🔒Amazon’s distribution center expansion pullback inspires apprehension in towns eager for growth

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Amazon’s plan to curb its aggressive logistics network expansion following a $3.8 billion first-quarter net loss has sent tremors of unease through some Connecticut communities where the e-commerce giant was eyeing new distribution facilities — a potential source of significant new jobs and tax revenues.

In Plainfield, Town Planner Mary Ann Chinatti read with apprehension news spilling out of Amazon’s April 28 earnings report. A roughly 200,000-square-foot “last-mile” fulfillment center under construction in her town just off Interstate 395 is expected to bring 400 to 600 jobs.

That center was originally planned for a May opening, but supply chain difficulties have held up progress.

However, Chinatti said her concerns were soothed in an early May meeting with Amazon representatives who assured the project is moving forward, with completion now anticipated in December. They asked for the town’s help setting up a job fair, she said.

“I have been reading they were overambitious, but that’s not the case here, which is good,” Chinatti said. “It’s going to be a wonderful addition to the town and area. It’s going to bring a lot of jobs. It’s going to put a lot of people to work, and that’s the goal.”

The Plainfield project is being led by Exeter Property Group, a Pennsylvania-based real estate investment and development firm.

Amazon and Exeter did not respond to requests for comment.

In Waterbury, officials said they have received assurances from a development group proposing a massive Amazon regional distribution center in the city, but that a smaller last-mile fulfillment center is “on hold.”

“From our perspective, the Waterbury-Naugatuck Industrial Park project is full steam ahead,” Thomas Hyde, CEO of the Naugatuck Valley Regional Development Corp., said of the larger of the two projects, planned for a roughly 157-acre property with portions in Waterbury and Naugatuck.

Bluewater Property Group — another Pennsylvania developer — signed a $2.5 million purchase-and-sale agreement for the land in mid-May, Hyde said. The company has put down a $100,000 deposit and is moving forward with expensive site plan studies ahead of design, Hyde said.

Bluewater did not respond to a request for comment.

However, developers have “hit the pause button” on a planned $25 million East Main Street last-mile Amazon facility in Waterbury that had won land-use approvals, Mayor Neil O’Leary said. The proposal could still move forward, O’Leary said, but he was not able to disclose further details.

Phil DiGennaro, the Trumbull-based developer behind that last-mile proposal, did not respond to a message seeking comment.

Rough quarter

In an April 28 earnings call with investors, Amazon Chief Financial Officer Brian Olsavsky blamed several factors for the company’s multibillion-dollar loss. Higher gas prices and the war in Ukraine were factors outside the company’s control, but he also blamed overdevelopment of labor and facilities.

The omicron variant in late 2021 substantially increased worker absences, Olsavky said, prompting new hires to cover that lost productivity.

“As the variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity,” Olsavsky said during the earnings call. That alone translated to about $2 billion in losses, compared to the prior year, he said.

Olsavsky predicts labor will stabilize, as will the ability to build new distribution capacity. He predicted it will take several quarters for Amazon to grow into its excess capacity.

“So, we’ve brought down our build expectations,” Olsavsky said. “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. That said, we expect fulfillment dollars spent on capital projects to be lower in 2022 versus the prior year. We also expect transportation dollars spent on capital projects to be flat to slightly down.”

In South Windsor, a sleek driveway marker bearing Amazon’s name at a new warehouse built by Scannell Properties was recently covered up with a plain canvas banner bearing the words “COMING SOON.” Giant letters spelling out “amazon” and the company’s blue arrow logo have been removed from the top of the building. That set a lot of tongues wagging in the development community and beyond.

South Windsor Town Manager Michael Maniscalco said he heard rumors and reached out to Scannell, who reassured him that Amazon is still “lined up to move there.” Maniscalco said the sign was erected prematurely and that Scannell is putting the finishing touches on the interior of the planned last-mile facility.

Asked for an update on the deal, a Scannell spokesperson said the developer is not authorized to comment for Amazon.

Mark J. Duclos, president of Hartford-based Sentry Commercial, retains a bit of skepticism about the likelihood of Amazon ultimately inhabiting the South Windsor building, especially given recent news reports the company is considering shedding some of its commitments.

Bloomberg, citing unnamed sources, has reported Amazon is seeking to sublet at least 10 million square feet of warehouse space.

“There was an Amazon sign on that building,” Duclos said of the Scannell property at 240 Ellington Road in South WIndsor. “I can tell you that sign is no longer on that building. It’s all rumor but I cannot imagine that is not one of those facilities they are going to be looking at.”

Duclos said the logistics market remains strong overall, at least for the moment. There is a sense that changes might be afoot, with Amazon announcing plans to slow its growth and online pet products retailer Chewy recently pulling out of plans to inhabit a 750,000-square-foot logistics center in Windsor.

On the other hand, Missouri-based NorthPoint Development is still moving forward with construction of the planned Windsor building, purely on speculation, Duclos noted. NorthPoint is a very sophisticated company demonstrating a lot of confidence in the market, Duclos said.

“Substantially, if you talk to developers out there and people building big boxes, they are not seeing a slowdown,” Duclos said.

Adam Winstanley — principal of Winstanley Enterprises, a major builder of distribution centers in Connecticut — doesn’t expect Amazon to withdraw from any of the projects it has announced in the state. The online retailer is simply likely to reduce the pace of its future expansion, he said.

“They are not as active as they were, but they are still the largest leaser of industrial space in the U.S.,” Winstanley said. “I don’t think that’s going to change anytime soon. I just don’t think they will be growing at the same clip.”

Winstanley said he has three leases with Amazon in Connecticut, one more in Albany, New York, and is working to close a fifth outside of Connecticut.

“I still see them making targeted investments in areas that are important to them,” Winstanley said.