Amazon hits brakes on 5 Michigan facilities as U.S. online shopping slows
- Amazon started a building boom in 2020 amid soaring sales as the pandemic hit
- Now the retail giant has too much space and is slowing or canceling several projects, including at least five in Michigan
- Related businesses are affected, including a Novi-based transport company that is closing and laying off delivery drivers
Amazon opened a $150 million regional fulfillment center southeast of Grand Rapids in March 2020, as the start of the COVID pandemic propelled staggering growth for retail delivery across the United State.
The 850,000-square-foot building in Gaines Township, about four miles from the Gerald Ford International Airport, generated enough activity to employ 1,000 people as national e-commerce sales soared 50 percent from 2019 to 2021.
That’s when Amazon — in the midst of its pandemic building boom — sought to open two additional facilities across 68th Street to sort and deliver online orders to front porches, and officials expected hundreds more workers to join the retail giant’s Michigan workforce.
That hasn’t happened.
One of the buildings isn’t yet open. And construction hasn’t started on the other.
They are among at least five Michigan Amazon facilities that have been postponed or canceled as the world’s largest online seller — and one of Michigan’s biggest employers — curtails its building footprint and staffing.
Amazon isn’t the only business behemoth scaling back plans in Michigan as e-commerce slides.
The reason: American shoppers are increasingly willing to go back into stores, said Stanley Lim, an assistant professor of supply chain management at Michigan State University.
As a result, he told Bridge Michigan, there’s “excess capacity” among companies involved in e-commerce, just as inflation and supply chain costs are pressuring businesses.
“The unexpected shift in shopping behavior and rising costs are triggering many companies to revisit their expansion plans that were made during the peak of the pandemic,” Lim said.
Examples besides Amazon [NASDAQ: AMZN] include FedEx, which announced cost-cutting this week as global shipping fell. And Peloton, the workout equipment star of the pandemic, postponed opening a $400 million headquarters in Ohio, and laid off 300 workers in Warren and Detroit as sales plummeted.
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, and is stabilizing at about 14 percent as it grows slowly, coming in at 1.9 percent this summer, compared to 5.3 percent a year earlier. Overall retail sales grew 0.3 percent in August, after declining by 0.4 percent a month earlier.
“Over the last or three years, many thought the shift (to) online sales was going to stick among consumers,” Lim said. “But it’s proven so far to be less sticky than many expected.”
Across the U.S., Amazon is responding with layoffs, program cuts and trimming how much building space it will open and operate. Reports indicate that at least 70 facilities across the country— including 44 that have been closed or canceled — are affected.
Michigan sites include:
- The two buildings in Gaines Township, which would have totaled 400,000 square feet. The one in progress has been stalled in part due to a lack of available electrical supplies, township building officials said. They have no date for a planned opening and there has been no work done in about three months.
- The first mid-Michigan fulfillment center, a one million square foot building under construction in Delta Township. Originally planned to open in spring, it’s now expected to open in 2024, township manager Brian Reed said.
- Two warehouse buildings in Washtenaw County, where construction in Pittsfield Township was postponed and plans for Ypsilanti Township were canceled, according to MLive.com.
Combined, the paused projects also postponed the creation of at least 1,000 new jobs estimated to accompany the developments.
More positively, another site under construction for Amazon’s use in Canton Township is almost finished, with the final inspection scheduled for next week, said Patrick Sloan, community planner in the township between Detroit and Ann Arbor. The 183,000-square-foot building is “almost up and running,” he said Friday, though information on when Amazon could start operating there was not immediately available.
Amazon is also shedding jobs, with 100,000 fewer global employees reported in the company’s second-quarter filing than earlier this year. The latest data for Michigan indicated that the company had 26,000 full- and part-time workers at year-end 2021.
Job losses also are extending to the state’s “last mile” Amazon drivers who deliver packages from shipping centers to consumers. Most Amazon delivery drivers across the U.S. work for third-party delivery companies.
About 150 contract workers in Michigan will be losing jobs at Second Samuel Transport Inc., a Novi-based delivery company that until this fall had only one client: Amazon.
The retail giant told the transport company last week “they will not be renewing our contract, thereby causing us to lay off all employees and cease business,” according to a Worker Adjustment and Retraining Notification letter the company sent the state Sept. 8.
Layoffs will affect Second Samule’s 365 workers in four states, with the Michigan layoffs including 64 people in Hazel Park, 46 in Romulus and 35 in Grand Rapids.
Amazon would not comment on how many Michigan facilities or workers are affected by its changes so far.
“Amazon is constantly exploring new locations and weighing a variety of factors when deciding where to develop sites to best serve customers,” spokesperson Austin Stowe told Bridge. “However, we have a policy not to provide information on our future roadmap.”
The end of Amazon’s building boom may have minimal impact on Michigan’s commercial real estate industry. Automotive companies and other industries that once competed with Amazon for property are still seeking both buildings and industrial land to build facilities.
“There is still demand for warehouse space,” said Neal Warling, managing director of the Ann Arbor office of Jones Lang Lasalle, an international commercial real-estate company.
While many office markets are struggling across the state, the industrial market is strong. In metro Detroit, the industrial vacancy rate is near historic lows of about 4.5 percent on 656 million square feet.
Meanwhile, Amazon is valued at $1.25 trillion based on outstanding stock shares. The stock price closed on Friday at $123, down about 2.75 percent from a day earlier. That represents a drop of about 26 percent this year.
At FedEx [NYSE: FDX], the stock price slid 21 percent Friday after the company reported first-quarter earnings on Thursday. The company missed its earnings target by $500 million because “macroeconomic trends significantly worsened,” CEO Raj Subramaniam said in the filing. That includes global shipping volume, along with inflation and transportation costs.
The company said it would close 90 office locations and five corporate office facilities, among other cost-cutting measures.
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