The Amazon Effect

Some observers were perplexed in the late 1980s when Wispark LLC, the real estate development division of Wisconsin Energy Corp., started work on a massive industrial park in the then newly incorporated Village of Pleasant Prairie in southern Kenosha County.

“There were a lot of people wondering what we were doing,” said Wispark president Jerry Franke. “We didn’t even have a road or a sewer.”

However, during the past 25 years, the 2,400-acre LakeView Corporate Park has become a major success, attracting several manufacturers and numerous large distribution centers.

“We felt this location between Milwaukee and Chicago would be a great distribution hub,” Franke said.

Situated about 50 miles from Chicago and about 30 miles from Milwaukee, Kenosha County has indeed become a major distribution hub that can serve those two major metro regions and beyond. Several large distribution centers have been established in Kenosha and Pleasant Prairie, including facilities for Meijer Inc., Uline, Rust-Oleum Corp. and Gordon Food Service.

Construction is nearing completion for 1.1 million-square-foot and 500,000-square-foot distribution centers in Kenosha for Amazon.com.

Those distribution operations are not as job-intensive as the large manufacturing plants that left Kenosha years ago, though the jobs they do create have been welcomed in a county that still has a stubbornly high unemployment rate of 7.1 percent (8.1 percent in the City of Kenosha).

However, the next major distribution center development in Kenosha could have a far more profound effect on the area’s economy. Seattle-based online retailer Amazon.com is nearing completion of construction on a 1.1-million-square-foot distribution center and a 500,000-square-foot distribution center northeast of I-94 and 38th Street in Kenosha.

The Kenosha project is one of several fulfillment centers that Amazon has built, is building or is planning to build as the company increasingly works to maximize the efficiency of its distribution network so its customers get their orders as quickly as possible.

Putting Kenosha on the map

Kenosha grew up as a blue collar manufacturing community, but companies that were once its largest manufacturing employers, including American Motors and Chrysler, are long gone. In recent years, the community has transitioned to a more diverse economy with sprawl from the Chicago area creeping in and bringing smaller manufacturers, retailers, and distribution operations.

Amazon could attract new attention to Kenosha. The fact that the company selected Kenosha for this facility sends a strong signal to the market, real estate industry professionals say. Already a well-established distribution hub, the presence of a Fortune 500 company with a business model based on its distribution dynamism will make other firms strongly consider the Kenosha area as a site for their fulfillment centers.

“Any time you can attract an iconic American company to locate in your region, that draws attention to your region, which is a good thing,” Franke said.

“It puts the location on the map nationally,” said Jeff Hoffman, a partner with The Boerke Company.

“It really puts that I-94 corridor on the map as a major focal point for large scale distribution,” said Cassidy Turley Barry president James T. Barry III. “It’s similar to the retail real estate world when a McDonald’s or Walgreens goes to a specific location. Other retailers look seriously and think, ‘That must be a good corner.’ (The Amazon development in Kenosha) is a validation that this is an excellent corridor for distribution.”

The presence of Amazon will make others seriously consider Kenosha for distribution operations, Barry said.

“If your job is to find a place for a new distribution center in the Midwest, if you find a location that is just down the road from Amazon, you’re going to look pretty smart,” he said.

Some sources also said Amazon insists that its suppliers and servicers locate operations near its fulfillment centers. That should also mean more businesses moving to Kenosha County.

“There are other businesses that will co-locate near an Amazon (facility),” Hoffman said.

The jobs impact

Beyond the additional development the facility could help attract, the Amazon operation will create a large number of jobs on its own. The company plans to create 1,250 jobs over the next three years and will invest at least $155 million in the two-building Kenosha project, according to the Wisconsin Economic Development Corp.

Construction is nearing completion. The 500,000-square-foot building could be operational by the end of October, and the 1.1 million-square-foot building is expected to be operational by the end of the first quarter of 2015, said Brian Wilke, development coordinator for the City of Kenosha.

Amazon says its fulfillment center jobs pay on average 30 percent more than traditional retail jobs. In addition, full-time employees receive stock grants. Amazon employees also receive comprehensive benefits, including health care from day one of employment, a 401(k) with a 50 percent match, and company stock awards. The company also offers full-time employees its Career Choice program, in which Amazon pre-pays for 95 percent of tuition for courses related to in-demand fields, regardless of whether the skills are relevant to a career at Amazon.

The presence of the Amazon employees could also help attract more retail development to the Kenosha area.

“Along with job creation, we see that our fulfillment centers have additional benefits to the local communities where we operate, such as new restaurants and businesses moving near to the fulfillment center,” said Amazon spokeswoman Nina Lindsey.

Amazon is reluctant to comment on its fulfillment center projects and prefers to avoid publicity about them, several sources said.

However, Lindsey said the company is committed to being a good corporate citizen for the area.

“We look forward to being a member of the Kenosha community and making a positive impact in the surrounding area,” she said. “Some of the ways we give back to local communities include donations to local nonprofits and giving Kindles to schools to help enhance reading and learning for students with special needs.”

With a high unemployment rate in the city and county, the area needs the Amazon jobs. Kenosha has attracted several manufacturing and distribution centers in recent years but, “Amazon is the biggest project. It could lead to the most jobs,” said Lou Molitor, president and chief executive officer of the Kenosha Area Chamber of Commerce.

“It might raise the board for entry-level jobs,” said Kenosha Mayor Keith Bosman. “People might have to pay more to retain unskilled labor.”

Why Kenosha

Amazon and area economic development officials declined to say what convinced the firm to build a fulfillment center in Kenosha.

Real estate professionals say the firm was likely attracted to the area for some of the same reasons that other distribution operations have been built there: the location between Chicago and Milwaukee, access to I-94 and land availability.

Another factor cited by real estate professionals is the pro-business environment in Wisconsin under the leadership of Gov. Scott Walker’s administration, and in Kenosha. The city is providing about $21 million in tax incremental financing for the Amazon development, Wilke said. In addition, Amazon could earn up to $10.3 million in state tax credits for the Kenosha project, according to the Wisconsin Economic Development Corp. The tax credits are earned based on the number of full-time jobs created and the amount of capital expenditure.

Even with the tax credits, the state’s coffers will benefit from the Amazon facility, but state residents will have to pay more to shop at Amazon.com. The establishment of an Amazon facility in the state means that state residents will have to pay sales tax for items they buy on Amazon.com. The state Department of Revenue estimates that sales taxes on Amazon purchases will bring in an additional $30 million in annual tax revenue.

Real estate professionals say Kenosha County benefits from the contrast between the pro-business environment there and in the state compared with the environment in Illinois, which a CEO survey by Chief Executive magazine ranked as the third-worst state in the nation for doing business (Wisconsin ranked 14th).

“I think any distribution company right now would be looking in (the Kenosha County I-94) corridor because there is a dysfunctional situation in Illinois, and there is a positive, pro-business situation in Wisconsin,” Barry said.

“I don’t think Illinois can compete (with the incentives offered by the state and Kenosha for Amazon) right now,” Franke said.

Another advantage that helped Kenosha attract Amazon: the site was shovel-ready with road and sewer and water infrastructure, Bosman said.

“We had all of our sewer and water there. They could hook right up,” he said. “They could get the project up and running in the time that they wanted.”

Shipping for Amazon

The Amazon facility in Kenosha could provide opportunity for area trucking companies and truck drivers. For example, a recent job posting by Ashwaubenon-based Schneider National Inc. sought a truck driver to haul loads for Amazon in Indiana and Pennsylvania.

Schneider public relations manager Janet Bonkowski said the company is aware of the new Amazon distribution center in Kenosha and is excited about its investment in Wisconsin, but declined to comment further.

Some area trucking companies, such as West Allis-based Direct Drive Express, are hoping to benefit from the Amazon facility.

“It’s a good place. We need to go down and see here pretty quickly,” said Tami Larson, president and CEO of the firm.

Larson views Amazon not only as a good opportunity for Direct Drive Express, which makes deliveries within an approximate 300-mile radius, but also for its sister company, West Allis-based Direct Drive Logistics, which moves freight nationwide.

“There’s going to be a lot of opportunity for a lot of companies with (Amazon) coming into town,” Larson said.

As the CEO of a third-party logistics company, Jon Teraoka of New Berlin-based W.I.S. Logistics Inc. agrees that Amazon’s distribution center holds possible opportunities for the local trucking and logistics industry, but said he is currently unsure of what the outcomes may be.

“It’s a great question,” he said. “The economic impact of Amazon will be amazing, no matter what they do. I just don’t know what that means yet.”

One of Teraoka’s concerns is that the transportation needs of a company of Amazon’s size could lead to a significant decline in the number of trucks available for other clients in the Wisconsin market.

“Trucking is very difficult in the sense that there’s not as many trucks out there today as there used to be five years ago,” Teraoka said. “Right now, every single truck is being used.”

For example, he said on a given day 75 to 100 truckloads may need to be transported from Milwaukee to Jacksonville, Fla., with approximately four trucks available.

“Just think what that will be if there aren’t any or if there’s a negative number. Trucks will become more of a premium,” he said.

For now, Teraoka is waiting to see how the Amazon effect will play out.

“I wouldn’t want to be a Debbie Downer about this because it’s a huge positive impact on Wisconsin for all the right reasons,” he said. “(But) transportation is already a tough market, so I don’t know. It scares me more than it excites me.”

Amazon is tight-lipped about its shipping contracts and often keeps its contractors from revealing their involvement.

Both the United States Postal Service and United Parcel Service, which often completes shipments for the company, indicated they could not comment on Amazon’s business plans or their potential impact on those companies’ shipping operations.

According to a recent report in The Wall Street Journal, Amazon has started experimenting with delivering its own packages, using its own delivery trucks for the final leg of delivery in San Francisco, Los Angeles and New York through a project called Last Mile.

Amazon’s Kenosha operation is also expected to impact both passenger and freight traffic at Milwaukee’s General Mitchell International Airport, said Pat Rowe, marketing and public relations manager at the airport.

“We’re very interested in and excited about the project, and certainly with the number of employees and the amount of commerce that will come from the Amazon construction and expansion, not to mention the other companies building in the Pleasant Prairie area, we certainly do anticipate a bump in air travel through the Milwaukee airport,” Rowe said.

As for freight shipping, it can be difficult to determine what kind of impact a specific company has, since the shipper is likely a different company that has been contracted to transport the goods.

“A company like an Amazon or a Uline that does a lot of shipping of its products is working with distributors and freight forwarders and shippers,” Rowe said. “They’ll have their own systems in place for shipping their products and commerce. Certainly, some of that may come through the Milwaukee airport because it’s the closest airport to those new facilities.”

Mitchell keeps track of the volume of cargo shipments and air freight shipped each month in its air traffic report. But shipping arrangements change quickly based on pricing and other factors.

In July, the most recent air traffic report available, 12 million pounds of air freight and 280,000 pounds of air mail came through Mitchell. And 610,000 passengers flew in or out of the airport.

“It can vary sometimes significantly month-to-month based on the arrangements and the contracts that shippers make with different airlines, because they’re always looking for the most efficient and best cost to ship their products,” Rowe said.

BizTimes Milwaukee staff writers Steve Jagler, Molly Dill and Hilary Dickinson contributed to this report.

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