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Amazon Goes the Last Mile for Delivery With New 'Sortation' Centers

Online Retailer's Occupied Real Estate Holdings Approach 100 Million Square Feet as E-Commerce Company Does Battle With Wal-Mart, Target, Best Buy And Other Bricks-And-Mortar Oriented Retailers
August 20, 2014
In 1994, Amazon.com’s real estate and logistics requirements fit tidily into founder Jeff Bezos’s SUV and Bellevue, WA home.

"Nineteen years ago, I drove the Amazon packages to the post office every evening in the back of my Chevy Blazer. My vision extended so far that I dreamed we might one day get a forklift," the president and CEO of the e-commerce giant said in a recent letter to shareholders. "Fast-forward to today and we have 96 fulfillment centers and are on our seventh generation of fulfillment center design."

Twenty years after Bezos backed the fledgling enterprise out of his garage, Amazon is the world's largest online retailer, with a market capitalization of more than $153 billion. Focused on givinig consumers instant gratification -- delivering products ordered online to customers the very same day -- Amazon's fulfillment and distribution network has ballooned to nearly 85 million square feet worldwide, and still growing.

Last week, the company announced plans for a a new 700,000-square-foot fulfillment center in Redlands, CA, expanding its presence to five distribution facilities totaling nearly 5 million square feet in the Golden State alone -- all in just under two years. Clarion Partners will own the building and Trammell Crow Co. is managing its construction.

Earlier this month Amazon announced the expansion of same-day delivery capabilities for customers in the Baltimore-Washington, Dallas, Indianapolis, New York City and Philadelphia metro areas. Already available in the Los Angeles, Phoenix, San Francisco and Seattle metro areas, customers in the new markets can order as late as 12:00 Noon, seven days a week for delivery the same day.

Next on Amazon's list is a major push into home grocery delivery, with AmazonFresh already up and running in San Francisco, L.A. and Seattle.

The challenge for Amazon is conquering that "last mile" -- from the local delivery facility to a customers' front door. Amazon's latest solution is its fast-growing growing network of smaller "sortation" centers.

Unlike the larger fulfillment centers -- 1 million-square-foot-plus boxes where workers pack boxes with product for shipping -- the sortation centers are aimed at getting sealed packages sorted and shipped to local post offices for the "last mile" of delivery to customers.

The e-commerce firm has already opened eight of the 200,000 to 300,000-square-foot sortation centers totaling 3.2 million square feet in Atlanta, Avenel, NJ; Dallas, Hebron, KY; Houston, Kent, WA; Phoenix and San Bernardino, CA, The company plans to operate at least 15 in operation in the U.S., Chief Financial Officer Tom Szkutak recently told investors, adding that Amazon will also add six new fulfillment centers.

"The sortation centers help us get closer to customers, so that we can have fastest delivery speed as well as deliver on Sundays, which is a big deal for us in the U.S.," Szkutak said.

Seattle-based Amazon’s spending on order fulfillment has spiked dramatically since 2010, and particularly over the last 12 months. The company spent $846 million for property and equipment acquired under build-to-suit leases over the 12 months ended June 30, 2014, compared to $392 million in the previous period.

Amazon is leasing almost exclusively all custom build-to-suit space, but e-commerce retailers of all kinds are driving industrial absorption as well as speculative and build-to-suit activity at a higher level than bricks-and-mortar operations, said Rene Circ, director of U.S. industrial research for CoStar Portfolio Strategy.

Amazon, however, is a category of of its own. The Internet retailer occupied 93.8 million square feet of commercial real estate as of the end of 2013, including 9.3 million of owned and leased office space at its Seattle corporate headquarters and around the world, and 84.6 million square feet of fulfillment centers and other distribution and sortation space, data centers and other property, according to financial documents.

As of the beginning of August, Amazon operated 59 fulfillment centers, related distribution buildings and third-party logistics facilities totaling more than 44.7 million square feet, according to MWPVL International, a Quebec-based specialized supply chain, logistics and distribution consulting company.


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