“Headwind to profitability”: Amazon doubles down on fulfillment centers

E-commerce giant, which had record $89B in Q2 sales, will increase warehouse square-footage by 50% in 2020

TRD NATIONAL /
Jul.July 31, 2020 10:06 AM
 Amazon CEO Jeff Bezos with (clockwise from top left: 1055 Bronx River Ave. in Bronx, NY; 3507 W. 51st St. in Chicago; 13200 Southwest 272nd St. in South Miami-Dade, Florida; 28820 Chase Place in Valencia, California (1055 Bronx River Ave via Google Maps; 3507 W. 51st St. via 42 Floors; 13200 Southwest 272nd St. via Google Maps; 28820 Chase Place via IAC Commerce Center)

Amazon CEO Jeff Bezos with (clockwise from top left: 1055 Bronx River Ave. in Bronx, NY; 3507 W. 51st St. in Chicago; 13200 Southwest 272nd St. in South Miami-Dade, Florida; 28820 Chase Place in Valencia, California (1055 Bronx River Ave via Google Maps; 3507 W. 51st St. via 42 Floors; 13200 Southwest 272nd St. via Google Maps; 28820 Chase Place via IAC Commerce Center)

Amazon has been on a torrid pace of leasing and acquiring millions of square feet of fulfillment centers and warehouses across the country this year. And demand is there.

The company, which reported $88.9 billion in second quarter sales Thursday, said it would increase its fulfillment center square footage by 50 percent in 2020. That’s on top of the 15 percent increase it reported in 2019.

The Jeff Bezos-led behemoth benefited from an April through June surge of coronavirus-related e-commerce shopping. Sales were 40 percent higher than the $63.4 billion from the same period last year. Profits also doubled to $5.2 billion for the quarter just ended. That came despite Amazon having invested $4 billion for the quarter into Covid-19 costs that included stabilizing the supply chain.

The company has been pouring money into building and leasing distribution center space for years, but appears to have pushed up its timeline in 2020. Since March, Amazon will have leased about 11 million square feet of distribution centers and warehouses in the Chicago area alone.

Overall in the second quarter, the company invested more than $9 billion in capital projects, including fulfillment centers, transportation, and Amazon Web Services.

And while April through June was a devastating one for most real estate sectors — retail and hotels in particular — the industrial market has been riding a wave. That has benefited players like Blackstone Group and Prologis, whose CEO recently said the only thing preventing the company from adding more square footage is available land.

Amazon’s online grocery — like others in that space — also had an impressive three months. Sales tripled year-over-year for the second quarter, as nationwide stay-at-home orders boosted business. The company increased grocery delivery capacity by over 160 percent and tripled grocery pickup locations, highlighting the need for more last-mile warehouses.

During its earnings call Thursday, Amazon executives said the company would continue opening new fulfillment centers in the third and fourth quarters.

“Once these buildings open they are a headwind to profitability,” Amazon CFO Brian Olsavsky said.

In the second quarter, Amazon’s $9.4 billion of capital expenditures and finance leases was a 65 percent increase year-over-year.

Its industrial properties, as with its reach, stretch across the country. In June, Amazon took over a 200,000-square-foot warehouse in the Bronx. That same month, the company inked a lease for 155,000 square feet of warehouse space in the Santa Clarita Valley, about 30 miles north of Los Angeles.

And in July, Amazon was approved to build what could be its largest distribution facility in South Florida.

Contact Sasha Jones at [email protected]


Related Articles

arrow_forward_ios
The closures will primarily affect low-volume sales locations (Photo by Alexi Rosenfeld/Getty Images)

Dunkin’ to shutter 800 US locations

Dunkin’ to shutter 800 US locations
Right to left: 831, 835 and 837 Madison Avenue (Google Maps)

“The ’57 Chevy in that old lady’s garage”: Madison Avenue buildings up for sale in litmus test for retail real estate

“The ’57 Chevy in that old lady’s garage”: Madison Avenue buildings up for sale in litmus test for retail real estate
Lord & Taylor and Men’s Wearhouse are just the latest big retail chains to file for bankruptcy (Lord and Taylor by Bruce Bennett/Getty Images; Men's Warehouse by Scott Olson/Getty Images)

Lord & Taylor, Men’s Wearhouse file for bankruptcy

Lord & Taylor, Men’s Wearhouse file for bankruptcy
410 Tenth Avenue and SL Green CEO Marc Holliday (410 Tenth via Google Maps; Holliday via SL Green)

SL Green shopping Amazon-anchored office in Hudson Yards

SL Green shopping Amazon-anchored office in Hudson Yards
Jeff Bezos and the Beverly Hills home (Getty, Realtor)

Bezos buys Beverly Hills bungalow next to his massive mansion

Bezos buys Beverly Hills bungalow next to his massive mansion
"Our role as owner is shifting from what was solely ‘the librarian’ — collecting rent, renting shops and cleaning spaces — to becoming an ‘editor’ of the space.” (iStock)

Welcome to a world of the à la carte retail lease

Welcome to a world of the à la carte retail lease
Hamid Moghadam (iStock)

Prologis CEO: Capital is not an issue, it’s finding properties

Prologis CEO: Capital is not an issue, it’s finding properties
Unibail-Rodamco-Westfield CEO Christophe Cuvillier, Westfield Century City in Los Angeles and Westfield World Trade Center in New York (Getty, iStock, Google Maps)

Unibail-Rodamco sees 15% decline in US mall rents after offering deferrals

Unibail-Rodamco sees 15% decline in US mall rents after offering deferrals
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...