Chewy boosts automated fulfillment network through new warehouses and retrofits

Dive Brief:

Chewy plans to boost automation in its fulfillment network over the next two years, through new warehouse locations and retrofits of existing facilities, executives said on the company's earnings call late last month.
The pet-related e-commerce company intends to open its second automated fulfillment center in Q2 and a " limited catalog facility" in Q3. Chewy opened its first limited-SKU warehouse in the Kansas City, Missouri, metro area last year to handle volume surges and avoid expedited delivery costs and split shipments.
"Additionally, in 2022, we will begin automation retrofits at select fulfillment centers," CEO Sumit Singh said.

Dive Insight:

Chewy's plans for fulfillment expansion come after opening its first automated fulfillment center in Archbald, Pennsylvania, last year.

Leadership at Chewy said the upgrades at the fulfillment locations will result in an estimated 45% improvement to the cycle time, measured from when a customer places an order to when a box gets to a truck. It is also expected to reduce fulfillment costs by an estimated 30%.

Chewy's automated facilities have transformed its fulfillment operations from locations where workers walk to pick items into goods-to-person facilities. And the inventory in these locations has been clustered based on their velocity.

Multiple retailers have announced plans in recent weeks to expand distribution and fulfillment networks, citing the potential to optimize networks as demand increases. United Natural Foods expects its new automated distribution centers to double pick speed and increase its order accuracy.

"In a distribution business, the more volume you can flow through a singular DC, the more EBITDA you’re going to create," UNFI CEO Steve Spinner said.

Williams-Sonoma plans to increase its manufacturing and distribution capacity by 20% to 30% over the next year as e-commerce sales grew 48% YoY in the most recent quarter.

And Big Lots said it was adding distribution capacity focused specifically on big and bulky items.

Chewy's sales grew 47% YoY for the full year 2020 to reach $7.15 billion, according to the company's earnings release. It also took on more inventory during the year.

"In 2020, we invested in higher inventory levels to protect our supply chain and to ensure that we could meet our customers’ needs, especially during peak holiday season," CFO Mario Marte said on the earnings call.

With more inventory and more sales, Chewy will look for its fulfillment investments to start paying off later this year.

"Given their launch timing, these FCs provided only modest ramp benefit to us in fiscal 2020," Singh said of the facilities that opened at the end of last year. "In 2021, we expect to realize accelerated productivity gains from their full-year operations."