Amazon cancels, delays wave of warehouse plans as e-commerce demand cools
Amazon has delayed or canceled plans for at least 13 facilities in its distribution network this year, according to local news reports.
Shifts in plans have affected locations in Texas, Florida, Louisiana, Tennessee and California, per reports. Many of these adjustments surfaced following the company’s acknowledgement that it overbuilt its warehouse footprint in April.
Amazon is delaying some warehouse openings so it can reduce 2022 operating expenses following a rocky Q1 earnings report, Marc Wulfraat, president and founder of supply chain consulting firm MWPVL International, said in an email. The change will allow Amazon to avoid incurring further labor costs until at least next year when it needs more network capacity, Wulfraat added.
After nearly doubling its operations capacity over the past two years to keep up with a pandemic-fueled demand surge, Amazon is pumping the brakes on its expansion plans.
CFO Brian Olsavsky said in April that the company built more fulfillment network capacity with “the high end of a very volatile demand outlook” in mind. The approach contributed to the $6 billion in added Q1 costs, as a slowdown in online shopping activity left the company with excess capacity.
“For the consumer business, as I said earlier, we currently have some excess capacity in the network that we need to grow into,” Olsavsky said. “So, we’ve brought down our build expectations. Note again that many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust midyear.”
Amazon typically pushes to get its fulfillment centers running as soon as possible, as a wider warehouse footprint helps the company cut down on shipping costs, Wulfraat said. However, several of the company’s larger facilities expected to open in the second half of 2022 will be delayed by at least a year to avoid adding further labor expenses, he added. Lower productivity from overstaffing in the company’s fulfillment network made up about one-third of Amazon’s added Q1 costs.
“It will take some time to iron out the wrinkles but they will get through it,” Wulfraat said.
Amazon did not respond to requests for comment from Supply Chain Dive on the reported warehouse delays and cancellations. The delay of the company’s Davenport, Iowa, facility to early 2024 was due to supply chain challenges, according to a statement from the Quad Cities Chamber, which is based in the city.
“It is common for developments of this size to have situations that impact their timeline along the way,” according to the statement. “It’s our understanding that Amazon is experiencing supply chain issues, just like many of our local employers are experiencing. We’re pleased that Amazon is committed to opening the facility, even if the project is delayed due to unforeseen circumstances.”
Amazon still has a U.S. warehouse footprint few companies can rival, according to MWPVL data. The company has nearly 1,200 active distribution facilities totaling nearly 376 million in ground-level square feet. Walmart has 197 active facilities totaling about 145 million square feet, while Target has 52 facilities with nearly 58 million square feet of space, per MWPVL.
