Amazon To Build 1,500 New Last-Mile Warehouses In Arms Race With Walmart

Amazon could be looking to add comprehensive last-mile warehouse coverage to major markets on a heretofore unheard-of scale.

Having largely recovered from the shipping delays precipitated by the outbreak of the coronavirus, Amazon is on a quest to open as many as 1,500 smaller-format distribution centers in urban and suburban markets, Bloomberg reports. Called "delivery stations," these 200K SF facilities would be around a quarter of the average size of Amazon's "fulfillment centers" that tend to be in more traditional industrial areas.

Amazon's real estate frenzy is already well underway, and it goes beyond distribution centers. In September alone, the company estimates it will open 100 new facilities, between warehouses, offices, data centers and retail concepts. In Q3 2019, the company reported a 26% year-over-year decline in profits and attributed it to prodigious spending on its last-mile network.

Part of Amazon's voracious appetite for last-mile space comes from its desire to make one-day delivery the new standard for Amazon Prime members, and to up the ante to same-day delivery where possible. After that initiative was derailed by the combination of coronavirus-related work restrictions and lockdown-driven e-commerce growth, Amazon believes it is back on track in shrinking its delivery expectations, Bloomberg reports.

The urgency in achieving that higher standard comes in part from competitors like Walmart (and to a lesser extent, Target) improving at leveraging their physical store footprint to make same-day deliveries. Without that retail infrastructure, Amazon is attempting to compete by using the disappearance of big-box retailers to its advantage.

One area of warehouse development Amazon is specifically targeting is the land in or around shopping malls. Rather than awkwardly retrofit a department store, Amazon prefers to demolish a vacated building and construct its centers from the ground up, Bloomberg reports. It also is primarily building out its delivery station network through leases and build-to-suit developments from firms like Prologis rather than buying and developing its own land.

Another impetus for Amazon to keep spending big on distribution: the declining reliability of the United States Postal Service and the corresponding increase in demand for the services of UPS and FedEx. Many of the delivery stations it has already built were selected because they match UPS' map of distribution centers, Bloomberg reports. With its recent hiring binge of 175,000 new workers earlier this year, Amazon hopes to match its growing delivery network with a bigger staff of in-house delivery drivers.