Inside the deal that lured Amazon to Chattanooga

By: Dave Flessner & Mike Pare

When Amazon.com representatives first landed in Chattanooga in September to talk about a possible fulfillment center here, city officials thought they were competing against neighboring Bradley County for the facility.

"Both communities had sites in play," said Trevor Hamilton, the Chattanooga Area Chamber of Commerce's vice president for economic development.

Only later did Amazon disclose it was looking at building two noncompeting 1 million-square-foot distribution centers -- one each in Hamilton and Bradley counties -- and another similar-sized center in South Carolina.

"What was interesting is that both Cleveland and Chattanooga stayed in the hunt," Hamilton said.

Seven months after Amazon's site selection firm first received proposals for a then-unnamed prospect, Amazon last week finalized both centers in Southeast Tennessee. Amazon.com also is planning a third new distribution center for the Southeast in Lexington County, S.C.


In this photo made Monday, Nov. 16, 2009, Stephen Guymon, of Twin Falls, Idaho, separates packages for final shipment inside the 800,000 sq. ft. Amazon.com warehouse in Goodyear, Ariz. (AP Photo/Ross D. Franklin)

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Tennessee jobs

For Hamilton and Bradley counties, the result is a $139 million investment, more than 1,400 full-time jobs and more than 2,000 seasonal slots, according to the world's No. 1 Internet retailer.

The Amazon announcement represents this year's biggest job addition by any new business to Tennessee, according to the state's Department of Economic and Community Development.

The Chattanooga distribution center will be built near the $1 billion Volkswagen auto assembly plant -- the biggest investment in Tennessee in 2008. The Bradley County distribution center will be near the $1.45 billion Wacker Chemical polysilcon plant near Charleston, Tenn. -- the biggest corporate investment announced in Tennessee in 2009.

"It was like an early Christmas," Chattanooga Mayor Ron Littlefield said of Amazon's decision to locate in Southeast Tennessee in the wake of the VW and Wacker projects. "It's the old adage that success begets more success."

But it's been no holiday getting ready for the Internet giant.

"They were very eager to get this deal closed and start building so that these new centers are in operation for the holidays next year," said Matt Kisber, Tennessee's chief business recruiter and commissioner for the Department of Economic and Community Development.

The expedited schedule was emphasized by one of the early code names for the project -- dubbed "ASAP" for "as soon as possible."

Quickly and Efficiently

Amazon officials remain tight-lipped about the selection of the Tennessee and South Carolina sites. But local recruiters and company officials note that the sites in Hamilton and Bradley counties are near Interstate 75 and a local airport and were within a labor market that could supply the thousands of seasonal workers Amazon needs to fulfill gift orders prior to Christmas.

Dave Clark, vice president of Amazon's North American operations, said the company is eager to open the new centers "to allow us to serve customers more quickly and efficiently." In the first nine months of 2010, North American sales by Amazon jumped 46 percent, and the company projects even more growth next year through its expanding product lines.

Amazon employed an Atlanta-based management and development firm -- Seefried Properties -- to pick the sites and build the distribution centers. Seefried leases and manages nearly 25 million square feet for its clients and develops more than 3 million square feet a year, on average, for other companies.

The decision to open the new Southeast distribution centers comes nearly a decade after Amazon closed what was then its biggest distribution center in the Atlanta suburb of McDonough, Ga. That 800,000-square-foot facility, opened by Amazon in 1999, closed after business slumped following the 9/11 attacks two years later.

Around some Amazon facilities, "work campers" live in recreational vehicles while they perform seasonal jobs for the Internet giant. Fred Kiga, director of policy for Amazon who finalized the tax incentives for the company earlier this month, said the company doesn't expect to have such labor issues in Southeast Tennessee.

Amazon and development officials say that speed was of the essence in getting the site in Enterprise South permitted, cleared and ready to build.

"The overall factor is it had to have this thing up by Christmas 2011," said Tom Edd Wilson, president of the Chattanooga Area Chamber of Commerce.

Hamilton said the Amazon project was the most compressed site evaluation process yet for the Chamber's development program. But the city's earlier experience in recruiting Volkswagen to Enterprise South by grading the site even before VW made its final decision proved to be a valuable lesson.

Even before the deal officially was announced last week, the Atlanta developer that is constructing the Amazon distribution center began clearing and leveling the site along Volkswagen Drive.

"That really impresses prospects," Kisber said.

Littlefield and Hamilton County Mayor Claude Ramsey agreed last summer to offer one of their prime parcels of real estate -- 80 acres connected directly to I-75 by a new five-lane road, adjacent to the new VW plant and an Erlanger Health and Fitness Center.

"Given the prospect of more than 1,400 jobs on 80 acres, it was an easy call," Littlefield said.

In Bradley County, two sites were pitched for the Amazon center.

"We initially thought we were competing with Chattanooga, but in the end it was great to get at least one center in Bradley County to complement the Chattanooga center," said Doug Berry, vice president of economic development for the Cleveland/Bradley County Chamber of Commerce.

Arriving in Arizona

After Hamilton County was selected from the initial screening of sites this summer, Littlefield, Hamilton and Hamilton County Mayor Claude Ramsey flew to Phoenix on Oct. 29 to view Amazon distribution centers similar to what they hoped would be built in Hamilton and Bradley.

"We wanted to make sure we weren't getting a pig in a poke, but we were very impressed," Littlefield said.

Watching hundreds of workers packing orders for shipment around the clock, Littlefield likened the Amazon operation he saw in Phoenix to "Santa's elves on steroids."

Amazon has said the Hamilton County center would handle smaller items, such as books, DVDs and electronics, while Bradley County would deal with bulkier items.

The new $91 million Amazon complex is being built next to a $6.7 million Erlanger Health and Fitness Center, which is scheduled for completion by June. With both projects under way, the bulldozer army is back at Enterprise South, albeit a much smaller battalion than what was deployed at the nearby VW site.

"We may never see that much yellow iron again as we did at Volkswagen, but this is impressive," Littlefield said of the work under way for the new Erlanger and VW sites.

Competitive Landscape

Just as Volkswagen brought a 21st century feel to Chattanooga's manufacturing history as the "Dynamo of Dixie," Amazon will build upon Chattanooga's longtime role as a transportation hub, first for water and later for rail and highway shipments as the "Choo-Choo city."

Because of Tennessee's central location and transportation networks, Kisber said, Tennessee has lured fulfillment and distribution facilities ranging from Macy's to the Home Shopping Network and from FedEx in Memphis to U.S. Xpress and Covenant Transport in Chattanooga.

But during talks with Amazon about the Chattanooga project, officials said they knew they were competing with other locations

J.Ed. Marston, the Chamber's vice president of marketing, said there was still a degree of uncertainty even after the Amazon name was disclosed.

"There were ways it might not have happened," he said. "If we had not been able to meet their timeline, we would have lost it."

He said when South Carolina announced Dec. 7 that it landed an Amazon fulfillment center with exactly the number of jobs proposed for Chattanooga, "we had a morning we were like, 'Crud.'"

But soon, local officials learned that the growing Internet company wanted new fulfillment centers in both Tennessee and South Carolina.

All of the new sites are near interstate highways and local airports and are expected to use a variety of transportation venues.

Government Incentives

Chattanooga offered richer incentives than did Bradley County for a similar-sized 1 million-square-foot warehouse near Charleston. Bradley County will cut Amazon's property taxes in half after the company buys 116 acres. In Hamilton County, Amazon will pay only the school portion of the property tax bill -- about 27 percent of the normal bill -- and will receive the Enterprise South site free.

But among the 1,425 full-time jobs in Southeast Tennessee, 1,249 will be in Chattanooga.

Kisber said the state is offering its usual array of job tax credits and employee training assistance provided to any major business that locates or expands in Tennessee.

Such assistance has been key to Tennessee's luring more than $34 billion of investments with nearly 200,000 jobs during the eight years of Gov. Phil Bredesen's administration, Kisber said.

Kisber touted the state's Jobs Cabinet, which brings together state departments to try to address business needs and concerns.

"We don't just tell a prospect what we can offer. We try to listen to what the business needs and see how we can best address their needs," Kisber said.

Taxing Questions

The Jobs Cabinet includes economic recruiters from the Department of Economic and Community Development and tax collectors from the state Department of Revenue.

Kisber said any decision on whether to require Amazon to collect sales taxes on its sales to Tennessee consumers would be made by the Department of Revenue. That agency won't discuss its taxation of individual companies.

Amazon doesn't collect sales taxes on most of its products outside five states that impose such taxes because of Amazon facilities in those states. But at least a dozen other states where Amazon has distribution facilities don't require the company to collect sales taxes.

Regardless of how the state sales tax is resolved, local officials insist Amazon will provide a boost to the region through increased employment, investment and spinoff businesses.

"We asked Amazon if they will ship using FedEx, UPS or the post office," Littlefield said. "They said all three and then some, so these facilities should be a real benefit to a lot of companies."