What to expect when you're expecting (an Amazon fulfillment center)
[PHOTO: This is the proposed site of Project Bluejay, a warehouse distribution center southeast of Highway 65 in Bondurant, as seen on Friday, Oct. 4. Zach Boyden-Holmes/The Register]
Tyler Jett, Des Moines Register
Published 9:31 p.m. CT Oct. 4, 2019 | Updated 9:50 a.m. CT Oct. 8, 2019
State and city officials won't say who is behind Bondurant's Project Bluejay, the code name for a giant warehouse planned in the city’s southwest quadrant. But international logistics analyst Marc Wulfraat says there's no point in being coy.
"This is 100% Amazon," he said. "No question about it."
The city council approved a site plan for the 780,000-square-foot, five-floor warehouse off Northeast Hubbell Avenue on Monday. But, restrained by a nondisclosure agreement they signed, council members provided no information about the company behind the plan, and a spokeswoman for the Iowa Economic Development Authority said details of pending deals are confidential.
Nevertheless, from its code name to its size and other details, the project is almost identical to Project Blue Bird — a plan for a four-floor, 855,000-square-foot warehouse in Bessemer, Alabama, a Birmingham suburb. The company behind it remained a secret until Amazon confirmed in June 2018 that it would be a fulfillment center.
Project Bluejay and Project Blue Bird both fit the characteristics of Amazon's latest generation of fulfillment centers, said Wulfraat, owner of MWPVL International, a supply chain, logistics and distribution consulting firm in Montreal, Canada. Compared to Amazon's previous warehouses, the new ones are smaller and taller.
Beyond Bessemer, Wulfraat pointed to six other fulfillment centers with similar features that Amazon has announced since September 2018. They range in size from 600,000 to 855,000 square feet and are four or five floors tall.
The staffing is similar, too. Amazon announced it would hire 1,000-1,500 workers for each of these fulfillment centers, where orders are pulled from inventory, packed and shipped. Bondurant's planning documents for the new warehouse predict 1,100 new jobs.
In addition, the Des Moines metro market fits the company's current targets. Mike Grella, who was Amazon's director of economic development from 2012 through February, said the company has already established fulfillment centers in America's largest cities. It is now looking at places like Des Moines.
"You're going to see more second-tier, tertiary metro areas and [metropolitan statistical areas] have fulfillment centers," said Grella, founder of Grella Partnership Strategies in New York.
If Project Bluejay is indeed an Amazon warehouse, according to some industry analysts, a big question remains: What kind of tax incentives will local and state officials give?
Silence and sweeteners
Amazon receives an average of $13.8 million in subsidies for each new warehouse and distribution center it builds, according to 44 deals tracked by Good Jobs First, a policy center that studies corporate tax subsidies.
Greg LeRoy, the center's executive director, said tracking Amazon deals is difficult. The center relies on public records and local media reports about each fulfillment center.
The data comes with caveats. Amazon does not report every tax incentive, and LeRoy said Good Jobs First misses some announced deals. The media reports that the center relies on are also sometimes inaccurate, given the complicated structure of tax incentive packages.
But LeRoy, a critic of the subsidies, has rarely seen Amazon come to a city without some kind of incentives.
"They're just a juggernaut," he said. "It's hard to see another company getting that kind of subsidy."
The incentives themselves range dramatically in size and scope and are not necessarily based on employment guarantees or the size of warehouses. The nature of interactions between Amazon and the local governments also varies.
Cathy Pratt, the manager of staff support services for St. Peters, Missouri, said she learned Amazon was interested in her community when a member of the St. Louis Regional Economic Development Alliance emailed her in January 2018. The email contained a nondisclosure agreement that demanded silence before discussions could go forward.
At the company's request, she secured similar contracts from the city's administrator, mayor and aldermen. City officials and Amazon representatives negotiated through emails, phone calls and one in-person meeting over the course of about a month.
In March 2018, the city and state governments announced $78.6 million in incentives for Amazon through revenue bonds, sales tax exemptions and road improvements, according to the St. Louis Business Journal. Amazon announced it would hire about 1,500 workers at the fulfillment center.
Alabama Secretary of Commerce Greg Canfield said state and local officials also signed nondisclosure agreements before they negotiated a deal for the fulfillment center in Bessemer. For a promised 1,500 jobs, according to AL.com, the state and city governments gave Amazon about $45 million in tax breaks.
But Amazon doesn't always get what it wants. In 2015, a company representative called Brad Tabke, then-mayor of Shakopee, Minnesota, to propose a new fulfillment center. Tabke said he refused the representative's request that he sign a nondisclosure agreement.
During negotiations, Tabke said, Amazon administrators proposed an incentive package. He couldn’t recall the exact figure, but he told the Des Moines Register he turned the company down.
"Their initial pitch to us was large," said Tabke, now a Minnesota state representative. "It was something so large that it was laughable."
He said he was ready to walk away from the deal, but state officials asked him to stay on board. In the end, the two sides settled on $5.8 million in tax increment financing — revenue generated from the Amazon development that the Minneapolis suburb promised to spend on improving the nearby roads. Tabke said the city was going to pave those roads eventually anyway; the city council simply agreed to place them higher on the infrastructure priority list.
Tabke said cities can appeal to corporations for reasons that have nothing to do with incentives. He said Shakopee developed a business-friendly reputation because its planning office and city leaders were easy to work with. They signed off on permits and conducted inspections quickly, keeping projects on schedule.
Grella said company executives value efficient local governments more than financial incentives. (In Missouri, Pratt said, Amazon representatives were determined to open the fulfillment center by this Thanksgiving, when the holiday shopping rush will begin.)
"Sometimes, the most valuable incentives are those that reduce the cycle time for the construction and delivery of a facility," Grella said.
The strategy
Grella came to Amazon in 2012 after a stint at GrantThornton, where he specialized in economic development credits and incentives. His arrival marked a change in Amazon's delivery strategy.
The company opened its first fulfillment centers in Seattle and Delaware in 1997. But Amazon's physical footprint remained light for years. By 2006, the company had only eight fulfillment centers, Yale University economics professor Katja Seim wrote in a 2018 paper.
Amazon built those initial warehouses to save money on delivery costs. To maintain a competitive edge, the company opened them only in states that didn't charge sales taxes, keeping product prices lower than other stores could.
But as online sales became even more ubiquitous at the beginning of this decade, Amazon shifted its priority to fast delivery, Seim wrote. In turn, the number of fulfillment centers exploded to 90 by 2016.
The new strategy was a financial trade-off. Amazon entered states that charged sales tax, increasing the price of its products. Fixed costs have risen, as well. According to Amazon's most recent annual report, the company's operating expenses for fulfillment centers nearly doubled from $17.6 billion in 2016 to $34 billion last year.
Seim wrote that Amazon's purchase of the nationwide Whole Foods chain in 2017 fit the same strategy: create a vast footprint that allows the company to get products to consumers quickly.
"Those are expansions of the fulfillment center network that aren't necessarily geared at purely cost savings on distribution, but they are geared at making a different product for the consumer," she told the Wharton School of Business in a March 2018 interview.
Wulfraat believes Amazon wants to deliver products within 24 hours to 85% of the U.S. population. Grella, for his part, said the company's strategy is not so specific. It simply wants to reach as many people as possible, as quickly as possible.
While the company will continue to add fulfillment centers, Grella said Amazon executives are increasingly focused on delivery stations — smaller centers located closer to metropolitan hubs. There, workers sort packages based on ZIP code before delivering them to shippers like the U.S. Postal Service, UPS and FedEx.
Where these shippers would have previously picked up products farther away, the delivery centers give Amazon more control over the shipping process. The company believes it can do it better than others.
"There's only so much efficiency you can get out of building fulfillment centers in large cities," Grella said. "If you don't have influence on how the package gets from the fulfillment center to the customer, then you're leaving it to the common carrier to control that function."
Tyler Jett covers jobs and the economy for the Register. Contact him at 515-284-8215 and tjett@registermedia.com. Follow him on Twitter @LetsJett.