Amazon (AMZN) Plans to Cut 10-30 Million Sq Ft Warehouse Space in 2022 Amid Slowing Sales
In 2022, Amazon is strategically reducing warehouse space by up to 30 million square feet to curb rising costs and adapt to slower e-commerce growth post-pandemic.
Amazon.com, Inc. (AMZN) is actively working to downsize its warehouse footprint by 10 to 30 million square feet in 2022 after expanding aggressively during the peak of the COVID-19 pandemic. This excess capacity is currently inflating costs by an estimated $10 billion in the first half of 2022 alone.
To put this into context, Amazon's operating income was $3.7 billion in Q1 FY2022, while forecasts for Q2 FY2022 suggest operating income could range from a $1 billion loss to a $3 billion profit, highlighting the financial impact of surplus warehouse space.
Key Highlights
- Amazon aims to shed at least 10 million square feet, potentially up to 30 million, of excess warehouse space.
- The company expanded rapidly during the pandemic-driven online shopping surge, resulting in overcapacity.
- Excess warehouse space is expected to add approximately $10 billion in costs during the first half of 2022.
- Amazon plans to negotiate early lease terminations and sublease some facilities to mitigate expenses.
Details on Amazon’s Excess Warehouse Space
The surplus space includes warehouses located in major hubs such as New York, New Jersey, Southern California, and Atlanta. The 10 million square feet targeted for reduction is equivalent to about 12 of Amazon’s largest fulfillment centers, representing roughly 5% of the space added over the past two years.
CEO Andy Jassy has emphasized that Amazon is no longer pursuing additional physical or staffing capacity, attributing $2 billion in Q1 FY2022 costs to excess warehouse space.
Strategies for Reducing Warehouse Footprint
Amazon is exploring options including negotiating early lease terminations, especially with major landlord Prologis, Inc. (PLD), and subletting unused warehouse space. Industrial real estate vacancy rates are currently below 4%, with rents rising by 17.6% in 2021, making subleasing a viable option for recovering costs.
However, both approaches involve expenses: early lease termination incurs penalties based on remaining rent obligations, while subleasing requires removal and storage or sale of equipment. Amazon may also limit sublease terms to one or two years to maintain flexibility in case of future demand recovery.
Current Subleasing Activity
For example, Dependable Highway Express, Inc. has recently subleased a 300,000-square-foot industrial facility from Amazon in California's East Bay area on a five-year term, aligning with Amazon’s lease duration.
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