Amazon.com Inc. keeps moving the fulfillment and delivery goalposts.
Amazon in April pledged to make free one-day delivery the new standard for shipments to members of its Amazon Prime loyalty program. Prime, which costs $119 per year, currently includes free two-day shipping, along with numerous other benefits.
“We’ve already started down this path,” Brian Olsavsky, Amazon’s chief financial officer, said in an April 25 conference call with analysts. “In the past months we’ve significantly expanded our one-day eligible selection and also expanded the number of ZIP codes eligible for one-day shipping,” he said, according to a Seeking Alpha transcript.
A few weeks later, Walmart Inc. announced plans to offer free next-day shipping on roughly 220,000 items for orders that total at least $35.
But even before Amazon’s blockbuster announcement and Walmart’s response, retailers were engaged in a shipping and fulfillment arms race. To get packages that “last mile” from a retailer or fulfillment center to consumers’ homes, retailers are testing small, drone aircraft and self-driving vehicles. Other retailers are using sophisticated robotics to prepare orders for delivery or using different kinds of technology to boost their fulfillment games.
Online order delivery by airborne drones and self-driving vehicles—each of which have been a long-time topic of speculation—is close to becoming a reality, albeit with certain limits.
In April, a unit of Google became the first drone operator to receive government approval as an airline, an important step that gives it the legal authority to begin dropping products to actual customers. Google’s Wing subsidiary—which now has the same certifications smaller airlines receive from the U.S. Federal Aviation Administration and the Department of Transportation—said it planned to begin routine deliveries of small consumer items in two rural communities in Virginia within months.
However, drone regulations still don’t permit most flights over crowds and urban areas, limiting where Wing can operate. That’s why it’s not surprising that most robotic fulfillment and delivery technologies stay close to the ground—and many of them ever leave stores or warehouses.
For example, Kroger Co. last summer joined with an autonomous vehicle startup to test the delivery of groceries in a driverless road vehicle that can steer itself from the grocery store to a customer’s home. In December, Kroger launched its driverless delivery service to the general public in Scottsdale, Arizona. Kroger says the service is the first of its kind.
In another autonomous vehicle experiment, Amazon started in January testing “Amazon Scout,” driverless delivery devices the size of coolers that roll along sidewalks at a walking pace. Amazon is using six robots designed to navigate around obstacles such as people and pets, to deliver packages in Snohomish County, Washington.
In addition to delivery, retailers are using robotics to pick and pack online orders. Albertsons Cos. Inc. and Ahold Delhaize USA, for example, are testing in-store robotic “microfulfillment centers.” The robotic devices help workers assemble orders that are later picked up by consumers or delivered (by humans) to consumers’ homes.
Meanwhile, Walmart is testing a robotic ecommerce fulfillment system at a recently renovated store in Salem, New Hampshire.
Outside the grocery sector, Best Buy Co. Inc. also is embracing robotics. The electronics retailer worked with a logistics system integrator coupled with a bin storage system provider to overhaul its distribution centers.
At each of Best Buy’s three metro ecommerce centers, the retailer now has 30,000 bins and 73 robots. Best Buy delivers up to 40% of a store’s inventory from its metro ecommerce centers and segregates store delivery by aisle. At Best Buy’s regional distribution centers—located in San Francisco, Atlanta and Findlay, Ohio— the retailer has 150,000 bins and 195 robots.
Driven by the need for flexible and efficient ecommerce fulfillment, more than 50,000 warehouses worldwide will include commercial robotics by 2025, up more than 12-fold from the 4,000 in existence in 2018, according to ABI Research, a market research firm. In the United States alone, the number of robot-powered warehouses will increase to 23,000 by 2025, up from 2,500 in 2018, says Nick Finill, senior analyst at ABI.
Getting better at fulfillment and delivery does not mean just adding technology. It also can mean adding space. For example, women’s apparel retailer Lulu’s Fashion Lounge LLC recently opened a 250,000-square-foot fulfillment center in Palmer Township, Pennsylvania. The new facility is part of the retailer’s push to speed up its delivery times.
The retailer aims to have a two- to four-day shipping window in place by the end of 2019, as the first step toward its goal of offering two-day free shipping all the time. CEO Colleen Winter says competitive pressure demands it.
“The shipping and delivery bar is set very high. People want product as fast as possible,” she says.
Lulus, which also operates a 90,000-square-foot fulfillment center in Chico, California, has grown roughly 50% every year the last few years with net revenue in the hundreds of millions. That growth left the retailer “busting at the seams” at its Chico facility. The situation drove it to expand its capacity. It chose the Pennsylvania location so it could quickly reach East Coast and Midwest customers.
Lulus was able to add the new fulfillment center thanks to last year’s $120 million capital infusion from venture capital firm IVP and Canada Pension Plan Investment Board. For retailers without that kind of cash, third-party logistics firms (3PLs) offer another alternative. Companies use 3PLs to outsource pieces of distribution, warehousing and fulfillment functions.
For smaller retailers, 3PLs offer capabilities they would be hard-pressed to build on their own. That can be important if sales grow faster than a company’s ability to pack and ship products to customers. That was the case for online sunglasses retailer Sunski last year when it hired a 3PL after experiencing growing pains following sales growth of 20% to 30% each year since its launch six years ago.
Sunski had already been using an order management vendor that works in conjunction with its 3PL. Under the current arrangement, all orders flow through the order management system and the vendor then routes direct consumer orders to one of its 3PL’s fulfillment centers and wholesale orders to Sunski’s center in San Francisco. Sunski pays its 3PL a monthly fee based on the amount of space its products take up in the warehouse and a few cents per order picking and packing fee.
Retailers using 3PLs include Koio, a direct-to-consumer luxury sneaker brand that sells online and in five retail stores and men’s apparel retailer Bombfell Inc.
The arms race for better, faster, cheaper fulfillment and delivery shows no signs of letting up. Chances are no technology—drones, robotics, autonomous vehicles or something else—will become the one-and-only solution for all retailers. But advancing technology will likely continue to give retailers better tools to meet growing consumer expectations.
As usual, Amazon is taking the lead in setting those consumer expectations. An environment where one-day delivery is the new standard will require retailers to be nimbler and more creative than ever. Effective fulfillment and delivery have always been hard. It’s a safe bet to assume they will keep getting harder.