields full of soybeans and sugar beets, a reminder that while the lush Red River Valley still provides plenty of agricultural opportunity, Thief River Falls is changing along with its largest employer, Digi-Key Electronics.

With the opening of its new 2.2 million-square-foot, $400 million expansion, the largest distribution center in the state now lies in a city of 8,573 residents. The company, which already employs 3,600 in Thief River Falls, plans to add more than 100 employees in each of the next three years.

And while the company's growth has helped the area hold its own as far as population, it does not insulate the company or others in northwestern Minnesota itself from the economic issues of today. All over Minnesota, and indeed the country, communities are dealing with a tight workforce, affordable housing issues, inflation and supply chain issues.

President Dave Doherty said the company is well ahead of its hiring goals, with no immediate plans to stop, as the new facility continues to ramp up.

"We're investing more than we originally planned for good reasons," Doherty said about employment and also how the expansion grew in both scope and from the original price estimate of $250 million. "We saw some cool things along the way."

While Textron's Arctic Cat factory sits next to Digi-Key — and Polaris and Marvin have large operations in neighboring Roseau County — the growth of the privately held electronics component distributor is paramount to the health of Thief River Falls and surrounding Pennington County.

The $45 million in local and state tax breaks and incentives were more than worth it for this reason, officials said at a ribbon-cutting for the expansion in August.

"If your neighbor doesn't work there, don't go too far down the street and you'll find somebody that does work at Digi-Key," said Brian Holmer, mayor of Thief River Falls.

Fast growth means investment across community

In 2016, Digi-Key had annual sales of $1.86 billion and 3,200 employees. The company expects for this year's annual revenue to be $5.15 billion, with 5,081 workers overall and 4,133 in the U.S.

The company is a quick-turn distributor of electronics components, offering 13.4 million products to more than 857,000 customers in 180 countries each year. That means trucks — run by FedEx, USPS, UPS and others — are constantly leaving with orders. In fact, space is dedicated within the expansion for the carriers.

The Thief River Falls airport is the third-busiest cargo airport in Minnesota behind Minneapolis-St. Paul International Airport and Rochester International Airport, said Joe Hedrick, the airport manager. The facility built a 140,000-square-foot concrete cargo ramp this year and next year will complete a 30,000-square-foot hangar so larger cargo plans can be loaded and unloaded indoors.

"Without Digi-Key, we wouldn't have that outbound cargo," Headrick said.

Right now, officials are completing a master plan for the airport that would include an 800-foot extension to the main runway in the next four to six years to increase cargo capacity even more.

While many rural areas in Minnesota and across the country are losing population, with teens and young adults leaving after high school and college because of either a perceived lack of opportunity or a big deficit in job openings.

Thief River Falls gained 2% in population between 2010 and 2020. Pennington County held steady, adding 62 people during the decade for a population of 13,992.

Without Digi-Key and Textron, Thief River Falls would not be able to support a regional medical center, Holmer said. There are also opportunities at retail and support businesses.

Yet, he admits the tight workforce is causing concern. The unemployment rate in Pennington and Roseau counties was 2.1% in July, not much higher than the record 1.8% rate for the state.

Digi-Key relies heavily on northwestern Minnesota for employees, with 87% of its workforce living within a 60-mile radius of Thief River Falls.

"This workforce issue is the issue of our moment," said Steve Grove, commissioner of the Minnesota Department of Employment and Economic Development. "There is no question it's going to be with us for a while. We've got to be doing new things."

Wages in the distribution center start at $18 to $20 an hour depending on the shift, with a $2,000 sign-on bonus. Entry-level wages in sales jobs start at $22.70 an hour.

The company also provides a generous health plan that covers 97 cents for every dollar in medical expenses, plus other benefits.

"We're actively recruiting people from all walks of life here," Doherty said.

Shane Zutz, now the company's director of human resources, spent years as a teacher, coach and school administrator in Thief River Falls before Digi-Key recruited him.

The expansion — and the automated systems built into it — will allow others to advance their careers in the company, Zutz said. An employee at Digi-Key, he stressed, can still go from entry-level to leading departments, with one creating a human resources program for veterans and another directing a $100 million marketplace.

"We want people to be able to move around and learn our company. And so then when we get it to these places, these inflection points, we can lean on them to help us through those times to continue to be successful," Zutz said.

Key to the new expansion is a conveyor system by Austrian-based Knapp. A leader in automated storage, picking and shipping systems that provides logistics for large retail and fulfillment operations.

The new systems mean the employees who pick items and pack boxes can work more efficiently, the company said. But the move also created different types of specialty jobs that requires recruiting more people to the Thief River Falls area.

Fast growth also poses challenges

Having such a strong regional employment base opens up the problems that the rest of Minnesota, including the Twin Cities, has right now.

Even parking can be an issue. Because Digi-Key has to draw from a large region to fill new jobs, the city of Thief River Falls moved its electrical department to make room for a new employee lot.

The city also expedited the building permit process, helped with the infrastructure and utilities needed for the expansion and worked with DEED on a variety of financing options.

"They needed an overall whole package," Holmer said of the incentives given to Digi-Key.

And the city and county are also working on other issues that come along with growth.

"Housing definitely is an issue for us regionally, and is for Marvin and Arctic Cat, and others as well." Zutz said. "I think a bigger risk for families is day care right at the moment."

In Thief River Falls, 500-plus children need day-care slots, but the community is 100 to 150 short. Digi-Key has tried to create more flexibility in schedules to respond to the need, and the community is working on long-term issues.

Holmer, a four-term mayor running unopposed this fall for re-election, growth at Digi-Key and Arctic Cat also provide an unmet housing demand.

"And with that demand goes investors that come into the community," he said. During the past four years, 600 housing units were added, including new multi-unit buildings.

"It's just not enough. We're not putting it up enough fast enough," Holmer said.

Selling northwestern Minnesota

The fact that Digi-Key, plus Polaris in Roseau and Marvin in Warroad, are homegrown companies make for a solid economic base.

"Its a unique regional economy that I don't think a lot of Minnesotans know, " Grove said. "They've heard about brands like Arctic Cat or Polaris or Marvin windows, but did they know they are all located in the northwest corner of the state?"

The state needs to support workforce promotion so the companies do not need to slow their growth for lack of available workers.

"Some of these regional groups that are pulling together efforts to market and sell themselves are critical," Grove said.

Digi-Key is on board.

"We want to be a partner in the region; we don't need to own the region. That has not been a goal at Digi-Key. We want Marvin to be thriving, Polaris, Arctic Cat, all those folks. In fact, you know, we talk to them often," Zutz said. "That's kind of the spirit, I think, of northwest Minnesota."

The companies all do things a bit differently because of the remoteness of the region that breeds a certain can-do attitude.

"Growing up in Boston, if I couldn't find something at the store, I would just assume it never existed," Digi-Key's Doherty said. "It is incredible that people here don't count on someone else to build something for them; they build it themselves."

At Digi-Key, that culture started with founder Ron Stordahl, 79, someone who has always liked to keep a low profile but still comes in daily. While he does not get involved in the day-to-day operations anymore, he "wants to keep a pulse on the vibe," Doherty said.

Digi-Key through the years

1972: Ham radio operator Ron Stordahl founds Digi-Key Electronics to sell parts. It sells $67,000 worth of products.

1984: Digi-Key purchases a building from Arctic Cat to serve as its product distribution center. It grows from two employees to 49. Annual sales are $8.6 million.

1996: Digi-Key creates its first website, which starts the transition from paper catalogs to omnichannel retail.

2001: Company ships more than 1 million packages and annual sales reach $356 million.

2010: Digi-Key exceeds $1 billion in annual revenue.

2013: Company opens a customer support center in Germany.

2015: Dave Doherty succeeds Mark Larson, who had a 39-year run as president and chief operating officer.

2017: Digi-Key exceeds $2 billion in annual revenue.

2018: Digi-Key breaks ground on its new distribution center expansion. Revenue exceeds $3 billion

2021: Construction on the distribution expansion is complete begins systems testing and evaluation.

2021: Annual revenue $4.7 billion

August: Grand opening for expansion.