Elgin Area Chamber Of Commerce: Amazon On Track To Double Industrial Footprint Despite Mounting Labor Shortage

Press release from the Elgin Area Chamber of Commerce:

November 01, 2021

Amazon said it would add more distribution and fulfillment centers to its already massive industrial portfolio as it seeks to keep up with rising consumer demand. (iStock)

By Katie Burke
CoStar News
 
Amazon, the world's largest online retailer, is on track to double its network of distribution centers, fulfillment sites and sorting facilities over a two-year period that began early in the pandemic, preparing for another record-breaking year of industrial expansion even in the face of labor and supply chain headwinds.
 

In September alone, the Seattle-based e-commerce and cloud computing company said it opened more than 100 delivery stations and fulfillment centers across the country, a pace that bodes well for the nation's industrial market given Amazon's role as one of the largest and most active industrial tenants in the sector.

"The amount of space we have for inventory is going up at a higher rate than our units shipped right now," Amazon's Chief Financial Officer Brian Olsavsky told investors on the company's latest earnings call, adding that distribution center capacity has doubled since the beginning of the pandemic in early 2020. "We've really been chasing demand for the last two years. We expect the long-term trends to be strong in this business, and we're investing as such."

The company's surging expansion since early 2020 initially appeared immune to the challenges plaguing other global brands. However, a severe labor and supply shortage has created a number of headaches for the global retailer, resulting in inefficient transportation routes, lost productivity and rising operating expenses.

A tight labor market and increased expenses across the board resulted in the company's lower-than-expected sales and a precipitous drop in income and operating cash. In its first quarterly earnings report since Amazon founder Jeff Bezos stepped down as CEO, the company posted sales of $110.8 billion and generated a profit of $3.2 billion, down from the $6.3 billion the company earned in the same time a year earlier. Analysts expected $111.6 billion in quarterly revenue and a profit of $4.6 billion.

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter, and you can see that during every phase of this pandemic,” said Andy Jassy, who in July replaced Bezos at the head of the company. "It’s driven extraordinary investments across our businesses to satisfy customer needs, [and] one example is that we’ve nearly doubled the size of our fulfillment network since the pandemic began. [We're] doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

Jassy warned of ongoing challenges stemming from labor supply shortages, increased wage costs, global supply chain issues and increased freight and shipping costs. As a result, the CEO said Amazon is bracing for "several billion dollars of additional costs."

Staffing Warehouses
Ahead of the crucial holiday season, the company is hoping to hire an additional 150,000 people to support seasonal end-of-year demand. Amazon's global headcount surpassed 628,000 employees as of Sept. 30. The company recently raised starting wages, began offering sign-on bonuses and expanded its benefits to include full college tuition and skills training in an effort to lure applicants in the increasingly competitive labor market.

Amazon hired more than 133,000 people in the third quarter, a majority of those who filled positions in its warehouse and distribution operations.

While worsening supply issues have created a package of expensive headaches for the retailer, one silver lining has been that — for the first time since the pandemic — Amazon warehouses aren't running out of space.

"We made strong progress in Q3 to build and open new facilities, and as a result, we are no longer capacity constrained for physical space," CFO Olsavsky said. "For the year, we expect our 2021 footprint additions to exceed last year's build-out, which was also significant."

The company said it spent about $40.14 billion on real estate last year, more than twice the $16.9 billion it invested in 2019 when it started scooping up swaths of warehouse, fulfillment and sorting space to make one-day delivery options a reality for customers.

Beyond its industrial growth, Amazon's physical expansion also extends into the brick-and-mortar retail realm. The company is tight-lipped about its future growth, which includes a national rollout of its Amazon Fresh grocery locations as well as launching brick-and-mortar department stores.

However, executives hinted at ambitious plans ahead and told investors its in-store strategy will be a cornerstone to Amazon's physical growth.

"We want options for customers to be able to shop online and in store, and we want to give customers the choice and offer them the combination of doing that, whatever works best," the retailer's director of investor relations, Dave Fildes, said on the earnings call of Amazon's Whole Foods Market, 4 Star, Books, Fresh Grocery, Go and pop-up stores. "We like the hybrid model and will continue to evolve on a lot of interesting in-store experiences that will resonate with customers. Keep looking for us to roll that out."

Source: CoStar Group, www.costar.com

This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author’s own.