Amazon’s plans to open a 1 million-square-foot fulfillment center in Fall River, Mass., stands to create 1,000 full-time jobs, but that initiative is only a glimpse at the juggernaut’s ever-increasing distribution strategy.
This story first appeared in the December 22, 2014 issue of WWD. Subscribe Today.
Amazon has spent “well over $20 billion” in the past 17 years to strengthen its fulfillment centers, according to Scot Wingo, a founder and chief executive officer of ChannelAdvisor, a company that helps retailers and brands sell to most Web sites, including Amazon. “Everyone is always shocked by the scale that they are [growing] at with the network. People are starting to see what a huge strategic advantage it is,” he said. “The shipping companies are starting to get concerned about it because they are getting to the point where they may not need shipping companies.”
Amazon executives did not respond to requests for comment.
At this point, 90 of Amazon’s 155 fulfillment centers are in North America and 10 more are being developed, according to Wingo. “We deal with Amazon executives all the time, but they are actually quite secretive about this kind of stuff. Amazon reveals almost no information about their business to Wall Street or to partners like us,” Wingo said. “We kind of ascertained this through a variety of methods — a lot of our customers use FBA, Fulfillment by Amazon. That’s when they use their fulfillment centers. We know a lot of this through the software our customers use.”
In the past five years, it has gotten a lot easier to track the data because Amazon does a lot of announcements with local municipalities when they open fulfillment centers because they bring jobs and get tax deals, according to Wingo.
He continued, “It’s even more complicated because there is this famous Jeff Bezos quote that says, ‘Your margin is my opportunity.’ They went into cloud computing with this same mind-set. They built all these data centers and figured, ‘Well, why not open them up to anybody?’ And they ended up competing with the data-center people. One thing I extrapolated from that is, what if they competed with UPS, FedEx and all those guys?”
With its own fleet of trucks for delivery and intra-fulfillment-center product movement, Wingo said, “It wouldn’t surprise me to hear they lease planes, if not own some, for this purpose.”
In addition, in July, Amazon’s vice president of global public policy Paul Misener, in a letter to the Federal Aviation Administration, championed the e-tailer’s new delivery service Prime Air, which would rely on unmanned aerial vehicles (aka drones) to get products to consumers in 30 minutes or less. About three years ago, Amazon changed its mind-set when it became clear the Marketplace Fairness Act, the national law that would require all online companies to pay a state sales tax in states in which they have a physical presence, was going to be passed. After doing the math, Amazon determined it was better to be closer to the customer than to get the tax savings, Wingo said.
In the case of Amazon’s one-million-square-foot fulfillment center on the Fall River-Freetown line, the Internet giant recently received approval for tax breaks from both municipalities. The company has signed a letter of intent to buy 85 acres there, and executives first looked into the prospect about 18 months ago, according to Fall River City Council president Joseph D. Camara. The deal is expected to wrap up later this month or at the beginning of the new year. The aim is to start construction in spring 2015 and open the facility in 2016. In addition to creating up to 1,000 jobs with an average salary of $35,000, the site would need part-time and seasonal workers, depending on demand.
Camara said, “Amazon liked that Providence and Boston are 45 minutes to an hour away and all the other surrounding cities. When New York City is three and a half hours away, that’s a good thing.”
Massachusetts Gov. Deval Patrick’s administration pitched in with $38 million in federal stimulus funds to help build a Route 24 exit ramp to the property and $14.6 million to fund the MAB construction. The goal is that, post-MAB, the start-ups will build their own facilities in the area.
Fall River is about an hour’s drive from Kendall Square in Cambridge, which boasts one of the largest concentrations of biotechnology companies in the world.
A glance at Fall River’s tax incentives for the project reflects a serious savings compared to major domestic cities. Under the 15-year plan, Amazon would be 100 percent tax-exempt for the first four years, 75 percent tax-exempt for the following three years, 50 percent tax-free for the next four years and 25 percent tax-free for the last four years. From the start, though, Amazon would pay normal-rate property taxes for the Fall River site — $97,000 for the first year. Sixty percent of the development would be in Fall River and 40 percent would be in Freetown.
Freetown officials also recently approved a tax incentive plan for Amazon. Board of Selectman chairman Paul Sadeck did not respond to requests for comment.
Amazon’s annual tax bills to both municipalities and the state will be contingent on the value of the building it develops as well as how technologically advanced the equipment and machinery is that the company installs there. Early estimates for capital investments were $200 million. In a similarly sized Amazon fulfillment center in Tracy, Calif., robots and conveyor belts spare workers from having to search for one of the site’s 3.5 million products by trekking through a space that is comparable to 28 football fields, according to a National Public Radio report. Using technology it acquired by buying Kiva Systems in 2012, Amazon no longer needs aisles and can pack in 50 percent more products into its warehouses, NPR said. In a move that might seem counterintuitive, Amazon has upped its holiday manpower by 14 percent, compared to last year’s holiday season, as a result of increased volume in more efficient facilities like Tracy, senior vice president Dave Clark told NPR.
Amazon’s prospective site in Fall River is known as the SouthCoast Life Science & Technology Park, a new 300-acre, shovel-ready development in which the anchor tenant is UMass Medical School’s $28 million Massachusetts Accelerator for Biomanufacturing. Designed as a one-stop-shop for startups to test biomanufacturing methods and bioproducts, MAB is the first of its kind in the U.S. and aims to reshape the fields of biotherapeutics, biomedicine and green chemistry. With three million square feet of permit-ready facilities, city officials and developer NAI Hunneman are trying to market it to tech and medical companies.
Amazon’s tax incentives from the state of Massachusetts for the Fall River-Freetown site may be finalized this month, when the Economic Assistance Coordinating Council meets. In late September, that same group included Amazon’s plans to lease a 328,000-square-foot Stoughton, Mass., fulfillment center among the projects green-lighted for the Economic Development Incentive Program, a tax incentive program designed to foster job creation and stimulate business growth throughout the state. Participating companies may receive state and local tax incentives in exchange for job creation, manufacturing job retention and private investment commitments.
According to a press release issued by the state, the Stoughton facility would act as a package-handling “pass through” location from larger distribution centers onto trucks to service the New England area. In addition to creating 125 full-time jobs, Amazon will invest $20 million to upgrade the facility and install about $17 million in machinery and equipment. Stoughton officials approved a 10-year tax increment agreement that solely includes a personal property tax exemption valued at $2.89 million and the EACC approved $600,000 in EDIP investment tax credits.
Wingo doesn’t envision such deals slowing down any time soon. “Frequent shoppers like the two-day free shipping — Amazon Prime. And I think Amazon is moving very quickly to offering same-day shipping. When you look at the build-out, they are not very far away from doing that,” Wingo said.
In addition to its two Massachusetts proposals, Amazon is said to be developing fulfillment centers in Hartford; Kansas City, Mo.; Baltimore; Charlotte, N.C.; Reno; Pittsburgh; Philadelphia; Scranton and West Pittston, Pa.; Nashville, Richmond, Seattle and Milwaukee. Internationally, the company is eyeing Harbin, China, and Prague, and there are rumors of a site in Spain and another in Australia, Wingo said.
At this rate, Amazon is leading the pack. “Wal-Mart is one to keep an eye on. I think they just started building their fourth or fifth fulfillment center dedicated to Internet. But you can see they are very far behind,” Wingo said. “If this winds up being the game winner, then Amazon is very, very far ahead. No one is even close to catching up to them in any way. Some retail experts say Wal-Mart has a bigger logistics network. The Wal-Mart infrastructure is all for ‘How do I get products from the manufacturers to a central location and then out to all these stores?’ That’s a bulk shipment problem, not an individual shipment problem. They do have more distribution centers, but they’re not fulfillment centers.”
All this growth also means jobs for select communities, as could be the case in Fall River. Paul Vigeant, vice president of workforce development for Bristol Community College, who plans to reach out to the company this week to discuss the prospect of developing job training, said, “While some people are upset that it’s not manufacturing, to have a technology-based company that has really shifted how retail operates in the world open a fulfillment center in our city is pretty exciting. For a plethora of people in the Fall River area, these would be very good jobs.”
As for whether Amazon’s distribution strategy is good for America, Wingo said, “I don’t know. That’s one of those things that could go either way. Is Wal-Mart good for America? You could argue that a lot of people don’t think so, but it sure is nice to go and get the lowest price on toothpaste.”
Back in Fall River, a mill-laden city that was once known as the “Textile Capital of the World,” Camara sounded enthusiastic about Amazon’s potential economic impact. “Yeah, we’ll take it. We’re really excited to be working with them. This is something we’ve been looking for for a while,” he said. “I’m not totally in favor of putting all your eggs in one basket. But this is not all of them, just some of them. We still have other land there.”