Amazon Plans to Sublet Warehouse Space to Reduce Excess Capacity

While Amazon is still determining exactly how much space to vacate, the amount is expected to be at least 10 million square feet, though it could eventually extend to double or triple that, the person said. The company has more space than it needs in some of its largest markets, including in New York, New Jersey, California and Atlanta, the person said. Bloomberg earlier reported on Amazon’s aim to shed space and locations that could be affected.

In a statement, an Amazon spokeswoman said subleasing is a common tactic in real estate.

“It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs,” the spokeswoman said. “Subleasing is something many established corporations do to help manage their real estate portfolio.”

Amazon’s legendary e-commerce machine has recently stalled. The company in April reported its slowest growth in about two decades, with its quarterly products sales having flatlined and revenue at its online shopping business declining by 3%, the worst mark since the metric was first disclosed in 2016.

Brian Olsavsky,

Amazon’s chief financial officer, said at the time that capacity exceeded demand but that he expected operations to stabilize as the year progressed.

The company’s downturn follows a two-year run in which it saw record profits as consumers turned more than ever to online shopping. Amazon benefited from Covid-19 lockdowns throughout the U.S., as well as increased reliance by customers on cloud computing services and streaming platforms. Amazon’s stock has performed poorly this year, dropping by more than 35% to a share price of around $2,100.

The company hasn’t been alone in experiencing recent challenges. Online shopping in general has slowed down, losing many of the gains it recorded during the pandemic. And the broader tech industry has confronted a difficult stretch from a variety of economic, industry and market factors, including high inflation, the war in Ukraine and postpandemic turbulence in e-commerce, digital advertising, electric vehicles, ride-hailing and other segments.

While it is rare for Amazon to pull back investment in warehouse space, the 10 million minimal figure the company is looking to shed would represent only about 2% of the overall square footage it reported as owning or leasing as of December, which includes space for its data centers.

Mr. Olsavsky, the finance chief, said in April that the company made decisions in 2020 and 2021 to eliminate any space constraints by investing heavily in warehouse capacity, and that now the company is focusing on controlling costs. In the first quarter alone, overcapacity contributed to $2 billion of extra costs, he said.

“We’re glad we made the decisions we made over the past two years,” Mr. Olsavsky said. “And now we have a chance to more right-size our capacity to a more normalized demand pattern.”

Write to Sebastian Herrera at [email protected]