Hello Investors!

In today’s newsletter, I’ll be talking about Amazon’s foray into bricks and mortar retail, and how that has been evolving over the past 8+years.In 2015, Amazon opened its first bookstore in Seattle.  Since then, they expanded to over 600 retail locations, which of course includes over 500 Whole Foods stores.About a year ago, in March 2022, Amazon made an announcement to close all 68 of its physical non-food stores in the US and the UK, which included their bookstores, 4-star stores, and pop-up shops. At the time of that announcement, Amazon was intending to focus more of its physical presence on grocery stores.

I recently sold Chino Village, a fully occupied 20,000-square-foot shopping center with an additional 2.5 acres of undeveloped land. I originally listed this property for sale in March of 2022 and received several offers within the first week of putting it on the market. When we ran into a Phase 1 issue with a dry cleaner being on site, the offers disappeared. Later on, the City of Chino passed Measure Y, which will allow the land, which was previously zoned only for commercial use, to be used for residential purposes. Once that passed, we had renewed interest in the property again, and we eventually sold to an experienced commercial developer who plans to build multifamily units.

Amazon has been the largest builder of warehouses over the past three years, totaling $10 billion dollars, or 6% of total construction activity.  The company now controls about 400 million square feet of warehouse space.

However, the company has recently admitted that it has taken on too much warehouse space, and has announced that it will be closing warehouses and scrapping its plans to build new ones. Overall, the company is closing 21 facilities, canceling construction on 21 more, and placing a further 27 on hold.
Unfortunately, these changes are going to result in about 18,000 workers getting laid off.

Cap Rates on Amazon property sales

And the average cap rate across the sale of 40 Amazon warehouses was 3.65%.

I’d have to think that this recent news of Amazon scaling back is likely to affect the cap rates that investors are willing to pay for properties leased to Amazon.  While I’m sure the corporate guarantee is still good, no landlord wants to own a building that is dark, even if the tenant is still paying rent.

What is Amazon looking to do next?

On the bright side, Amazon is continuing to invest in more last-mile delivery facilities, which are locations in smaller warehouses, or even in retail centers, that will get packages to your home quicker.  Also, they continue to be creative with new in-store concepts, such as its Amazon Style clothing store.

Last July, I made a video of my experience in the first Style store in Glendale, California.  Since that video, Amazon has opened a second store in Ohio, in a former Forever 21 location.  The Style stores are designed to combine the convenience of online shopping with the personalized service of a physical store.

With minimal on-floor inventory, shoppers have more than twice the clothing options available compared to a traditional clothing store of similar size.

With all these changes, it is clear that Amazon is not done testing new concepts for customers.  I commend them for trying lots of different ideas, even if most of them fail.  But their core business of online retail is still strong and will continue to fund some of the struggling business lines until Amazon finds its next big hit.

Thanks for reading, and I’ll see you next time!