Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
Amazon plans to open 1,000 small delivery hubs in cities and suburbs all over the U.S. The facilities will bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help the world’s largest e-commerce company take on a resurgent Walmart.
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, CEO Jeff Bezos is doubling down by investing billions in proximity, putting warehouses and swarms of blue vans in neighborhoods.
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 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. The goal is to creep closer to almost everyone in the U.S.
UPS and U.S. Postal Service
Beyond Amazon’s retail rivals, the mass opening of small, quick-delivery warehouses poses a significant threat to United Parcel Service 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 longtime 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. It’s estimated that Amazon will deliver 67% of its own packages this year and increase that to 85%.
Amazon has said its last-mile delivery efforts are meant to supplement, not replace, its longtime partners.
Are vacant department stores a viable option?
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. I expect that to be an option of last resort.
The spaces for department stores such as J.C. Penney are often two stories and lack sufficient loading capacity. 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.
The plan going forward
Amazon usually puts new delivery stations inside existing warehouses or signs long-term leases with development firms like ProLogis 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.
The warehouse doesn’t want to be tucked away in an industrial district anymore. It wants to be right next to you. But when these delivery hubs come to your neighborhood…they’re unsightly. But NIMBY wars haven’t slowed down Amazon so far.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com