How a $70M e-commerce fulfillment center could get Knoxville a piece of the $200.7B industry

In its heyday Knoxville Center Mall contributed to East Knoxville's economic triangle that includes East Town Shopping Center, Harvest Park Centre and Walmart.

At one point, the triangle generated half a billion dollars in economic impact, according to Knoxville-Knox County Planning Commissioner Eddie Smith.

Now the mall, closed since February and in decline since Dillard's departed in 2008, could make way for a new hub of economic growth that begins with a $70 million capital investment that would result in an exponential economic impact.

Knoxville Center Mall rezoning: Do signs point to an Amazon fulfillment center?

Hillwood Enterprises' proposed e-commerce fulfillment center for an unnamed "consumer goods" operation could provide for an estimated 500 to 1,000 jobs and $25-50 million a year in payroll.

The development could increase the value of the economy in Knoxville, said Bill Fox, director of the Boyd Center for Business and Economic Research.

The proposed development, headed to Knoxville City Council in November, has faced some resistance for its industrial nature, how it would impact traffic in the surrounding area and whether it's taking the place of what might otherwise become a regenerated retail center.

Hillwood, though secretive about its planned occupant, has designed facilities for clients like Amazon, Wayfair and Lowe's in the past. A representative for Hillwood did not respond to request for comment.

"To find somebody that can take that property, redevelop it, put it back to positive job creation use? I don't know how many of these things are out there floating around," said Doug Lawyer, Knoxville Chamber vice president of economic development.

Benefit from a fast growing industry

Knox County does not often see a proposed development with this kind of investment, Knoxville Chamber vice president of economic development Doug Lawyer told Knox News.

"We see lots of $10 million projects and 50 jobs, 100 jobs here and there," Lawyer said. "But when you start getting north of $50 million, those don't come along very often."

"It's a big, big project," he added.

Whichever e-commerce retailer is eyeing Knoxville, the community could reap the benefits of a massive industry that keeps growing.

U.S. e-commerce sales totaled $200.7 billion in the second quarter of 2020, a 44.4% increase year-over-year, according to the U.S. Census Bureau and Department of Commerce.

"Being able to participate in those parts of the economy that are growing fastest are most likely to have the bigger long-term benefits for the region," Fox said.

Hillwood has promised its investment will be "substantial and turn vacant and deteriorating property into an active, attractive and productive property for the City," according to documents presented to Planning Commission. "We will provide jobs and taxes for the community, not only when the operation is fully functional, but during the demolition and construction phase of the development. All of this will have a positive multiplying effect on the surrounding businesses, community and the City."

That multiplying effect also would include discussed improvements to surrounding infrastructure, contracts with local companies for services like landscaping, and potential investments in area schools or nonprofits.

Not to mention secondary businesses serving or benefitting from the logistics or e-commerce industries that might consider relocating to be near this major development.

"We're all kind of focused on this one big company, but there's also supplemental businesses that will move in to take advantage of that distribution center to get their products out," Smith said. "I think this has the potential to be a huge boon for the East Knoxville community."

Amazon's impact in Nashville

Though we don't know the proposed occupant for this development, we can glean economic insights from how one major brand has invested in communities in the past.

Amazon estimates investing more than $350 billion in U.S. infrastructure and wages in the last decade. About $90 billion of that occurred in 2019. 

It employs 600,000 full- and part-time employees in the U.S.

In Tennessee, Amazon has invested more than $6.5 billion since 2010 and contributed an additional $4.5 billion into the economy, according to the Tennessee Department of Economic & Community Development.

Amazon reports it has hired more than 6,500 Tennesseans directly and contributed indirectly to 6,000 jobs.

Amazon facilities in the state include its operations center in Nashville, seven fulfillment and sorting centers, two delivery stations, six locations at Whole Foods markets, one Amazon Books store and one Prime Now hub.

Nashville's operation center now employs the first 1,000 of its promised 5,000 jobs, the largest new jobs announcement in Tennessee history.

In Nashville, Amazon has promised to invest $230 million and could deliver an estimated $1 billion in tax revenue over the next decade. It has received $102 million in incentives in job tax credits and cash grants from the city and state, according to The Tennessean.

"Being a part of a company that is growing fast and doing things differently has to be in the best long-term interest of an area to have that kind of economic activity in your borders," Fox said.

In 2012, Amazon opened its San Bernardino, California, fulfillment center and eventually opened another 10 in the region.

In 2018, John Husing, the chief economist of the area's economic development partnership, wrote that the region added more than 289,900 jobs during that time, according to state data. One in five of all new jobs created were in the logistics sector, and Amazon accounted for at least 16,000, or 30%, of those new logistics jobs.

Amazon estimates it spent about $2 billion over four years in the area in wages, supplies, utilities, security and facilities, and, Husing said, contributed to an estimated $4.7 billion economic impact from 2012-16.

Other large Knoxville investments

Hillwood's development would continue a wave of major investments in Knox County.

In 2017, kayak manufacturer Lifetime Products built a $115 million plant in Mascot with an estimated economic impact of $184 million and direct and indirect creation of more than 1,200 jobs.

The 720,000-square-foot warehouse, located northeast of Knox County, opened in Aug. 2017 and pledged 500 jobs within five years and an average annual salary of $37,000. It received $2.67 million in state and county incentives.

In summer 2019, Fresenius Medical Care broke ground on a Knoxville distribution center for its dialysis treatment products. The 618,000-square-foot facility, located off John Sevier Highway, will be completed soon.

"Companies are trying to make money and reduce risk," Lawyer said. "And if they see that a major corporation has made a multi-tens-of-millions-of-dollars investment, that helps to eliminate some of the risk in somebody else's mind, which might lead to the next project."

Knoxville's placement at the crosshairs of Interstates 40 and 75 with quick access to Interstate 81 makes it desirable for any fulfillment company, Lawyer said.

It's also home to the University of Tennessee's supply chain management program, ranked No. 3 in the country, which could provide a pipeline of future executives.

Could it create net new jobs?

In the first quarter of 2020, about 1,600 employees worked in the electronic shopping and mail-order houses industry in Knoxville, according to Chmura Economics' JobsEQ database.

The average annual wages of those jobs was $41,081.

That category, which includes e-commerce jobs, would see a significant increase if the Hillwood development was approved. On behalf of its occupant, Hillwood has promised full-time employment in roles like drivers, forklift operators, warehouse floor workers, logistics analysts, human resources and executives.

Amazon touts a $15 minimum wage and a $700 million training program to help employees advance into skilled roles. It was named No. 2 on Forbes' World's Best Employers list and offers health, dental, vision and 401K with a company match for full-time employees.

Knoxville Center Mall rezoning: How an e-commerce center would impact neighbors

That wage would go a long way in providing good paying jobs in the city core, said Knoxville Area Urban League vice president of workforce and economic development Terrence Carter said. The proximity to a bus line would provide opportunity for low- to moderate-income people in East Knoxville who might not own a car. 

"Most of the people that are working in East Knoxville are being paid minimum wage, and that's truly not a livable wage," Carter said. "Fifteen dollars gets you certainly closer. People we serve, a lot of times, make less than $25,000 on average."

About 38-45% of workers in the Knoxville area are considered low-wage, according to American Community Survey data from 2012-16.

While an Amazon or Wayfair center might be an increase in hourly wages, it might not result in a net increase of jobs.

A 2018 report from the Economic Policy Institute found when Amazon opens a new fulfillment center, the county gains 30% more warehousing jobs but does not experience an increase in jobs county-wide.

"It is possible that the jobs created in the warehousing and storage sector are offset by job losses in other industries, or that the employment growth generated by Amazon is too small to meaningfully detect in the data," the study said.

It concluded that governments that provide millions of dollars in credits, exemptions and assistance don't get an equal return on that investment and argued investing in infrastructure and early-childhood education were more effective ways to spur long-term economic growth.

"These incentives are largely a windfall to firms that were going to locate in that spot even without the incentives, all while sacrificing revenue that areas need to invest in public goods," the report said.

Fox argued that the potential occupant's interest may be in the broader region, not Knoxville specifically. So turning down the opportunity wouldn't stop a growth-minded company like Amazon from seeking a fulfillment center in another part of East Tennessee or Appalachia.

And its pattern of expansion will likely continue. Amazon had three fulfillment centers in 2005, 95 by the end of 2017 and has 175 worldwide today.

What else do we know?

Knoxville-Knox County Planning Commission recommended Hillwood's request for the Light Industrial designation be approved. Knoxville City Council will consider the matter at its Nov. 3 and Nov. 17 meetings. If approved after its two readings, the rezoning of the 78-acre property would take effect 17 days later. If denied, Hillwood could appeal or would not be able to reapply for one year.

The current site plan includes two warehouse buildings - 280,000 and 110,000 square feet - intended for the same occupant.

Knoxville Center Mall rezoning: Developer plans for $70M e-commerce warehouse

Hillwood's initial timeline, presented in early October, is ambitious. It would aim to demolish the mall in February 2021, begin construction work in April and complete the building in March 2022.

The developer has made several adjustments since its initial proposal, including rerouting truck entrances and rearranging the campus layout to address noise and light concerns.

"I think our community should be excited that somebody's going to this much effort to try and figure out how to make it work there," Lawyer said.

Source: Knoxville News Sentinel, by Brenna McDermott

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

Published November 12, 2020