The Amazon Effect – 2020 and Beyond

by | 07 July 2020

It’s no surprise that the COVID-19 pandemic has changed the way that consumers obtain goods, as well as how supply chains move them. We have shifted the way that we shop for the products that we need, and companies are adapting their strategies accordingly. With quarantine restrictions in place in many U.S. states, like Illinois, New York and California, and other states like Florida, Texas and Arizona reversing their reopening plans, our mobility has been limited and online shopping has become more attractive. From grocery items, personal care, home improvement and even outdoor play items – consumers have learned to lean more heavily on shopping from the comfort of their homes. Ecommerce has grown the most quarter over quarter in the last two months than it ever has. According to the U.S. Department of Commerce, as of Q2 2020, ecommerce accounted for a total of 11.8% of retail sales, up from 11.3% in the previous quarter, a record for online shopping.

Arguably, the company that stands to benefit the most from this shift in consumer behavior is Amazon. As many industrial companies struggle to adapt to our new normal by making long-term decisions in terms of their inventory holdings, Amazon continues to exceed expectations by expanding across the country. Over the next three years, Amazon is expected to occupy an additional 161 million square feet – an explosive growth period for the ecommerce behemoth. In 2020 alone, Amazon is expected to occupy nearly 98 million square feet.

The Southeast, Midwest and West markets each have more than 30 million square feet of Amazon growth expected. A total of 38 states are slated to open new Amazon locations that include fulfillment distribution centers, delivery stations, last mile fulfillment distribution centers and Amazon Air hubs. Major markets, including California, Illinois, Georgia and Texas, are set to welcome Amazon to more than 11 million square feet each, and only 10 of the 38 states will see Amazon occupy less then 1 million square feet.

Not only is Amazon’s total footprint expanding, but so is the design of their warehouses. In an effort to deliver goods to consumers in record time, Amazon has been forced to go vertical in many land-constrained markets. Some recent multi-story plans and projects include a massive 4 million square foot warehouse near the Colorado Springs Airport, two 3.8 million square foot facilities in Illinois, two five-story logistics centers in Memphis and Nashville, and most recently Amazon signed a 1 million square foot lease for a multi-story delivery station in Queens – the largest footprint in New York City. Another interesting feature of these multi-story warehouses will be the increased use of robotics to automate the shipping of smaller items, along with human counterparts to focus on picking larger items for order fulfillment.

To further illustrate Amazon’s explosive growth, Amazon’s total revenue increased from $136 billion in 2016 to $280.5 billion in 2019 and is expected to increase by 19.3% to $334.7 billion in 2020; this estimate is pre-COVID-19. Given the progressive rise of Amazon-dependency during the pandemic, growth of 30-40% would not come as a surprise.

As we have yet to see the outcome the pandemic will have on the global economy, one thing is certain – Amazon will continue to benefit from the phenomenal growth of ecommerce in the months and years to come and will continue to help propel the growth of the industrial sector for years to come.