Amazon.com is following a military model to conquer cyber-space this holiday shopping season. The company has hired 80,000 seasonal workers and deployed 1,500 Kiva logistic robots for each of its 10 warehouses across the United States. The military math per warehouse works out to 2 brigades of workers being supported by 2 battalions of robots. Across the entire company, the 80,000 seasonal workers and 15,000 robots equal a Field Army of soldiers supported by a mechanized Division.
Amazon claims its latest assault on retailing will reduce operational costs by 20%, and expedite merchandise fulfillment during the onslaught of orders.
The online giant was lambasted by the financial press after last quarter’s earnings suffered from huge amounts of capital spending, and the company made offered disappointing sales guidance for this holiday season. But Amazon appears to have been preparing for an offensive by bricks-and-mortar retail stores rolling out Web capabilities and in-store price-matching to attack Amazon’s price advantage.
Target, for example, is offering free shipping for all online orders until Dec. 20, without requiring a minimum purchase. In addition, when the L2 think tank analyzed 100 aspirational retailers, a category that includes Banana Republic and Talbots, they found 24% of them now offer web sale and instant in-store pickup. An estimated 30-50% of retailers’ online orders came with in-store pick-up options, a service 40% of U.S. consumers have already used.
To understand the scale of Amazon’s logistics challenge as it confronts this new competition, the company sells more than the combined sales of the next twelve Internet retailers combined. Amazon processed orders for 36.8 million discrete item purchases on the Cyber Monday after Thanksgiving last year, and is prepared for a big increase this year.
The term “Cyber Monday” was coined in 2005 to describe Amazon’s counter-attack against retailers’ Black Friday sales promotions. From $484 million in online sales in 2005, Cyber Monday sales in the U.S. are expected to reach about $2.5 billion this year, according to the National Retailing Federation (NRF). That will swamp the $1.5 billion Black Friday retail sales extravaganza.
The NRF predicts 126.9 million people will shop online this year as more people use mobile device like a smartphone or tablets. IBM Digital Analytics Benchmark said that for the first time in a weekend after Thanksgiving, mobile devices accounted for more than half of all online traffic.
Amazon bought Kiva Systems for $775 million in 2012 to gain control of its robotics technology. Each of Amazon’s robots weighs 320 pounds and is painted orange for safety. The “bots” may help Amazon avoid the mishaps of last year’s holiday season, when a surge of packages overwhelmed Amazon’s shipping partner UPS and delayed the arrival of Christmas presents around the globe. Amazon received horrible press coverage and was forced to apologize and offer shipping refunds and $20 gift cards to compensate customer disappointment.
Amazon estimated in June 2013 that it would spend about $23 million to install Kiva robots in each of its warehouses, including $26.1 million for the equipment, according to SEC filings. But the Kiva robots allow Amazon to hold about 50% more items by squeezing inventory racks closer together. Each warehouse now holds about 20 million items, representing 3.5 million different products.
Amazon workers this season will punch in a specific item code in a hand held device, and a robot will pick any item up to 720 pounds and bring it to the worker’s station. Kiva robots have already allowed Amazon to pick items and ship packages out the door in as little as 13 minutes, compared to an 1.5 hours in prior years.
General Omar Bradley in World War II famously said: “Amateurs study tactics, professionals study logistics.” Amazon as a good student of history has definitely studied logistics, and will be playing to win during this Thanksgiving to Christmas season.