Friday, August 30, 2013

Can Amazon Save Your Town?

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.

Stay Tuned . . . . . . .

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