Building at the High End of a Volatile Forecast

After two years of adding fulfillment centers and other logistics facilities, Amazon is now moving in the other direction.

Supply Chain Digest Says... These various moves come after Amazon lost $3.8 billion in Q1, in part it said as the result of excess logistics space and workers. What do you say? Click here to send us your comments Click here to see reader feedback

In February, Amazon CFO Brian Olsavsky said company would begin to taper off its physical fulfillment center investments.

"We see that moderating to match the growth of the underlying business," Olsavsky said – which is interesting because Amazon saw its ecommerce sales actually fall 3% in Q1 after a 1% decrease in Q4.

Then two weeks ago, Amazon is moving ahead with either abandoning or even subletting as much as 30 million square feet of logistics space, saying it simply has a lot more than it needs in some markets. The excess capacity reportedly includes fulfillment centers in New York, New Jersey, Southern California, and Atlanta. Still, 30 million square feet of space represents a small fraction the estimated 374 million square feet in Amazon’s US network at the end of 2021, according to consulting firm MWPVL International. (See Will Amazon Ditching of Fulfillment Space Cool Red Hot Warehouse Market?)

However, Amazon CEO Andy Jassyrecently said that that the company is "no longer chasing physical or staffing capacity."

Then this week, the GlobeSt.com web site reports that Amazon is delaying the opening of multiple fulfillment centers in another move to right size its logistics footprint.

Amazon has postponed fulfillment center openings in Iowa, Texas and Tennessee in the past two months, attributing the delays to that slower growth and other supply chain issues.

GlobeSt picked up on a number of local news reports on delays, which are at best postponing the large influx of jobs an Amazon FC usually brings.

Examples include a five-story FC Davenport, Iowa, scheduled to open in September has now been delayed until 2024, an Amazon spokesperson told a local television station. An FC in Alcoa, Tennessee, had its opening delayed from last month to June 2023. A $200 million fulfillment center in San Antonio's East Side neighborhood has also been delayed for an unclear period of time

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Amazon has also canceled plans to build new fulfillment centers in Churchill, Pennsylvania, and Austin, Texas.

The GlobeSt report says Amazon is telling local officials that the facilities can't open until there is enough product flowing through them so that they are operating at full capacity. It is also telling communities that it is still committed to opening the locations eventually but that it won't begin hiring employees any time soon.

These various moves come after Amazon lost $3.8 billion in Q1, in part it said as the result of excess logistics space and workers.

“We built towards the high end of a very volatile demand outlook,” Olsavsky said on an earnings call in April.

What are your thoughts on Amazon's changing FC strategy? Let us know your thoughts at the Feedback button below (email) or in the Feedback section.