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 . . . . . . .

I Wonder As I Wander

I have been wondering (a lot) about where growth and development will happen as we move from this cycle of collapse and retreat. I won't be pointing fingers or shaking my fist at the stars - too easy and accomplishes absolutely nothing. For this session let's just lay back on the couch and think a little about the future.

Obvious Trends:
Currently there are strong regional growth areas, such as Silicon Valley and other high tech areas that will continue to add jobs and more importantly entrepreneurial growth - from little acorns come huge oaks. While sadly I think that most tech manufacturing will still be outsourced overseas, the intellectual capital side will significantly support residential growth and the expansion of nearby existing research facilities. But housing will not be cheap, if anything, too expensive. I am also seeing sales of once high-tech land rezoned into residential use in these same markets - this is market driven as home prices continue to rise. The first builders in are the big regional players followed quickly by the national public companies.

Retail is in turmoil. After almost twenty years of building too much square footage there is a strong sense that this retrenchment (i.e. selling off malls for other uses, converting urban retail to multi-story residential) will have ongoing and serious effects on existing retail centers. The two major players, Simons and GGP are fighting it out in the marketplace with rumors of acquisitions and privatizations. There are too many big box retailers cannibalizing their own markets. Regardless of the "green mindset" people will drive to buy. Look for a return to and growth of well supported and "improved" older downtowns. Retail will continue to be more than loading up the SUV at Costco (but don't short their stock either).

The Boomer market is a head-scratcher. While there is a strong, albeit small, retirement community market - many of these are too remote to be effective. The days of the huge Del Webb communities are probably gone, they will be more modest and actually focused on one particular regional submarket such as south and west side of Chicago, affordable areas of New Jersey, the nearer suburbs of the San Francisco Bay Area. Most Boomers still want to be near their children and grandchildren but an international airport as well. The "urban" life is not for most of them, but think urbane. I also think there is a huge opportunity to develop dense and well amenitized senior neighborhoods with attention to great security and medical support. The things that scare most older people are being alone, ill, and forgotten. Senior and assisted living communities (at all economic levels) can provide these comforts. A good model is Sunrise - but costs are very expensive. This will be a big, big, political issue. Far more then even today's medicare debate, just wait and see.

Look for more and more assisted living communities - this doesn't take a genius to figure out. But they are still more often than not mom and pop operations. I see trends to larger and more resort oriented assisted living facilities. Not everyone is senile and bed ridden - at some time we will all need just a little more help.

What I also hope to see is more regional and sub-regional support for transit systems. This mania for high speed rail will pass as urban areas suddenly realize that the funds they desperately need are going to remote and underutilized areas. Look for expansions of systems such as BART and other Metro lines. One impact is the blowback form neighborhoods faced with freeway widening - they will not except it. The days of stacked freeways are a long time, if ever, away.

And lastly (as noted in last week's blog) look for renewed pushes into the regional edges. Land is cheaper (and way cheaper today than five years ago). This helps to support the primary reason for this edge growth - better and less expensive housing. It drives the enviros and pols crazy - but as always the marketplace will win out in the end. 

Stay Tuned . . . .

Imagine a Pyramid

Imagine a pyramid. Imagine it upside down. Imagine that the point of that pyramid is one job, one new employee at a loan company whose job is to help fill out a loan application for a new house for a family. Imagine then the successive jobs that grow from that one application.

• The broker who sold the lot to the new owners.
• The architect who designed the house for the owner.
• The contractor’s team who bid the house plans.
• The city staff paid to review and approve the architect’s plans.
• The sub-contractor paid to grade, level, and prepare the site.
• The civil engineer and surveyors hired to layout the foundation.
• The city inspector.
• The plumber that won the contract to install the water and sewer hookups.
• The sub-contractor hired to set the forms and pour the foundation.
• The lumber company that wins the contract to supply the building materials.
• The framing sub-contractor that put up the walls and roof.
• The door and window contractor who won the contract.
• The sub-contractor who hung the doors and set the windows.
• The electrical contractor hired to pull the wire through the rough framing.
• The plumber who returns to install the water and sewer lines in the house.
• The interior designer working with the new owners on colors and finishes.
• The orders sent to small and large firms that hire new people to make the wallpaper, the carpets, the appliances, the light fixtures.
• The sub-contractor that wins the bid to hang the drywall.
• The roofer contracted to put on the new roof.
• The new jobs required at the manufacturing plant that makes roofing felt.
• The supplier that made the new tiles for the roof.
• The solar company that won the bid to put solar panels on the roof of the new house.
• The flooring company that laid the new oak flooring throughout the house.
• The small company in Michigan that cut the red oak and created the boards for the oak flooring.
• The painters needed to paint the house interior.
• The painters needed to paint the exterior.
• The tile contractor that finished out the kitchen and bathrooms.
• The companies that made all the plumbing fixtures, the sinks, the shower doors, the bathroom sinks.
• The appliance companies that manufactured the stove, refrigerator, garbage disposal, dish washer, vacuum system, and air conditioning/heating systems.
• The granite company that won the bid to provide the counter tops throughout the house.
• The plumbing fixture company that provided all the faucets and toilets.
• The electrician that hung all the lights, sconces, and chandeliers.
• The small business owner that hung the wallpaper in the hallway and bathrooms.
• The furniture companies that made the new couch, chairs, dining room table, and bedroom set.
• The electronics companies that made the security system, the entertainment system, and the sound system.
• The landscape architect employed to design the pool and garden for the new owners.
• The landscaping company that installed the garden and pool.
• The moving company hired to move the family from their older home into their dream home.

Now imagine the people needed to supply the food for their first dinner in their new home.

Imagine a pyramid, imagine its point. Imagine the jobs balanced on that one point, Mr. President.

Imagine the 750,000 homes not built last year.

Stay tuned . . .