- Amazon expects to increase its physical footprint by about 50% in 2020.
- Much of that will be in growing Amazon's fulfillment centers, where hundreds of thousands of workers sort and pack your online orders.
- The unusually high boost shows that Amazon is expecting the coronavirus online shopping surge to continue.
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For the first time in the retail behemoth's history, Amazon saw more orders in the second quarter of 2020 than in the fourth quarter of the previous year: More people bought from Amazon between April and June — typically a mediocre season for retail — than they did during the shopping bonanza of November and December, Amazon CFO Brian Olsavsky said in an investor call on Thursday.
Amazon has cleaned up amid the online shopping surge triggered by the coronavirus pandemic, and the stay-at-home orders that pushed consumers to order essential goods from their couches. Companies like UPS, which reported record volumes over the second quarter of 2020, have also benefitted from the e-commerce shift.
Whether that online shopping surge will stick around is less clear — but a key detail from Amazon's second-quarter earnings call indicates that the mega-retailer is feeling confident.
Olsavsky said that by the end of this year, Amazon will grow its "network square footage" — the space taken up by its fulfillment centers, grocery stores, offices, and other physical properties — by a whopping 50%. A lot of that expansion will go to the locations Amazon uses to sort and deliver packages. As the CFO said (emphasis ours):
In 2019, we increased network square footage by approximately 15%. This year, we expect a meaningfully higher year-over-year square footage growth of approximately 50%. This includes strong growth in new fulfillment center space as well as sort centers and delivery stations. We expect the majority of this capacity to come online in late Q3 and into Q4.
Amazon has been eagerly investing into its transportation and fulfillment network for years, spending some $3 billion in 2019 to power one-day Prime deliveries. But the 50% boost is unusual even for Bezos' business.
Most of Amazon's fulfillment network is positioned at the outskirts of major metropolitan areas, balancing affordability with easy access to Prime customers' doorsteps.
Unlike traditional retailers, Amazon leases, rather than owns, these fulfillment centers. Jeff Randolph, previously a director of Amazon's worldwide real estate team, told The Real Deal in 2019 that Amazon leases to keep costs down. Companies like Home Depot and Target have started to sell off retail to mimic Amazon's tactic.
While Amazon doesn't own many of its fulfillment centers, which numbered nearly 500 at the end of 2019, that doesn't mean it will cut ties with the warehouses that it's opening up this year anytime soon. A fulfillment center Amazon plans to open next year in East El Paso, Texas has a projected cost of $191 million, while a warehouse in Little Rock, Arkansas will cost the retailer up to $340 million to construct.
The company's logistics and fulfillment operations, helmed by senior vice president Dave Clark, is particularly keen on data and research when expanding or investing in new areas. As one current real estate executive at Amazon told The Real Deal, the leasing team is "a military-like operation with a sharp attention to detail."
That massive investment into opening new fulfillment centers suggests that Amazon doesn't believe the pop in online ordering is a trend that will track with the rise and fall of COVID-19. Rather, Bezos and his executive team believe the habits folks are picking up right now are going to stick around.
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