Amazon plans fifth warehouse in the Inland Empire

As Amazon Inc. moves to shrink delivery times from days to hours, it's spreading its enormous inventory across a growing network of warehouses on the outskirts of the nation's biggest cities.

Within this strategy, San Bernardino has emerged as a key player thanks to its abundance of affordable land, proximity to ports and access to one of the nation's biggest consumer markets.

Amazon this week doubled down on the city 60 miles east of Los Angeles by announcing plans for its second facility there, a cavernous 1.1-million-square-foot space that will briefly warehouse items such as books, electronics and toys while adding 1,000 new full-time jobs.

"San Bernardino has proven to be an important part of Amazon's growth in California, and we are proud to continue creating jobs and helping support the economy here in the Inland Empire," Akash Chauhan, Amazon's vice president of North American operations, said in a prepared statement.

The new facility will be Amazon's fifth fulfillment center — the company's term for warehouse — in the Inland Empire and seventh in California. It maintains similar facilities in Moreno Valley, Redlands, Rialto, Patterson and Tracy. Its first in the Golden State opened in 2012 in San Bernardino, a facility that now has 1,500 employees.

Analysts estimate the company has about 120 fulfillment centers worldwide, about 100 of them in the U.S.

Their rapid expansion began in earnest several years ago, aided by Amazon's move to pay local sales taxes in several states such as California. In the past, the company avoided having a physical presence in some states to skirt taxes.

Beyond that, the $282-billion company is growing at about 20% a year, well above the 12% clip for e-commerce as a whole, analysts said. More fulfillment centers are needed to sustain that expansion — all while Amazon keeps adding new businesses such as AmazonFresh, its grocery delivery service, and Amazon Dash, a button that, when pressed, automatically orders hundreds of different home goods such as paper towels and detergent.

"They're also rapidly trying to establish a more localized presence around all the major metropolitan areas so they can provide faster, and in some cases, cheaper delivery," said Colin Sebastian, an analyst at Robert W. Baird & Co. "Ultimately, Amazon wants to deliver anything to anybody, all within a couple hours."

Driving that goal is the rising popularity of Amazon Prime, the subscription service offered by the e-commerce giant that includes free-two-day shipping for orders.

Membership for Amazon Prime grew 35% last year to 54 million, according to Consumer Intelligence Research Partners.

That's significant because Prime members spend on average $1,100 a year on Amazon compared with $600 for non-members.

Amazon encourages merchants selling on its platform to warehouse their products in its giant fulfillment centers for a fee. For merchants, that's the only way to get their wares on Prime — and it can be cheaper than having their own warehouses. For Amazon, it's additional revenue and a way to help ensure items are delivered on time.

It's another example of how Amazon wants to not only dominate the sale and delivery of goods, but also form its own logistics empire.

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In early March, the Seattle company announced it is leasing 20 Boeing 767 jets to inch into the air freight business. A month earlier, internal documents leaked to Bloomberg outlined Amazon's plans to replace FedEx, UPS and DHL along parts of its supply chain. It has already purchased thousands of trucks and trailers — and flirted with the idea of delivery drones.

"They see the areas of shipping and transportation logistics and believe they can do it more efficiently and cheaper than someone else," Sebastian said.

Those ambitions start at home with fulfillment centers in little known bedroom communities like such as Avenel, N.J., Chester, Va., and Coppell, Texas.

The Inland Empire — with its proximity to the nation's largest port complex and vast stretches of open land — has morphed into a warehouse hub for trucks arriving daily from ports and rail yards.

Local politicians have encouraged the expansion of the logistics industry, which includes truck drivers, inventory managers and warehouse workers who take part in the global movement of goods.

In 2015, warehousing and storage jobs alone accounted for 12% of job growth in Riverside and San Bernardino counties — a key sector in a region that was battered by the last decade's recession and housing collapse.

"Why here?" said Chris Thornberg, founding partner of Beacon Economics. "Try and get eight acres to put up a giant, modern warehouse in Orange County and L.A. Not going to happen."

The rapid expansion hasn't been without controversy, having raised concerns over air pollution and the quality of jobs created.

Wages vary widely from sales representatives making more than $35 an hour to entry-level warehouse laborers who typically take in less than $12 an hour.

A 2013 UC Riverside survey of warehouse workers found that about 60% of those employed at Southern California facilities worked for temp agencies, often with no health benefits and no guarantees of hours.

But Thornberg said the benefit of the logistics industry is that it's providing jobs to those with no more than a high school education while offering the possibility for advancement.

"It's an important sector for growth in the region," he said.

Amazon said the new facility will offer employees "competitive hourly wages and a comprehensive benefits package, including healthcare."

The new jobs will be welcomed in a city mired in bankruptcy and struggling with crime and high unemployment. Last year, the unemployment rate averaged 11.5%, compared with 6.2% statewide.

"We are excited Amazon continues to view San Bernardino as a great place to do business, and we're proud to be part of Amazon's history and future," San Bernardino Mayor R. Carey Davis said in a statement.

How safe those local jobs are in the future is open to debate. Amazon bought robot maker Kiva Systems for $775 million in 2012. The company plans to expand the use of robots at its growing number of fulfillment centers to eke out more savings.

The hope is to one day make purchasing off Amazon so cost-effective and fast that consumers will find it impossible to resist.

"The holy grail is to be so close to your end customer that you're able to offer same-day delivery without breaking the bank," said Youssef Squali, an analyst at Cantor Fitzgerald.

david.pierson@latimes.com

Twitter: @dhpierson

andrew.khouri@latimes.com

Twitter: @khouriandrew

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A version of this article appeared in print on April 01, 2016, in the Business section of the Los Angeles Times with the headline "A Growing empire - Amazon plans to open a fifth fulfillment center in the inland region, creating more than 1,000 jobs" — Today's paperToday's paper | Subscribe
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