A small sign outside the door of 761 Kasota Ave. SE—marked as the “associate entrance”—has an ostensibly inspirational message for the entrants: “Welcome Amazonians. It’s Still Day One. Are You Ready to Make a Difference?” Amazon’s space at the Kasota Business Center in Minneapolis, just north of TCF Bank Stadium near the University of Minnesota campus, is its local delivery hub for its Prime Now customers.

“Day One” refers to Amazon founder and CEO Jeff Bezos’ mantra that the company needs to maintain the mindset and innovation habits of a startup, even though it is now one of the largest companies in the U.S. Bezos’ April letter to shareholders concluded, “It remains Day 1.”

In some regards, the Twin Cities operations of Seattle-based Amazon.com Inc. are like a startup. In 2014, the company had no physical presence in Minnesota; over the last two years, Amazon has quickly built up a large, expanding footprint in the metro area. But for every vendor or municipality eager for Amazon’s business—and jobs—there are competitors warily eyeing a behemoth encroaching on long-held territory.

Is Amazon in the Twin Cities merely for logistical support of its local customer base, or to establish a beachhead of market segment expansion that will shake the foundation of the local economy? It’s not a question Amazon is answering.

The company’s three distribution and delivery facilities in Shakopee and Eagan now occupy more than 1.1 million square feet of space. Amazon is setting up huge fulfillment centers from coast to coast as part of the company’s effort to build its own logistics network. Today, the e-commerce kingpin has more than 70 fulfillment centers across the country.

“Amazon has had this track record of building capacity to serve its own needs and then opening it up to serve other firms. We saw this with Amazon Web Services. . . . Now they control over a third of the global cloud computing category,” says Stacy Mitchell, co-director of the Institute for Local Self-Reliance, which has offices in Washington D.C., Minneapolis and Portland, Maine. The group works to promote “environmentally sound and equitable community development;” Mitchell co-authored a 2016 report critical of Amazon’s business practices.

“It appears that they are planning to follow that same game plan with regard to shipping and package delivery. Already they’re doing delivery for other retailers,” says Mitchell. “There’s every reason to think their ultimate goal is to take on UPS, FedEx and the postal service.”

Amazon launched Prime Now delivery in the Twin Cities in October 2015. The following June, the company announced plans for a “technology development center” in downtown Minneapolis, with 100 new jobs. Amazon’s presence on the ground in the Minneapolis–St. Paul area brings it into more direct competition with local businesses. Customers who might have previously purchased certain items at local stores may opt to get the products more quickly through Prime Now, which offers deliveries within one or two hours.

“It’s really hard as a small business not to do business with Amazon, whether you want to or not,” says Dan Marshall, co-owner of the Mischief Toy Store on Grand Avenue in St. Paul. He says that his point-of-sale system is now hosted by Amazon Web Services and that some of his vendors have turned to using Amazon for warehousing and shipping.

Marshall says that his store focuses on specialty items not easily found elsewhere and that he hosts many events and game nights, something an online retailer can’t do. But he says that retailers of any size today are operating in Amazon’s shadow.

“They set prices . . . everything you sell is easily referenced against what Amazon is selling it for,” says Marshall. “Amazon just sells everything. They’re competing head-to-head with Target and Wal-Mart and us at the same time.”

Outside the Minneapolis Prime Now hub before 9 a.m. on a sunny Friday morning, there is no flurry of activity. There are no flashy signs calling attention to the e-commerce giant’s operations here; small signs indicate “Amazon Parking Only” for the spaces closest to its doors.

There’s small lettering on the door at 763 Kasota Ave. SE—marked as the “driver entrance”—with the Prime Now logo. Above that there’s a sign for Amazon Flex. Announced in 2015, Amazon Flex is the company’s effort to build its own network of independent delivery couriers.

But the Prime Now hub is high-profile compared to Amazon’s North Loop offices in downtown Minneapolis, which host its local technology development center. Amazon leases office space at the new T3 building, but there’s little evidence of the company to the casual observer. Amazon is not listed on the monument sign in front of the building and does not appear on the digital list of tenants in the lobby. The elevators won’t take passengers to the floors occupied by Amazon without an access fob.

While many brick-and-mortar retailers are closing stores across the Metro, Amazon is expected to continue to expand in the Twin Cities. Most significantly, there is a strong, consistent buzz in commercial real estate circles that the company is looking to add another large distribution center—potentially as large as 1 million square feet—in the east metro. Amazon already has multiple fulfillment centers in many metro areas across the U.S.

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“They are investing really heavily in building out their own logistics network,” says Meaghan Werle, an analyst who covers Amazon for Kantar Retail, a global research and consulting firm. “Ultimately what it does is it gives Amazon a lot more control over the delivery process.”

Talent Search Bull’s-Eye

Amazon made a local splash last year when it announced plans for its new technology development center in downtown Minneapolis and accompanying “full-time, technology-focused jobs.” Many of those jobs appear to be cogs in the greater machine: Amazon’s burgeoning logistics network. The company’s announcement indicated the new staffers would be tapped to “develop cutting-edge software applications that fuel Amazon’s rapidly growing operations, fulfillment and delivery capabilities.”

A December, 2016 story on the Business Insider website reported that Amazon’s tech team in Minneapolis was part of a larger group that was working to develop an “Uber for trucking” application that could connect truckers with shippers who need to move products. There has been steady speculation that Amazon is ultimately looking to build a network that would compete with companies such as FedEx and UPS.

Nina Lindsey, a spokeswoman for Amazon, declined to provide any new details about the Minneapolis tech office. A fourth-quarter 2016 report from the local office of Colliers International reported that Amazon leased 100,000 square feet of space in T3.

In November, a small group of Minneapolis city staffers met with Ari Silkey, Amazon’s general manager for transportation technology in Minneapolis. Two staffers from the Community Planning and Economic Development (CPED) department and a policy aide to Mayor Betsy Hodges represented the city.

“It was already common knowledge . . . that Amazon was going into T3 in North Loop,” says David Frank, CPED director of economic policy and development. “My strong impression was these are people who sit at their computer consoles and crank out code.”

Amazon’s Lindsey declined to make Silkey available for an interview.

Amazon’s local job listings this spring included positions such as software development engineer–delivery experience, cloud infrastructure architect, security architect, software development engineer–transportation, and Android software development engineer.

A job description for a software development engineer for transportation described a role focused on algorithms related to how products move through the Amazon system from vendor, fulfillment center and customer, and noted: “You will be dealing with high transaction websites and web services supporting thousands of transactions per second.”

Amazon is now squarely in the backyard of Minneapolis-based Target Corp. and Richfield-based Best Buy Co. Inc., large national retailers and competitors. Will Amazon now be competing with those companies to hire top tech talent? Representatives of both Target and Best Buy declined to comment.

While she would not talk specifics, Lindsey said that “the talent base in the area has been fantastic.”

Business Insider’s report suggested that locating the tech office here would put Amazon closer to key companies: “It’s unclear why Minneapolis has become such an important part of this project. But the city is close to the headquarters for [logistics company] C.H. Robinson, Target, and Best Buy, possibly making it easy to hire people away from those companies.”

Former Piper Jaffray analyst Gene Munster, who covered Amazon, agrees with that analysis.

“The obvious example would be the talent around here,” says Munster, now managing partner of Loup Ventures, a venture capital firm with offices in Minneapolis and New York. “It’s probably something related to Target or General Mills.”

Supply-Chain Gang

E-commerce is rewiring the business of supply-chain management for all retailers.

“All the biggest companies in the world are redesigning how their supply chains work,” says Chris O’Brien, chief commercial officer for Eden Prairie-based C.H. Robinson Worldwide Inc. “It’s a much more consumer-driven industry.”

Supply-chain wars are at the heart of the battle for national-scale retailers, as underscored by a dispute (since resolved) over an Amazon executive who jumped to Target.

In February 2016, Target announced the hiring of Arthur Valdez, a 16-year Amazon veteran, as its chief supply chain and logistics officer. Amazon is regarded as a paragon of supply-chain management in retail. Target’s press release noted that Valdez had most recently served as “Amazon’s vice president of operations focused on the company’s international supply-chain expansion.”

As brick-and-mortar retailers scramble to stay competitive, Target tapped Valdez to “lead Target’s supply-chain transformation.” Target executive vice president and chief operating officer John Mulligan says, “Target’s growth hinges on our ability to enhance the fundamental aspects of our business, starting with the supply chain.” Beyond emerging digital challenges, supply chain was a core problem in Target’s failed Canadian expansion, while the company has also struggled with unacceptable levels of out-of-stock items in its U.S. stores.

Yet one of the open secrets among Amazon-watchers is that while the company is constantly pushing fast delivery, it’s losing piles of money on its shipping operations.

According to Amazon financial filings, its shipping costs climbed 40 percent, to $16.2 billion, for 2016. But the company lost $7.2 billion on shipping for the year. (The company’s net profit for the year was $2.4 billion on revenue of $136 billion.)

The company’s plan? Per the filing: “We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.”

A key cog in that effort is C.H. Robinson. Amazon now ranks among C.H. Robinson’s largest domestic customers and is also a top customer in Europe. All that stuff ordered online does not land on doorsteps by magic. Behind the scenes, C.H. Robinson handles a significant amount of Amazon freight.

“They’ve got one of the biggest budgets in North America,” says O’Brien. “Every year they’re buying more of our services.”

C.H. Robinson’s largest customer is Wal-Mart Stores Inc. Third-party logistics companies like Robinson typically help customers with supply-chain issues, which can include warehousing, transportation and other services. But the company won’t be specific about the exact services that it provides Amazon; a spokeswoman would only say that C.H. Robinson handles “transportation solutions.”

O’Brien says that he is not concerned about Amazon’s expanding logistics operation, but acknowledges that it there is risk. “They might be more a competitor in the future, they’ve been open about it,” says O’Brien. “I think for them it’s about growth . … We’re a great way for them to keep growing.”

Is Amazon looking to build a network to supplant FedEx and UPS? “We work with a variety of different carrier partners,” says Lindsey, “and we have for a long time.”

Distributed Influence

In 2014, Amazon had zero physical presence in Minnesota after two decades in business. That meant that Amazon could avoid collecting sales tax from online customers in Minnesota. But when the company applied to begin collecting sales tax on October 1, 2014, watchers saw it as a sign of plans to expand here.

By 2015 the company’s plans for a huge distribution facility in Shakopee were well known. It’s tough to build an 820,000-square-foot facility in secret. When plans were first on the drawing board, Amazon said that the fulfillment center would employ about 1,000 people. But today, Amazon spokeswoman Nina Lindsey says that it employs more than 2,000 people at the site.

“We have grown that facility,” says Lindsey. “It’s all due to customer demand.”

A standard schedule for fulfillment-center employees is four 10-hour days per week, including day and night shifts.

Amazon’s plans in the Twin Cities have mirrored the company’s strategy across the U.S. Most of its new fulfillment centers are 1 million square feet. In the first four months of 2017, Amazon announced plans for 11 new fulfillment centers in eight states.

The untold story of e-commerce is how much space companies like Amazon need for the goods that they’re selling online. According to Amazon’s latest annual financial filing, the company leased and owned 12.1 million square feet of office space in the U.S. at the end of 2016. But in the “fulfillment, data centers and other” category, the company owned and leased 99.5 million square feet of space—more than eight times as much real estate.

Another local Amazon outpost flew under the radar. In 2016 Amazon began operating what it calls a “delivery station,” where packages are sorted for local delivery, in Eagan. The company is leasing 142,000 square feet at the facility. Eagan is a natural location for such a facility, says city spokesman Tom Garrison, who notes that UPS and the United States Postal Service also have outposts there.

In other metro areas, Amazon has opened gadget-focused kiosks in shopping malls, staffed pick-up and drop-off facilities on college campuses and opened brick-and-mortar bookstores. In May the Wall Street Journal reported on the company’s plans to boost sales of furniture and appliances. Another channel of expansion for the company is AmazonFresh, a grocery-delivery service.

Failures Create Future

It may sometimes appear that everything Amazon touches turns to gold, even as it continues to enter totally new lines of business. But Amazon’s track record is not flawless.

“They just have so many different initiatives going on,” says Dave Brennan, a professor at the University of St. Thomas who focuses on retail. “There are going to be some wins and there are going to be some failures.”

The high-profile launch of Amazon’s Fire smartphone in 2014, for example, was an unmitigated failure. In 2014, Amazon shut down WebPay, the company’s attempt to create a PayPal-like money transfer service. The next year it pulled the plug on Amazon Destinations, a hotel-booking service, after just six months of operation.

In areas such as restaurant and grocery delivery, Amazon will face numerous competitors already offering those services in the Twin Cities.

Amazon began delivering food from restaurants in the Metro in August 2016 for its Prime members. Minneapolis-based Bite Squad began delivering restaurant meals locally in 2012. The private company delivers food for more than 400 Twin Cities restaurants and now operates in 19 markets. So far, Amazon has not taken a bite out of its business.

“We’ve been growing year-over-year in Minneapolis consistently . . . and we continue to grow,” says Craig Key, Bite Squad’s vice president of marketing. He notes that there are already other competitors including DoorDash, Grubhub and Uber Eats, which started here in November.

As a company that began locally, Key believes it has an advantage over national players. “I don’t think anyone can touch the service and speed that we have because of our direct relationships with restaurants.”

Amazon spokeswoman Amanda Ip declined to say how many restaurants Amazon is working with in the Twin Cities, but says that the company continues to add options. In May, it listed 129 local restaurants.

Amazon first began testing a grocery-delivery service in its hometown of Seattle in 2007, but the rollout has been slow. In the Twin Cities, customers can get some food items through Prime Now, but AmazonFresh has not yet landed here.

There are already other options for grocery delivery in the Twin Cities. The Lunds & Byerlys chain began deliveries in 2006. San Francisco-based Instacart started Twin Cities service in 2015. Instacart is not a grocer itself, but partners with local operators such as Target, Cub, Whole Foods, Wedge Community Co-op and Lakewinds Food Co-op.

Instacart’s Sapna Mitchell, the company’s Twin Cities operations manager, says that the company allows customers to order food from favorite stores and has personal shoppers to select items. “Customers are really picky about the quality of items,” she says.

Will AmazonFresh sprout in the Twin Cities?

“I’d say the answer is ‘eventually,’ ” says analyst Werle. “It’s a key strategic initiative.” (Amazon has no comment on plans.)

“They’ve spent a lot on Amazon Fresh and they clearly haven’t quite cracked that . . . there are things that brick-and-mortar retailers can do that Amazon can’t,” says Stacy Mitchell of the Institute for Local Self-Reliance. “It’s been a challenge because most people like to see the food that they’re buying.”

Munster says that AmazonFresh is advancing “slower than expected.” Dealing with perishable products and refrigeration issues are new challenges for Amazon, which is still on the learning curve. “The complexity around groceries is exponentially greater,” says Munster.

Amazon reportedly considered a move to buy Whole Foods Market Inc. last year, but no deal materialized. “There have been a lot of rumors about Amazon buying existing chains,” says Mitchell.

Such a move would be another major disruption for retailers, but with Amazon very little seems outside the realm of possibility.

“I think they’re just on the lookout for new potential revenue streams,” says Kantar Retail’s Werle. “Amazon today is really more of a technology company than anything.” tcbmag