Amazon Opens Search for Second Headquarters City in North America -- 2nd Update

FeaturesDow Jones Newswires Inc. is in the market for a second home.

The Seattle-based online retailer said Thursday it plans to open a second headquarters somewhere in North America that will house up to 50,000 employees and cost $5 billion to build and operate.

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The rapidly growing company is soliciting bids for the project, dubbed Amazon's "HQ2," and said it would prioritize metropolitan areas with more than one million people that are within 45 minutes of an international airport and near a strong university system.

The company also said incentives offered by state and local governments will be "significant factors" in the decision.

"We expect HQ2 to be a full equal to our Seattle headquarters," Amazon's Chief Executive Jeff Bezos said in prepared remarks. "Amazon HQ2 will bring billions of dollars in upfront and ongoing investments, and tens of thousands of high-paying jobs. We're excited to find a second home."

Amazon's announcement is likely to set off a frenzy among state and municipalities eager to recruit the e-commercejuggernaut to their areas by offering the right mix of tax incentives and allowances. Amazon has received more than $1 billion in incentives since 2000 from state and local governments to help the company build its warehouses, according to Good Jobs First, a group that is critical of corporate tax credits.

"They're going to want a gazillion dollars in benefits," said Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business. "It's going to be a big price tag and expectedly so, because who else can bring you tens of thousands of jobs -- good jobs -- and change the image of who you are?"

Bids are due Oct. 19 and the company said it expects to choose a site sometime next year. Amazon expects the new jobs, many of which will be in software development, to have average salaries of more than $100,000. Mr. Gordon said cities outside of traditional technology hubs could use Amazon's headquarters to help quickly remake their image.

There are about 80 metropolitan areas in the U.S. with populations of more than one million people, according to U.S. Census estimates, and several more elsewhere in North America.

Communities are also eager about the prospects of landing a flagship corporate tenant because of the positive multiplier effect it can have on the service sector -- especially hospitality businesses, real-estate markets and philanthropy. Amazon's existing Seattle headquarters, which opened in 2010, has brought an additional $38 billion in investments to the local economy, the company said.

Companies often avoid publicity an the early stage of their site-selection process, but Amazon's announcement is similar to public statements from companies like General Electric Co. and Boeing Co. when making headquarters decisions, said James McGraw Jr., CEO of KMK Consulting Co., a Cincinnati-based economic-development firm. Mr. McGraw said the company knows its brand is strong and because the company is growing so fast, it will receive extremely aggressive proposals. "There's no downside risk of bad PR," he added.

Amazon, which has long favored growth and investments over profit, has been growing rapidly as it expands dozens of programs, including its instant-delivery service Prime Now and Amazon Fresh. The company completed its acquisition of Whole Foods last week and began overhauling the grocery chain by lowering some prices and integrating Amazon services.

The company, which currently employs 380,000 people, has already announced plans to create 130,000 U.S. jobs through mid-2018 and expand its network of warehouses.

Once the second headquarters is built, existing senior leaders will get to choose whether they locate their teams in the Seattle headquarters, HQ2 or both, the company said.

Write to Cara Lombardo at Inc. on Thursday announced an unusual plan to establish a second corporate headquarters in North America, signaling the online retail giant's growth ambitions for the years ahead and setting off a race among local and state governments hoping to win it over.

Amazon said it was soliciting proposals for a new campus location, which eventually could result in the company investing more than $5 billion and creating up to 50,000 high-paying jobs, many in software development and most of them new. Proposals are due Oct. 19, with a decision expected next year.

The ambitious move to build a second headquarters, which Amazon Chief Executive Jeff Bezos envisions as a full equal to the company's Seattle campus, follows years of rapid growth.

The company has built dozens of new warehouses in the U.S. and around the world to fulfill online orders quickly, and recently wrapped up a roughly $13.5 billion acquisition of grocerWhole Foods Market Inc.

The new hiring comes on top of the 100,000 full-time jobs that Amazon said in January it would be adding through mid-2018, mostly in its fulfillment centers.

Cities ranging from Toronto to Chicago to Denver raised their hands Thursday, saying they would submit proposals. The competition to win Amazon's business likely will be fierce and could break records for tax incentive packages, according to consultants who advise companies and governments on such deals.

Mark Sweeney, partner at the Greenville, S.C.-based McCallum Sweeney Consulting, advised Boeing Co. on its $8.7 billion tax-incentive package with the state of Washington in 2013 to manufacture a new jet there, which set a U.S. record. He anticipates states will offer Amazon a package in "that neighborhood."

"I would expect the interest to be unmatched and unrestrained by every location, even ones that really don't have a much of a shot," he said.

In addition to tax breaks on property, state and city income tax, Mr. Sweeney says states could offer to pay Amazon cash through tax rebates. Other incentives such as grants for training employees, adding public transportation or expedited permit approvals could also be part of a deal, consultants said.

One possible location is Austin, Texas -- home to Whole Foods -- which meets Amazon's preferred criteria of being in a metropolitan area with more than a million people, near a strong university system and within 45 minutes of an international airport.

Austin's mayoral office declined to comment.

The project likely will go down as one of the biggest economic developments announced in a decade, said Greg Burkart, a Detroit-based consultant with Duff & Phelps Corp. "This is the same economic impact as a medium sized city," he said.

Over the past two decades, Amazon has grown from an online bookseller founded in Mr. Bezos's garage to a sprawling tech giant. It now has a Hollywood studio, a booming device business including its artificial intelligence assistant Alexa, and a profit-driving cloud-computing service.

To keep up with the expansion, the number of employees at Amazon's Seattle headquarters has grown rapidly over the past decade from a few thousand to more than 40,000. But Amazon recently has faced both space and hiring constraints as a result, according to people familiar with the company's thinking.

Amazon has struggled to attract and retain enough engineers to keep pace with the company's growth, the people said. It competes for talent in the region with Microsoft Corp., and is about 800 miles north of the heart of the tech world, California's Silicon Valley.

It is unlikely Amazon would choose a location in an area like Silicon Valley, where it would face intense competition for engineers from companies including Alphabet Inc. and Apple Inc.

"There's only so much talent," says Tom Gimbel, founder and CEO of national staffing and recruiting firm LaSalle Network. By entering a new market, "people will be clamoring to work for them."

Other tech giants have caused recent frenzies over locations for facilities. Tesla Inc. CEO Elon Musk in June hinted the electric-car maker would build a new factory, while Foxconn Technology Group, formally known as Hon Hai Precision Industry Co., said in July it would be building a $10 billion factory in Wisconsin.

Amazon itself has announced at least 25 new warehouses since the beginning of the year, most recently in New York, and in August held a job fair to hire 50,000 people. Executives have told Wall Street the company is in a period of heavier investment, expanding abroad and building out video content for its Prime service.

That expansion has come at a cost, dinging profit in recent quarters and leading the company to warn it could post its first loss in more than two years in the third quarter. Acquiring Whole Foods and building a second headquarters will only add to that.

Few companies choose to form dual headquarters outside of mergers, said Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business.

Splitting departments can hinder collaboration. "It's a complicated thing to do, which is why it's rare," he said.

Once the second headquarters is built, Amazon's senior leaders will get to choose whether they locate their teams in the Seattle headquarters, the new one or both, the company said.

Amazon is used to divvying up work between employees across multiple time zones and buildings. Mr. Bezos tries to maintain a startup culture despite the company's size. Teams are typically kept small -- if a group can't be fed with two pizzas, it's too big -- and there is a strict process for developing new ideas and inventing devices, which includes writing six-page papers for explanation.

Amazon currently has 33 buildings at its headquarters in Seattle, comprising 8.1 million square feet. Across the U.S., it employs more than 200,000 people, with about 130,000 in the company's warehouses. It already has regional offices sprinkled throughout the U.S., including in Austin, Northern Virginia, Detroit and Los Angeles. The new headquarters will be in addition to those locations.

Amazon said in its request for proposals that it plans to build the project in phases, with $5 billion in capital investment over the first 15 to 17 years. The first phase of building, for between 500,000 square feet and 1 million square feet of office space ready in 2019, will result in an estimated $300 million to $600 million capital investment, it said. The company will consider existing buildings and greenfield sites of 100 acres.

Communities are eager to land a flagship corporate tenant because of the positive impact on the service sector -- hospitality businesses, real-estate markets and philanthropy. Amazon's existing Seattle headquarters, which it moved downtown in 2010, has since brought an additional $38 billion in investments to the local economy through 2016, the company said.

"The presence of a new Amazon headquarters will almost certainly create significant economic benefit to the jurisdiction," said Stockton Williams, executive vice president of content at the Urban Land Institute. "Incentives are always part of the equation."

--Jacquie McNish and Shibani Mahtani contributed to this article.

(END) Dow Jones Newswires

September 07, 2017 19:14 ET (23:14 GMT)