Amazon is doubling down on its warehouse strategy

So far in 2022, Amazon’s U.S. facility network has flopped.

After more than doubling its warehouse square footage since the start of the pandemic, the company has been hit with a wave of delays and closures. In total, Amazon has canceled, closed, delayed or put on hold more than 40 centers across the country, according to supply chain consultancy MWPVL International.

Yet the e-commerce superpower is still betting big on warehousing. Amazon (NASDAQ: AMZN) is pushing for a trio of massive, multimillion-square-foot warehouses that would rank among the largest in its entire network of nearly 1,200 U.S. facilities.

Last month, Amazon won local approval to build a $300 million, five-story, 3.1 million-square-foot distribution center in Niagara, New York. The warehouse will serve as a sortable fulfillment center, distributing goods in bulk to middle- and last-mile facilities. About 1,000 people will work there alongside a fleet of thousands of robots.

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The project was originally planned to be a 3.8 million-square-foot facility in the neighboring town of Grand Island, but that fell through after residents campaigned against it. Now, it appears to be moving forward, but that’s only the tip of the iceberg. 

Amazon is already building two more megawarehouses: a five-story, 4.1 million-square-foot facility in Ontario, California, and a five-story, 3.8 million-square-foot project in Loveland, Colorado. Currently, the company’s largest warehouse is a 3.6 million-square-foot distribution center in Mount Juliet, Tennessee — meaning either facility could take that mantle.

Despite the delays and closures earlier in the year, MWPVL estimates that Amazon will open 250 more facilities in 2022. Some will be behemoths like the warehouses planned for New York, California and Colorado. Others will be small delivery stations that are closer to 100,000 square feet and focus on the last mile.

However, there may be more in the former category than you’d think. According to MWPVL, Amazon plans to open 21 large, multistory facilities this year alone. Those are considered a rarity as far as U.S. industrial properties are concerned.

Watch: The equally important and costly final mile inside warehouses

“This is not a year where they’re slamming on the brakes by any stretch of the imagination,” said Marc Wulfraat, founder and president of MWPVL.

On Thursday after the bell, Amazon posted strong top-line results in its second-quarter 2022 earnings report. Its net sales grew 7% year over year, and Q3 guidance predicted the jump will be between 13% and 17% for the following quarter.

At the same time, the report revealed that the company lost 99,000 workers in the quarter. Those employees all came from Amazon’s direct workforce, meaning they weren’t working for third-party vendors, contractors or delivery partners. It’s a sign that the company elected not to replace the thousands of workers who left between April and June.

Chief Financial Officer Brian Olslavsky estimated on the company’s earnings call that Amazon is allocating 40% of its spending capital to support warehouse and transportation capacity. He added that it expects to grow into its excess warehouse capacity as the year goes on.

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Source: freightwaves - Amazon is doubling down on its warehouse strategy
Editor: Jack Daleo