How automated warehousing has helped kickstart a revolution in retail
As high street retailers face unprecedented challenges, the logistics networks that power online shopping are doing everything possible to streamline their global operations.
Last month, clothing retailer New Look announced its decision to close the doors of 60 of its shops in the UK, including its flagship London store at Oxford Circus. Traditionally, Oxford Circus and London’s West End have been viewed as insulated on the wider issues facing British retail, but the game has changed a lot in recent years. Retailers as diverse as Toys R Us and Maplins are heading into administration, while even well-established and popular high street brands such as John Lewis have admitted struggles with declining consumer demand.
Media pundits are quick to blame online shopping for this accelerating trend, but in doing so, they fail to understand why consumers are turning to Amazon rather than the high streets. It’s not just the digital giant’s bargain prices or even its sophisticated recommendations system that’s changing the way people shop. Rather, it’s Amazon’s ambitious approach to logistics and the rapid expansion of its next-day delivery services that has sent both logistics and retail into disarray.
Consumer courier companies run some of the most ambitious logistics operations in the world, which is largely what makes next-day delivery possible. FedEx has 699 planes flying to 400 destinations, and between them they carry six million packages every single day. Meanwhile, UPS flies to more than twice as many destinations as the world’s largest passenger airline, and DHL manages to deliver to every country in the world — including, just in case you need it, a reliable overnight service to North Korea.
The airport operations of logistics heavyweights like UPS and FedEx dwarf those of passenger flights in many cities around the world. For example, FedEx’s operations make Memphis airport the second busiest cargo airport the world, above those in megacities like Tokyo, Paris, Dubai and Shanghai. Every night, 150 cargo flights land at Memphis airport between 10pm and 1am. The planes are immediately unloaded and the packages fed into the hub’s automated sorting system. It takes no more than 15 minutes for each package to arrive at the staging area and be loaded for its next flight. Planes begin taking off again at 2am and most of them are back in the air by 4am.
Enormous infrastructure networks are required to make next-day shipping commercially viable. Disruptors and new market entrants are relatively rare in global logistics because it’s nearly impossible to replicate the economies of scale held by existing operators. The only way to break into the global logistics sector is to ship so many packages that you already have your own sorting facilities. No surprise, then, that Amazon is entering the race.
Amazon first trialled its own cargo airline back in December 2015, and has been quickly developing its plans for a global rollout ever since. With a fleet of just 32 planes, it may take years for the tech giant to match the scale of the more established couriers, but its expertise in automated warehousing means that it will compete on sorting from day one.
“Amazon is able to pinpoint what a customer is likely to buy, store those products close to their delivery destination, and sometimes even start the shipping process before the relevant order is placed.”
Since acquiring robotics company Siva Systems in 2012, Amazon has added 15,000 automated picking and packing robots to its operations each year. Combined with the use of autonomous guided vehicles, Amazon’s warehouses have provided the perfect opportunity to establish an own-branded superhub for the company’s courier operations.
What really enables Amazon to excel, though, is its innovative use of data. The online retailer collects enormous amounts of region-specific stats from its users and applies predictive analytics to previous orders, shopping cart contents, and customer wish-lists. This process is known as “anticipatory shipping”. Amazon is able to pinpoint what a customer is likely to buy, store those products close to their delivery destination, and sometimes even start the shipping process before the relevant order is placed.
Thanks to this expertise in robotics and data, the first phase of Amazon’s $1.5 billion sorting facility will be completed in 2020, with an additional 479 acre warehouse expansion expected by 2027. Amazon’s online shopping dominance could perfectly position it to vertically integrate global logistics operations, but only if it can create an air cargo superhub that outperforms those of FedEx and UPS. If it succeeds, consumers can expect to see prices for next-day delivery reduced further, and Asian and European rollouts to follow in the near future.
Efficient logistics is what puts online retailers like Amazon continually ahead of their brick-and-mortar counterparts. Speed is everything; consumers would be unlikely to buy so much online if next-day delivery options hadn’t become so prevalent. As more and more traditional retail brands feel the pressure of disruption, the battle for the industry’s future will be fought on logistics.
To read more insights about the future of global shipping, download our latest white paper, The Future of Logistics. This report examines how couriers, tech giants, and disruptive startups are rethinking global supply chains.
About Dominic Wilson:
Dominic is co-founder and managing partner at Pi Labs. He leads the firm in a general capacity with a specific focus on investments and investors. He also sits on the boards of Brolly, FalconDHQ and Office App. Dominic has a wide background in Private Equity Real Estate worked with both AEW Europe and Savills Investment Management and transacted over €3bn of deals across Europe. Dominic has a degree in Law with French from the University of Birmingham and an MBA from the London Business School.
About Pi Labs:
Pi Labs is Europe’s first VC firm to focus exclusively on proptech investments. It has established itself as a pre-eminent global leader in the early stage domain in this vertical. To date, it has made 34 investments including Brolly, Land Insight and Plentific. Pi Labs is global in its focus — it has backed founders from 17 different nationalities and regularly receives investment proposals from over 50 countries worldwide. Pi Labs has become the centre of the property innovation ecosystem with a deep track record in real estate, technology and investment .