Amazon cost-cutting hits Detroit. New facility hiring delayed until 2023.
- Amazon was scheduled to open a massive Detroit fulfillment center in July
- Plans are now on hold until next year as the retail giant forecasts slower holiday sales
- Neighbors watching the project are concerned about the pace of hiring, which was promised to prioritize Detroiters
The massive Amazon fulfillment center built on the former state fairgrounds in Detroit will fully open at least a half-year later than originally planned, company officials say, a move that puts an estimated 1,100 warehouse jobs in the city on hold until 2023.
The delay from the planned opening this past July comes as Amazon cuts operating costs around the globe — including canceling or pausing five other building projects in Michigan —while the retail giant responds to inflation by looking for ways “to tighten our belt.”
Amazon told investors earlier in October it is bracing for lower holiday sales as consumers likely slow spending.
- Amazon hits brakes on 5 Michigan facilities as U.S. online shopping slows
- Michigan Economic Dashboard
The company cut about $1 billion from its operating costs in the third quarter. It was supposed to open the 3.8-million-square-foot facility just south of 8 Mile Road at Woodward, near Detroit’s northern border with Ferndale in Oakland County, in July.
The fulfillment centers allow businesses to store merchandise in a property run by Amazon, which is then outsourced to get purchases to customers, typically by sending them to a smaller sorting and so-called “last mile” shipping centers, like one in Canton Township that just opened.
So far, full recruitment has not started in Detroit, although about 100 people were hired to work in the Detroit facility in October, the city said.
“We have begun initial operations at our fulfillment center in Detroit with the intent of ramping up and launching next year,” Amazon spokesperson Austin Stowe told Bridge Michigan on Friday.
The company did not give a reason for the latest Michigan-based delay or say when it would launch recruiting.
However, moving the full Detroit opening to 2023 comes as Amazon said it is confronting higher expenses and bracing for a potential slide in consumer spending, both due to inflation.
“We've continued to moderate our build expectations to better align with demand,” Amazon CFO Brian Olsavsky told analysts last week on an investor call as the company announced its third-quarter results.
Amazon [NASDAQ: AMZN] earlier this year canceled plans to build a 183,000-square-foot warehouse in Ypsilanti Township, and is slowing projects near Ann Arbor and Lansing, plus two buildings in Grand Rapids.
The statewide Amazon slowdown already put the brakes on an estimated 1,000 jobs anticipated outside Detroit — a number that grows to 2,100 jobs on hold when the estimates for the Detroit workforce are added.
Detroit watches project closely
The City of Detroit sold 142 acres on the former fairgrounds site for the project in 2020 for $9 million, as developers Hillwood Investment Properties in Texas and Sterling Group of Detroit collaborated to bring Amazon to the city. Neither developer responded when Bridge asked for comment on the delay.
The city acquired the property from the state in 2018, paying $7 million in hopes of luring developers. The purchase was controversial among some neighbors who worried about truck traffic, a lack of negotiated community benefits and the conversion of public property to industrial use.
The Amazon project was announced with fanfare in August 2020 by Detroit Mayor Mike Duggan. "We need good-paying jobs and jobs of the future,” he said at the time, according to the Detroit Free Press. In 2020, the city anticipated the work would pay at least $15 per hour. Today, Amazon says fulfillment jobs pay $16 to $26 per hour.
Hillwood and Sterling configured the property for Amazon to build five stories, leaving 42 acres for two future developments in addition to a new transit center, which is now out for bids for a contractor to convert a former state fair building into a bus station to service the area.
Frank and Karen Hammer, neighbors who helped form the State Fairgrounds Development Coalition and oppose the development, said they are keeping close tabs on the delays.
Frank Hammer said ongoing issues for the community include non-binding agreements the city made with the property developers that call for Amazon to give Detroiters hiring priority for the once-expected 1,200 jobs.
Once Amazon occupied the building, “from that point forward, they have a year to fulfill the 1,200 job commitment,” he said.
“We didn't see any provisions for what would be the penalty that Amazon would pay” if it didn’t meet those hiring goals.
Emails went out in October to a database of about 84,000 Detroit residents registered with Detroit At Work, the city’s contractor with the statewide workforce development office Michigan Works!
They were invited to express interest in the initial 100 positions created at the new facility, city officials said, though no details on the positions were available. The link is no longer active.
Detroit at Work listed 11,000 open jobs in the city, officials said Monday. The jobless rate in Wayne County was 4.6 percent in September, compared to a state average of 4.1 percent.
When Amazon expands hiring at the Detroit facility, city officials told Bridge they expect to use social media, billboards, information fairs and career fairs with the company to attract applicants. They would not say whether they know Amazon’s timing.
“Amazon could have chosen anywhere else,” said Nicole Sherard-Freeman, a city executive who oversees economic issues for Duggan's administration.
“This is great for the city and we're not concerned about the delay, given the fact that the project was announced at the beginning of the pandemic. Amazon has made a tremendous investment and commitment to the City of Detroit and we look forward to the facility's opening."
Amazon changing course
Even as Amazon cuts $1 billion this quarter from its retail operations — including fulfillment centers — it has invested $10 billion so far this year in technology infrastructure, CFO Olsavsky said on the most recent conference call.
That investment will support what he called “the rapid growth, innovation and continued expansion” of the Amazon Web Services cloud computing network.
The company also continues to invest in some hotter markets, including San Francisco, where it recently signed a deal for two warehouses of about 350,000 square feet.
Amazon’s slowdown in many markets is relative and still represents significant investment by the company, said Marc Wulfraat, president of logistics consultants MWPVL International Inc. in Montreal.
“They are slowing down,” he said, but the growth arc is “still a rocket ship heading into space.”
Amazon added 100 million square feet of space in the U.S. in 2021, and this year it will open 60 million, said Wulfraat, who studies the company for supply chain customers.
“That’s less than last year, but it’s huge,” Wulfraat said.
Amazon stock fell 17 percent from Tuesday through Friday last week, going from $119.93 per share to $99.13 per share after the company reported revenue was up 15 percent, but still $370 million off of projections.
The quarterly report prompted a stock sell-off after the company projected sales growth of 2 to 8 percent in the fourth quarter, below the 9 percent and 38 percent seen in the holiday seasons of 2021 and 2020.
Online shopping represented 9 percent of U.S. retail sales in early 2019, according to the U.S. Census Bureau, and it nearly doubled to 17 percent in 2020. But it started to drop in the third quarter of 2021. This past summer, it grew at 1.9 percent, compared to 5.3 percent a year earlier. Adobe’s sales analytics predicted online sales will grow 2.5 percent in November and December.
“We're realistic that there's various factors weighing on people's wallets, and we're not quite sure how strong holiday spending will be versus last year,” Olsavsky told analysts.
He also said Amazon’s streamlining likely is not done, even as holiday hiring — including as estimated 3,000 temporary works in Michigan — begins. Fulfillment centers already are using robots for some labor, and two new robots are in the pipeline.
The company also has canceled contracts with two companies that operated delivery networks for Amazon in Michigan, resulting in layoffs of 243 people.
“We recognize there's still a lot of opportunity to continue to improve productivity and drive cost efficiencies throughout our networks,” Olsavsky said.
Amazon stock traded between $100 and $102 per share on Monday, just enough to hold onto its $1 trillion-plus market capitalization value. Investors, however, are dealing with other tech company value dips, including at Google and Facebook’s parent company Meta Platforms Inc.
Covering the intersection of business and policy, and informing Michigan employers and workers on the long road back from coronavirus.
Thanks to Business Watch sponsors:
Support Bridge's nonprofit civic journalism. Donate today.
We’ve been there for you with daily Michigan COVID-19 news; reporting on the emergence of the virus, daily numbers with our tracker and dashboard, exploding unemployment, and we finally were able to report on mass vaccine distribution. We report because the news impacts all of us. Will you please support our nonprofit newsroom?