Amazon gears up to go big on real estate

The word “virtual” is so associated with giant Internet retailer Amazon that one would think the company’s existence is strictly metaphysical, as though its products simply materialize out of thin air at shipping centers around the globe.

Not so, of course. Amazon owns and operates giant distribution warehouses in the United States and abroad. But its real estate presence has been a pretty light footprint for a company channeling $50 billion in sales through its logistical backbone.

That’s about to change, thanks to a tax battle Amazon has conceded it’s doomed to finally lose. The company had been refraining from building lots of warehouses because it was required to charge state sales tax when it had a physical presence in a state. With a tidal roar of political pressure rising to level the playing field between Amazon and traditional retailers, the Seattle-based seller of books and everything else under the sun has capitulated. Now that the collection of state sales tax is a forgone conclusion, there’s no downside to building more warehouses in more states.

That said, you can bet there’s no hand wringing among the corporate brass. Indeed, one can easily imagine the men and women of the company’s executive suite breaking into Don’t Cry for Me Argentina (Nor You, America).

Amazon, according to an investigative series in the Financial Times of London, is about to start building U.S. warehouses at a breakneck pace in locales that include California, New Jersey, Texas and Virginia. That’s more and more million-square-foot warehouses closer to big population centers, so Amazon can rush the delivery trucks to buyers’ homes and offices much faster.

According to the Financial Times, it’s all part of Amazon’s preparation to deliver a death blow to even more traditional retailers by offering same-day delivery, thus taking away one of the key advantages traditional retailers had over Amazon — instant gratification.

Once its greatly expanded warehouse network is constructed and activated, Amazon will start promoting an order-in-the-morning and have-it-in-your-hands-by-afternoon sales pitch.

Barney Jopson, U.S. retail correspondent for the Financial Times, spoke of Amazon’s coming surge of warehouse construction (as well as its other strategies for world domination) in his On Point radio talk-show interview with Tom Ashbrook.

No one outside of Jeff Bezos’ inner circle knows just how grandiose Amazon’s move into real estate moguldom will be, but there is plenty of circumstantial evidence that this is one virtual company that’s becoming very materialistic.

Mike Consol is editor of The Institutional Real Estate Letter – North America.

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