From the outset let’s get one thing straight, Jeff Bezos
has changed the face of the retail world, and in my opinion, for the better.
And he also makes it clear he has one goal for his company Amazon, to make
money. While everything about the company screams innovation it is also about
profit while providing customers what they want, when they want it, and for the
best price. And still make a buck or two at the end of the day.
American towns are being hit hard economically. And I say
towns not cities because cities have a greater diversity to absorb economic
punches. More jobs in different sectors cushion large urban aggregates from
body blows that would take out a small town. A city of two million means a
level of economic safety that a town of 40,000 can’t provide. But even large
cities, if centered on one industry, can suffer a collapse – look at Detroit
for a sad but true example. Since 2007 small town America has suffered and if
they lay in the greater ring of a large metropolitan area, the new urban areas
called 'Edge Cities' by Joel Garreau, most have suffered greatly. They were the
bedroom communities to the urban core and with the steep collapse in property
values, taxes dropped and with that the downward spiral began. These towns
desperately needed a savior but none arrived.
Amazon is as much about maps and highways as it is about
innovation and sales. For Amazon demographics is a god that is worshiped and
Google Earth is a treasure map. A few years back I was looking into the
container shipping industry exploring an innovative way of moving those huge
steel boxes. The easy part was the ocean; the hard part was the land. There are
economies of scale when you can move 15,000 boxes all at the same time. When
you move one box costs escalate. The goal to make money in the container
business is to not touch the box too many times. Each time it is picked up and
moved (truck to boat, boat to truck, truck to rail, rail to truck …) the costs
rise. No different with Amazon. They need to be near their buyers to reduce the
number of hands that touch the package, fewer touches, faster shipping, less
cost, more profit. Which means “fulfillment” centers. I love the term it means
so much on so many levels. Fulfillment is such a New Age term, “You are
blessed,” says the UPS/FedEx guy, “here’s your package, you are now fulfilled.”
Love it!
And that’s what towns in the surround edge of large urban
areas are looking for, fulfillment. When the word comes down that an Amazon
representative is looking at that site near the empty rail yard that conveniently
sits five hundred yards off an interstate highway that already has services
that once led to that regional distribution center for Safeway, mayors and
development directors begin to salivate and lose sleep wishing and hoping they
will be the next winner of “You’ve Got Talent.” Please look at me, me, me!
The typical Amazon warehouse is 1 million-square-feet, or
17.5 football fields. It needs to be near rail service and interstate highways.
It has to have a reasonable pool of educated people that can be taught high
tech logistics and warehousing. The land has to be affordable and available.
And as I have found from conversations from some city officials, the town has
to be able to keep a secret. When the Amazon rep comes to town the city has to
agree they were never there. Amazon controls the message and the media, prices
tend to escalate when word gets out – go figure. Currently Amazon is looking to
hire 5,000 people nationally for its centers, each new fulfillment center will
employ about 1,000 people (more to start then taper down as the internal
systems come on line). On a national level these are numbers that disappear,
but to a town with 10 to 15 thousand jobs in its economy these numbers are
huge. The bulk of the jobs are for warehouse floor workers called “fulfillment
associates,” they start at $13.50 an hour and include benefits such as health
care, vision, dental, a 401(k) and a stock program. They must be physically fit,
teachable, know English, and pass background checks (?) and a drug screening.
For most this can be a fulfilling job.
But is it worth it? Amazon is like an army and with every
army, camp followers tag along. Major companies that sell to Amazon want to be
near fulfillment centers to reduce their handling costs. They take their TV and
send it to Amazon, who sells it. Same goes for furniture, clothing, and the
usual DVDs and books. Again it is the need to reduce the number of times the
product is touched. There will also be growth in the local shipping industry,
UPS, FedEX, even the US Mail all benefit. And then there’s the impact of
salaries that rolls through the local economy. But $13.50 in Tennessee is a
different $13.50 in Tracy, California. According to Zillow the average home
price in Tennessee is $117,600, in Tracy, California it is $318,100. Maybe you
can find a housemate.
But one small problem lies in the future; Amazon is committed
to reducing the number of times an item is touched by “hands.” They are committed
to robotic fulfillment (check out this You Tube)
How this will impact jobs remains to be seen but there will be fewer and fewer
jobs as time moves forward. Now that Amazon has agreed to collect sales taxes, maybe
it will be the sales taxes that save the town.
In these economic times towns are looking for anything to
help broaden their financial base. Compared to a huge new auto plant, Amazon
looks like a benign friendly use. There are few downsides, the use is known,
the service demand is understood, the future though, is murky.
