Amazon Plans to Put 1,000 Warehouses in Suburban Neighborhoods
Amazon Plans to Put 1,000 Warehouses in Suburban Neighborhoods
Spencer Soper September 16, 2020
Amazon couldn’t fulfill its two-day delivery pledge earlier
this year when shoppers in Covid-19 lockdown flooded the company with more
orders than it could handle. While delivery times have improved thanks to
the hiring of 175,000 new workers, Amazon is now consumed with honoring a
pre-pandemic pledge to get many products to Prime subscribers on the same day.
So with the holidays approaching, Chief Executive Officer Jeff Bezos is
doubling down by investing billions in proximity, putting warehouses and swarms
of blue vans in neighborhoods long populated with car dealerships, fast-food
joints, shopping malls and big-box stores.
Historically, Amazon gnawed away at brick-and-mortar rivals from
warehouses on the exurban fringes, where it operated mostly out of sight and
out of mind. That worked fine when the company was promising to get products to
customers in two days. Now Walmart and Target Corp. are using their
thousands of stores to beat Amazon at its own game by offering same-day
delivery of online orders. Walmart also recently started its own Prime-style
subscription service, upping the competitive ante.
A recently opened warehouse in Holyoke, Massachusetts,
exemplifies Amazon’s answer to this existential challenge. Located
not far from a once vibrant mall, it’s just a short drive from
more than 600,000 people. The goal is to creep closer to almost
everyone in the U.S.
Beyond Amazon’s retail rivals, the mass opening of small,
quick-delivery warehouses poses a significant threat to United Parcel Service
Inc. and the U.S. Postal Service. Being fastest in the online delivery race is
so critical to Amazon’s business that it doesn’t trust the job to anyone else
and is pulling back from these long-time delivery partners. Amazon is basically
duplicating UPS’s logistics operation. Many of Amazon’s new hubs are
within walking distance of UPS facilities.
“In just a few years, Amazon has built its own UPS,” says Marc
Wulfraat, president of the logistics consulting firm MWPVL International
Inc., who estimates Amazon will deliver 67% of its own packages this year
and increase that to 85%. “Amazon keeps spreading itself around the country,
and as it does, its reliance on UPS will go away.”
Amazon shares were up less than 1% at 9:37 a.m. on Wednesday
and have gained about 70% this year.
The company declined to comment on the expansion plans, but has
said its last-mile delivery efforts are meant to supplement, not replace, its
long-time partners. “Our dedicated last-mile delivery network just delivered
its 10 billionth package since launching over five years ago, and we’re proud
to provide a great service for our customers,” a spokeswoman said.
The company’s appetite for real estate is so strong that many
analysts have speculated that Amazon would convert vacant department
stores into distribution centers. In fact, that option is only a last
resort, said the people privy to the company’s plans, who requested anonymity
to discuss an internal matter.
Department stores such as J.C. Penney are often two stories and
lack sufficient loading capacity, they said, meaning they require extensive
remodeling to accommodate an Amazon delivery hub. Moreover, mall leases with
existing tenants often prohibit the owner from introducing a delivery hub that
could spoil the shopping experience, and city officials might not quickly
approve an industrial use in a retail area. It’s more likely that dead
malls will be bulldozed to make way for an Amazon warehouse, as they have
in the Midwest, than for an Amazon delivery station to sprout in a
half-vacant mall to coexist with Kay Jewelers and Cinnabon.
Still, analysts expect underutilized retail space to make way for
more e-commerce delivery stations due to rising rents for industrial
space, along with a surge in store vacancies. “Any time you see retail being
occupied by non-traditional retail uses, they’re just holding off what’s
inevitable,” says Rick Stein, principal at Urban Decision Group, who
estimates the U.S. has 50% more retail real estate than it needs. “It’s a
Band-Aid, and at some point that mall is coming down.”
In the past three years, 13.8 million square feet of retail
space has been converted to 15.5 million square feet of industrial space,
including vacant shopping malls razed to make room for new warehouses,
according to a July report by the commercial real estate firm CBRE Group Inc.
That trend will continue but not quickly enough for Amazon, which is
building new facilities and moving into existing warehouses where it’s faster
to get a hub up and running.
Amazon usually puts new delivery stations inside
existing warehouses or signs long-term leases with development firms
like ProLogis Inc. to build them to its exacting specifications. Typical
delivery stations are about 200,000 square feet—about one-fourth the
size of one of the company’s giant fulfillment centers—with large lots where
workers can park their personal vehicles and Amazon can stage delivery vans.
About 20 tractor-trailers arrive each night to drop off packages, which
are loaded into hundreds of vans each morning before drivers fan out to make
their rounds. In the afternoons, hundreds more Amazon Flex drivers, who use
their own cars, arrive to deliver whatever’s left. A typical hub can generate
more than 1,000 vehicle trips each day, often in areas where roads are already
congested.
The surge in online shopping creates challenges for cities that
still plan for growth and transportation needs based on people shopping at
stores. They’ll have to make more room close to residential areas for
warehouses with big parking lots that generate a lot of traffic, creating
inevitable clashes with local residents who want things delivered to their
homes but don’t want to have to look at a delivery station or get stuck in
traffic behind a convoy of Amazon vans.
“Regulation is definitely flat-footed right now,” says Nico Larco,
an architecture professor at the University of Oregon, who studies urban land
use. “The warehouse doesn’t want to be tucked away in an industrial district
any more. It wants to be right next to you. But when these things come to our
neighborhoods, they’re unsightly.”
NIMBY wars haven’t slowed down Amazon so far. The company is
opening three facilities in Kearny, New Jersey, this year, among more than a
dozen slated for the Garden State. The small township near Newark airport
offers proximity to shoppers in the New York suburbs and is less than 10 miles
from Manhattan’s Lower East Side, making it a prime location. Mayor
Alberto Santos has noticed a “weird gentrification process for warehousing”
since Amazon came to town, with rents skyrocketing.
“They don’t stop at one,” Santos says of Amazon. “They keep
picking up sites, which drives up prices for everyone else. Kearny is one of
those locations that had large warehouse and small warehouse users. This could
crowd out that small user that has to find an alternative further away.”
Back in Holyoke, planning board member Eileen Regan says Amazon’s
delivery station prompted some concerns about traffic from nearby residents
but didn’t face significant opposition. The company staggered shifts to
keep delivery vans off roads during peak travel times, which is also in
Amazon’s interest, she says. Initially, Regan worried that traffic from both
Amazon and the mall during the holidays could clog streets, but Covid-19 will
likely keep shoppers at home, leaving more room for those Amazon vans.
“I’m glad Amazon is there because so many retail facilities have
gone under during this pandemic,” she says. “I’m glad that we have them to keep
things running.”
©2020 Bloomberg L.P.
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