May 17, 2011, 3:50 PM

Faster fulfillment

E-retailers are upgrading their fulfillment operations as customer expectations grow.

Lead Photo

As they build new warehouses and reconfigure existing ones, many web retailers are deciding that rising consumer expectations of fast and accurate delivery require new technology and new warehouse procedures.

Few areas of e-commerce illustrate the cutting edge of warehouse management better than flash-sale retailing. In order to offer shoppers big discounts on small quantities for limited periods, web merchants must be able to buy, receive, inspect, pick and ship orders quickly. “The supply chain itself has been our Achilles’ heel in this company for the last couple of years, as it is for any company scaling like us,” says Christopher Halkyard, vice president of operations for Gilt Groupe Inc., which had Internet Retailer-estimated sales of $425 million last year, up 150% from $170 million in 2009. Gilt is No. 49 in the Internet Retailer Top 500 Guide.

One of the main challenges for Gilt, he says, is that while only 10% of its inventory is typically on sale on a given day, it’s usually a different 10% each day. That’s one reason Gilt turned to robotic fulfillment technology sold by Kiva Systems Inc. Not only does the system make it easier to store and pick various items without moving too many large loads among warehouse shelves, but it helps Gilt maintain high levels of order accuracy, Halkyard says. The scanners employees use to check in products and monitor their movements flash warnings when the wrong item is scanned.

“It does everything but yell at you,” he says. “We put a lot more stock on accuracy than on speed. If a customer calls me and tells me we shorted the order, and we tell them we were at least fast in shipping that order, it’s not going to be a good conversation.”

Halkyard would say how much Gilt paid for its Kiva systems, but Mitch Rosenberg, Kiva’s vice president of marketing, says deployment costs can vary from $2.5 million to more than $20 million for each system, with a retailer typically realizing a return on investment within two or three years.

Robotic systems, however, will not appeal to every online retailer. The Golf Warehouse, for instance, does not use them because the technology is ill-suited for its products that can range from long, skinny golf clubs to much smaller, round baseballs, says CEO Brad Wolansky. “Our merchandise doesn’t lend itself to being automatically picked very well,” he says.

Eschewing the large investment needed for robots, the sporting goods retailer instead relies on manual labor and conveyor belts, along with consolidated fulfillment operations. In April, the retailer announced plans to consolidate and expand fulfillment operations in Wichita, KS. The Golf Warehouse will stop using a center in Indianapolis, though the facility will still be used by other businesses owned by the retailer’s parent company, Redcats USA, No. 33 in the Top 500 Guide.

The fulfillment center upgrades are being driven, in large part, by online shoppers who are being trained to expect quick order deliver. Some 6 million shoppers have paid to get free two-day shipping from Amazon.com through Amazon’s $79-a-year Amazon Prime program. And more than 60 retailers have signed up to offer a similar service for the identical $79 fee through ShopRunner, a program started last year by GSI Commerce Inc., which is being acquired by eBay Inc.

With online rivals raising the bar in fast delivery, and e-commerce sales growing by nearly 15% last year according to the U.S. Department of Commerce, little wonder that many major retailers are building new distribution centers for their e-retail operations. Among the retail chains preparing to open dedicated e-commerce fulfillment centers are Urban Outfitters Inc., Macy’s Inc. and Toys ‘R’ Us Inc. And web-only Amazon.com Inc., the world’s leading web retailer, is planning to build nine new distribution centers in 2011, about half of them in North America, adding to its 60 fulfillment centers worldwide. Kohl’s, meanwhile, is opening a third e-commerce fulfillment center, this one in Maryland, in time for the holidays as the retailer works toward $1 billion in e-commerce sales this year.

Wolansky will talk about getting started with the iPhone and quickly learning about the device in a session entitled “5 things you need to know about the iPhone” on June 17 between 9:15 a.m. and 10:15 a.m. at the Internet Retailer Conference & Exhibition 2011 in San Diego.

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