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Amazon: 5 ways it will change the construction market

From selling books and groceries through to drone delivery and robot PAs, Amazon seems to have a hand in everything. Should construction feel emboldened or threatened? James Wilmore finds out.

Wherever you turn, it is increasingly difficult to avoid Amazon.

The US retailing behemoth, which began life in the garage of founder Jeff Bezos 24 years ago, is rapidly expanding into a mind-boggling number of fields. The firm, now worth around $760bn, has always thrived through innovation, but lately the volume of new ideas emanating from its Seattle HQ has gone up a gear.

From credit cards to home security systems, Amazon’s ambitions know no limits and it is clearly willing to shake up more traditional areas. A reminder of the firm’s relentless success came last week when it revealed first quarter profits more than doubled to $1.6bn. But what is Amazon doing that should be of interest to contractors – and where are the opportunities? Here we take a look at five key areas.

Rethinking office space

Amazon has retained its head office space in Seattle since setting up there in 1995. To match its expansion, the firm has invested an estimated $3.7bn on buildings and infrastructure in the city since 2010. However, the most eye-catching development came in January this year when the company unveiled three giant new biospheres attached to its HQ. 

The Spheres, as they are known, host 40,000 sub-tropical plants, including more than 400 species from 50 countries. The venture reportedly took six years of planning and construction. The company employed a full-time horticulturist to populate the structures with plants that thrive in a climate that’s also comfortable for humans.

“Our goal with The Spheres was to create a unique place where employees could collaborate and innovate together, and where the Seattle community could gather to experience biodiversity in the centre of the city,” says Amazon vice-president of global real estate and facilities John Schoettler. 

The development has echoes of Microsoft building treehouses for staff at its US headquarters.

Contractors operating in the office design space are having to deal with increasingly elaborate demands from big firms, who are thinking more and more about sustainability and employee welfare as the boundaries between work and life blur. 

Amazon Campus

Amazon Campus

Source: Amazon

Amazon’s Seattle HQ; the firm opened its unique Spheres development (seen at the side of the building) earlier this year

As US-based retail analyst at GlobalData Neil Saunders says: “There’s a labour shortage [in the US]. You can’t just compete on salary; you have to compete on working environment – those things have become much more important.” 

While not every client in the office space will be demanding rainforest-inspired biospheres, the moves Amazon is making will likely inspire some interesting alternatives.

Amazon is set to top its own achievements by spending $5bn on opening a second US headquarters. In a smart move, the company has invited cities across the US with a population of at least a million to pitch to host the offices, which should help reduce local objections wherever Amazon decides to build its second home.

“Everything they can monitor, whether it will be the time it takes for a product to get from A to B, to the efficiency of its warehouses, they want to monitor as much as they can so they can make efficiencies”

Neil Saunders, GlobalRetail

The firm has whittled down a list of 238 applicants to 20 finalists and is expected to announce a winner this year. Boston, Chicago and New York are all tipped as possible winners.

What’s interesting is that Amazon is choosing to expand and build offices in cities, whereas tech firms such as Apple and Google are choosing to have separate campuses away from larger urban areas. Founder Jeff Bezos has said he believes having city-based offices is better for the environment, as staff are less likely to drive to work. However, Facebook’s Mark Zuckerberg reportedly wants to go one better by creating a whole new town for his company.

In the UK, Amazon appears happy with urban locations. Last year it opened offices in London’s Shoreditch, and is rumoured to be eyeing new premises in Manchester city centre.

More distribution centres?

Amazon has been opening distribution centres at an impressive rate in the UK since its launch here in 1998.

Last year it opened sites in Daventry, Doncaster, Warrington and a huge facility in Tilbury, Essex, as its soaks up soaring demand in the UK. The company is planning to open its 17th UK warehouse later this year.

On the whole the retail giant has been happy to convert existing warehouse facilities to meet its demands. However, last year it emerged that a new Amazon facility in Bristol would become the company’s latest self-developed UK site. ISG was named as contractor on the project, with help from M&E specialist Mech FS.

Amazon is also due to build its first dedicated UK ‘receive centre’ in Coventry this year. The 40,000 sq m central hub, at a former Jaguar Land Rover site, will receive and sort millions of products sold by its UK website. Another ‘new generation’ distribution centre, due to open in Bolton this year, will see its staff work alongside robots.

For contractors involved in developing distribution centres, this market is only set to grow. One in five purchases in Britain are now web-based and the UK’s online shoppers spend more per household than consumers anywhere in the world. 

Amazon robotics Robostow

Amazon robotics Robostow

Source: Amazon

Staff at distribution centres now find themselves working alongside robots

“The warehousing and logistics market has been a long-term growth area,” says Glenigan’s economics director Allan Wilén. “While [project] starts fell back in the immediate aftermath of the EU referendum vote, this decline was temporary. The growth in the sector is being driven by the structural shift online in consumers’ retail habits.”

And with retailers improving the ease with which shoppers can make online orders, this is only set to increase.

Further evidence that demand in the warehouse market is soaring arrived in February, when property investor Segro revealed a healthy jump in profit due to rising demand for warehouse space, driven by the rise of e-commerce. Segro said it had 1.2m sq m of development projects under construction or in advanced pre-let discussions. Some retail parks could also be redeveloped into logistic sites to cope with demand for online orders, reports suggest.

Meanwhile the specifications for warehouses are becoming increasingly technical. The desire to bring automation into them is likely to rise – especially for Amazon, which has repeatedly been under the media spotlight over allegations around staff welfare in its distribution centres. Retail analyst Mr Saunders highlights this as a critical trend: “I think they will automate it more and more and cut out labour processes.”

As well as Amazon incorporating robots into its indoor facilities, it is also pushing its green credentials by installing solar roofs on its distribution centres. It hopes to have them on 50 distribution centres around the world by 2020.

Bucking the trend with real stores

While Amazon is recognised as a trailblazer in online retail, it is now dipping its toe into the world of physical stores.

The firm opened its first bookshop in Seattle in 2015. It now has 14 such stores across the US, including four in California and two in New York City. Three more are due to open soon, according to Amazon’s website, with more expected to follow.

What’s behind this move – and should contractors in the refurb sector start preparing for a UK launch?

Mr Saunders suggests that Amazon may not be thinking of the stores as traditional shops. “Amazon doesn’t just see them as shops; it sees them as nodes, as part of the distribution network,” he says.

He adds that, while selling books is generally a low-margin business, there are other benefits to physical stores. “It’s about putting down a marker, and books are an easy thing to start with. It draws traffic in.”

“Amazon likes to vertically integrate aspects of its operation, such as delivery, so it is possible that it will create its own construction and development team”

Neil Saunders, GlobalData

The analyst, who has visited an Amazon Bookstore in New York, says the format is “not doing anything to break the mould” of traditional bookstores. But there are some subtle differences. “They carry less stock, so the books are much more curated,” Mr Saunders says. As a review of the store by The Guardian said: “At Amazon Books, every title is a featured title.”

The stores also make good use of technology. A shopper with the Amazon app can use visual search technology to find books and objects around them. The search also offers reviews, shipping options and prices.

While Mr Saunders says the shops appear to have been “reasonably successful”, he believes Amazon is not hugely ambitious with them and that it still feels “a bit experimental”.

Amazon could look to launch bookstores in the UK, he adds. However, a key difference here is people are generally well catered for with physical bookshops. “In the US, there are places that don’t have bookstores,” Mr Saunders points out.

There was a small indication last year that Amazon is willing to experiment with physical space in the UK when it opened a pop-up store in London for Black Friday. However, backing up Mr Saunders’ point, the 3,000 sq ft space appeared to be designed to raise awareness of its app more than to sell things directly from the store.

Nevertheless, rumours surfaced in March that Amazon has been looking at the possibility of buying some Toys R Us sites following the toy retailer’s collapse.

Shaking up the grocery space

Not content with launching physical bookshops, Amazon is making a play at grocery convenience stores. In its hometown of Seattle, the firm is trialling a concept known as Amazon Go.

This is a grocery convenience store with a difference: it has no checkouts. In what Amazon calls a ‘Just Walk Out’ shopping experience, shoppers use the Amazon Go app to allow them to walk round the store taking items which are then debited on their account when they leave. The technology is similar to that used in self-driving cars, using computer vision, sensor fusion and deep learning.

Mr Saunders believes Amazon Go is a more viable prospect for a widespread roll-out in the US than bookstores. “I think they can open 50 or 60 in New York alone,” he says. “It will likely be where they have density of deliveries already so they might try to tie these things together. The only barrier is finding the space in urban areas.”

Amazon Whole Foods Belmar store

Amazon Whole Foods Belmar store

Source: Amazon

The firm’s acquisition of Whole Foods has enabled it to experiment with physical stores – paving the way for its Amazon Go initiative

The analyst says it could prove more difficult in the UK, as the grocery sector is more crowded and the likes of Tesco and Sainsbury’s already have a significant footprint.

But if Amazon gets it right, it could compete with the likes of Pret a Manager and Eat, according to Mr Saunders, as some of the products in Amazon Go are quick pick-up and takeaway items. “In terms of convenience, it’s the future,” he says. “Other grocers are way behind, as they are grocers and not tech firms.”

For contractors who specialise in retail fit-outs, the potential for a healthy pipeline of work beckons. It’s worth remembering that Amazon now has nearly 500 Whole Foods outlets to play with, after its $13.7bn acquisition of the chain last year.

New AI tools

AI is core to much of Amazon’s business. As it boasts on its website, the firm has been “investing deeply in artificial intelligence for over 20 years”.

Anyone who regularly visits Amazon’s website will have an AI experience, as the personal recommendations thrown at them are based on algorithms. Its Echo device is also powered by AI.

“They are a company that is very data-driven,” Mr Saunders says. “Everything they can monitor, whether it will be the time it takes for a product to get from A to B, to the efficiency of its warehouses, they want to monitor as much as they possibly can so they can make efficiencies where they need to.”

But as Amazon notes: “This is just the beginning.”

The company’s February financial update reported the launch of four new AI services, including Amazon Recognition Video. It is described as a “deep learning-powered video analysis service that tracks people, detects activities and recognises objects, celebrities and inappropriate content”.

“I think they will automate it more and more and cut out labour processes”

Neil Saunders, GlobalData

The service claims to be able to recognise faces in live streams and stored video, which “eliminates manual cataloguing of video”.

Construction is already using sophisticated technology to its advantage in data management tools such as BIM. Now it only seems a matter of time before contractors begin incorporating Amazon’s services.

All of this throws up the possibility that Amazon could eventually launch into the construction sector itself. “If Amazon ramps up physical expansion, I can see this happening,” Mr Saunders says. “Amazon likes to vertically integrate aspects of its operation, such as delivery, so it is possible that it will create its own construction and development team.

“At the very least, the team might focus on the refurbishment of Whole Foods stores, but when you add warehouse expansion, new shops and offices into the mix, then there is the volume necessary to support such a team.”

But he adds: “We are probably some way off such a development at present.”

You have been warned.

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