Skip to content

How Amazon’s ‘Invisible’ Hand Can Shape Your City

How Amazon’s ‘Invisible’ Hand Can Shape Your City
How Amazon’s ‘Invisible’ Hand Can Shape Your City
May 2, 2017   //   

By Patrick Sisson

It begins with boxes. For most people who order goods from Amazon—with nearly half of U.S. households enrolled in the company’s Prime program, that’s quite a few of us—interactions with the Seattle e-commerce giant start with a search and a click, and end with a delivery.

While the ubiquitous company—a retail and shopping juggernaut worth roughly $430 billion that personifies the rapid growth in e-commerce—has an extensive footprint, a growing warehouse network, and a nascent brick-and-mortar retail presence, most of us just see piles of boxes on stoops, on doorsteps, and in apartment lobbies.

But that passing perspective would be a gross underestimation of the way e-commerce in general, and Amazon specifically, has and will reshape cities and communities around the country.

A growing web of Amazon warehouses is poised to further speed up and reshape commerce, putting more pressure on retail. Increasing deliveries, a result of this bigger and better logistics network and consumer demand, is leading to increased freight traffic on city streets. And an expansion into physical retail, including brick-and-mortar Amazon grocery stores, predicted by many analysts, could make an even bigger dent in urban landscapes and commercial strips. Curbed reached out to Amazon for this story, but they declined to comment on the record.

“Amazon has been able to ride this stealth presence and sink under the radar,” says Olivia LaVecchia, a research associate with the Institute for Local Self-Reliance, a nonprofit focused on promoting small business. “Their true power and influence have remained invisible. They’re reshaping our commerce, built environment, and even social interactions.”

But it may not be that way for long. As LaVecchia and other analysts have noted, Amazon has begun to enter the physical retail market with a handful of bookstores and Amazon Go, an in-the-works convenience store, the first steps in a rollout that could rapidly speed up their disruption of retail and shipping. Many analysts and former employees told the New York Timesthat Amazon might make the move to enter into markets that you “can’t digitize.”

According to Cooper Smith, an analyst at L2 Inc., a New York-based business-intelligence firm, the company has been testing its technology and strategy with a small string of bookstores, which he sees as a means for Amazon to eventually enter into the grocery market, a $770 billion-dollar-a-year industry.

“These stores are about testing in-store tech to use in grocery stores,” he says, “which is a much bigger opportunity. Amazon already owns books. Did they crush Barnes & Noble and Borders just to open up physical stores and piss on the graves of these companies? When you think about the end game—launching grocery stores with the same tech they have in the book stores—you realize the past five years haven’t been about selling books.”

Warehouse party

Amazon’s incredible efficiency and massive network have impacted numerous sectors of the economy. One that isn’t very sexy, but that’s important to how e-commerce shapes urban areas, is its impact on real estate.

Industrial real estate, specifically warehouses, is booming, due to the increase in deliveries and e-commerce. According to a recent Cushman and Wakefield Industrial Market Beat analysis, the sector is “on a roll”: Vacancies are down year over year (well below the historical average), new construction is up, and prices for warehouse real estate have risen at a steady clip since 2012. Warehouses are big business, and are quite literally getting bigger; the industry standard 24-foot-tall building is making way for 34-foot-high structures tailor-made for e-commerce and holding more inventory.

Amazon, as one of the biggest players in the game, has made a big push to improve its fulfillment infrastructure, a prime reason for its rapid growth (it reached 300,000 employees faster than any other American company, according to the Progressive Policy Institute), and a big part of its potential to further impact urban living.

Over the last two years, the company has expanded into major metro areas, building upon its massive hub-and-spoke system to the point where it can offer same-day (and in many cases, one- or two-hour) delivery to most major metro areas in the United States. In just the last year alone, for example, the company has doubled the number of facilities in its U.S. distribution network, according to the ILSR report Amazon’s Stranglehold, and the company is increasingly experimenting with ways to take over last-mile delivery.

“They now have warehouses within 20 miles of half the U.S. population,” says Smith, the business analyst. “They’re essentially going to be launching all of these small retail stores, which are ostensibly window-shopping centers.”

Smith believes Amazon has been especially aggressive about picking cities with the right customer base for increased e-commerce and expansion of its Prime Now program, specifically coastal metro areas with a disproportionate number of millennials earning six figures. There’s a link between warehouse growth and the rollout and expansion of services such as Amazon Fresh and Amazon Prime in cities like New York, Boston, Austin, Philly, and San Francisco.

Smith points to the company’s click-and-collect service, an app that allows users to quickly place and pick up orders. Imagine how that service could change grocery shopping: Combine an overwhelming logistics advantage with a series of small Amazon-branded stores, and suddenly it’s easy to simply order, and then pick up, groceries on the way home. Amazon claims to have the largest audience of any retail app in the world, according to Smith, with 30 million monthly active users users.

“With more and more warehouses and stores, and a decreasing distance between logistics facilities and stores, the cost of moving goods for Amazon goes down, and the margins go up,” Smith says.

With such a huge potential advantage, Smith predicts that within a decade Amazon will be a top-five grocery store in the country, in the same category as giants such as Wal-Mart (which, despite its vast inventory, makes half its revenue in groceries). There’s plenty of room to grow; while 42 percent of all U.S. consumers shopped at Amazon last year, 95 percentbought something at Wal-Mart.

Competing for the same curb

With expanding services and deliveries, one of the places Amazon and its competitors are poised to make a real impact is right on city streets. E-commerce can alternatively support a car-free lifestyle, offering city dwellers an easy way to do shopping, and increase the amount of freight and delivery traffic on roads. As companies like Amazon respond to increasing consumer demand—the number of online transactions has risen by 115 million from 2015 to 2016, according to Business Insider—streets will inevitably get crowded with more delivery vans.

Such freight traffic increases are rarely part of urban planning discussions. Anne Goodchild runs the Urban Freight Lab at the University of Washington in Seattle. The year-old program, which examines delivery, logistics, and transportation with industry partners such as Costco and Nordstrom, advocates for more recognition of this growing source of vehicular traffic, and a more holistic planning approach from cities. People may be upset about these delivery trucks, she says, but they’re just accommodating consumer preference.

“Freight doesn’t appear to exist in urban planning, and that’s a problem,” she says. “Most people look at public transit and mobility, but they don’t appear to be living in a physical world. How can they plan complete streets when the words ‘freight delivery’ [aren’t] used?”

Goodchild says that cities are already seeing the consequences of neglecting to plan for increases in freight traffic. It’s not merely the jump in deliveries and traffic. With an uptick in cycling and pedestrian traffic in many areas, everyone is competing for the curb, and the same sidewalk and roadway space. Since freight infrastructure is often private, it’s off the radar for many planners.

“It’s like a transit system where you didn’t plan for the bus stops,” she says. “We all know we’re bringing more and more goods into the city, but there’s no programmatic way to account for what they’re delivering and when. We need scientific, data-driven, systematic views of urban freight analysis and planning.”

Goodchild believes that cities should start creating more holistic designs for roadways, like adding more curb cuts (graded ramps between the sidewalk and the street) and larger loading zones. More holistic policy and planning benefits everyone; city streets are freed up, while delivery companies cut “dwell time” and save money on deliveries.

Her team at the Urban Freight Lab is working with Seattle to create a map of the city’s freight facilities, bringing together public and private data to help design better policies around delivery services. She believes there’s a lot of good that can come from more considered policy around urban freight. These deliveries are the “logistics of living” for many city dwellers; greater efficiency can support car-free living and reduce the amount of time delivery trucks spend on the road, cutting emissions and congestion.

So far, Seattle and New York, which each have initiatives dedicated to urban freight issues, have begun to address the matter. But more thoughtful planning is still needed. According to Jean-Paul Rodrigue, a transportation researcher at Hofstra University, planners need to not only look at how people move, but how they consume.

“It’s almost a literal cargo cult,” he says. “Planners and architects believe that freight magically appears on your mailbox. They need to view people as needing a physical support system for their daily lives. Look at renderings and designs; where’s the freight? You see hipsters walking around these new buildings. How do they get their fake dirty jeans delivered?”

The incredible shrinking retail sector

Recent stories about the “retail apocalypse” and the shuttering of malls and big-box stores identify e-commerce sector growth as an important factor. Online retail, which accounted for 8.3 percent of total retail sales in the fourth quarter of 2016, according to U.S. Census figures, continues to rise in a pattern that mirrors the upward swoop of the arrow on the Amazon logo.

There are many other factors at play, according to analysts. Commercial property has been long overdue for a correction, says Smith; between 1970 and 2015, the number of malls grew at a pace twice as fast as the U.S. population. At the same time, discount stores are putting downward pressure on prices.

But it’s also true that e-commerce has been a big reason for less foot traffic and sales in physical retail. Smith says between 2010 and 2013, the number of people who visited malls dropped in half. If e-commerce increases, and expands into new categories, as Amazon is expected to do with groceries, we may see even more stores closing. The liveliness of commercial blocks may increasingly be replaced with empty storefronts.

“The combination of e-commerce, the decline of foot traffic, and technology is going to significantly shrink the footprint of retail in brick and mortar life,” says Smith. “What does that mean for city planners when all of that real estate is freed up for all these other uses?”

Smith believes that the push into groceries is all but inevitable for Amazon, mostly because they’ve been trying to crack the market for years. The failure of AmazonFresh, the company’s online grocery delivery service, only reinforced the consumer preference to picking up food in person. The average American family goes to a grocery store twice a week, and now Amazon wants to go where they’re shopping.

“Groceries [are] something they’ve never been able to disrupt, like they have with electronics and CPG [consumer-packaged goods, such as toilet paper and deodorant],” he says. “They need to go where the people are.”

If Smith’s predictions about the growth of Amazon’s grocery business are true, the company would become a big player rather quickly. And that has some serious potential side effects for cities.

According to LaVecchia, property taxes are the single largest source of revenue for state and local governments, and most of that comes from commercial landowners. Amazon’s incredible logistics operation significantly shrinks the footprint of a traditional commercial operation, meaning less taxes and revenue. And in many cases, especially in bigger urban areas, larger warehouses are outside of the main metro area (many Amazon warehouses serving Chicago, for instance, are located in Joliet, Illinois), in communities looking to subsidize new jobs: The Institute for Local Self-Reliance says the company has received $613 million in public subsidies for new fulfillment facilities since 2015.

The miracle of that Amazon box—bringing a world of goods to your doorstep in days, if not hours—has been transformative, as well as affordable. But the rise of online shopping, the unspooling of commercial districts, and the disconnect between shopping and the city have many unintended consequences. Planners and local governments need to be ready to grapple with them.

“The relationship between commerce and place has traditionally been a real strong link,” says LaVecchia. “Amazon is really throwing things on its head, and it’s something that we haven’t seen before. When commerce and shopping become disconnected from that sense of place, there are as many social implications as there are financial implications.”