Retailers turn to bots in cost inflation battle

With goods packed closer to the ceiling, the new warehouse, which spans the size of over 15 football pitches, reduces the need for additional space – and workers – which over time leads to a lower cost base.

While retail has been slower to adopt automation than sectors such as automotive and electronics, it has picked up the pace – from the introduction of basic self-checkout checkouts in stores to the use of robots and AI in supply chains.

Now tight labor markets, rising wages and consumption pressures are forcing the industry to go further.

Global installations of industrial robots grew by 31 percent in 2021 year-on-year, while sales of service robots rose by 37 percent, with retail a significant driver of both, according to the International Federation of Robotics.

Mark Shirley, head of logistics at Irish-based Primark, said the €25m ($26m) investment in the Roosendaal site’s automation will deliver an €8m benefit per year from year four, in addition to savings from dropping to rent another warehouse.

He estimates that the use of automated cranes rather than manual forklifts has increased the facility’s efficiency by 80 percent.

And crucially, the use of autonomous vehicles means that the company no longer has to compete in the extremely tight Dutch labor market, a challenge felt in many advanced economies.

“When you take the industry as a whole, people are moving that way to reduce occupational risk,” Shirley told Reuters.

He estimates that retail is 40 percent automated, but sees that jumping to 60-65 percent in the next three to four years.

The march of the robots can be seen in fashion stores and grocery stores globally as an industry employing millions of people struggling with the costs of rising wages, energy and raw materials.

On top of that, customers are reining in spending, with Amazon, the world’s largest online retailer, warning that shopping budgets were tight, particularly in Europe.

Across the region, different retailers are using different approaches. Carrefour, Europe’s biggest food retailer, has vowed to cut costs and simplify its range while Tesco, Britain’s biggest, has accepted a hit to profits.

On clothes, Zara owner Inditex has raised prices to counter soaring costs, while Primark owner AB Foods said the discount fashion retailer would limit price increases, despite inflation reaching double digits in many of its markets, because customers could not afford to pay more.

That makes automation even more important.

While processes at online retailers are largely automated, large parts of a traditional retailer’s operations are still carried out manually, according to consultants at McKinsey.

“We’re at a stage where the technology is getting better and cheaper, and the case for automation in some of these areas is just getting that much more compelling,” said Anita Balchandani, who leads their UK consumer practice.

Looking at the fashion industry, McKinsey expects fashion companies to double their investment in technology from 1.6 percent to 1.8 percent of their revenue in 2021 to between 3.0 percent and 3.5 percent by 2030.

It says that those fashion brands that fully integrate digital processes can cut in half the time it takes to get a product to market. This in turn can lead to an 8 per cent increase in the sale of full price goods, and a 20 per cent drop in production costs.

The same forces are driving automation in grocery retail, with companies investing in cleaning robots, electronic shelf-edge labels and in technology that helps them understand real-time inventory levels and manage replenishment.

The future

British grocery pioneer Ocado is riding the wave, selling its automated warehouses and lightweight robots to retailers in the US, Europe and Asia, hoping to automate the entire process from farm and factory gate to a shopper’s fridge.

At the Walmart-owned Sam’s Club chain in the US, nearly 600 robots developed by Brain Corp both clean store floors and scan shelves to check stock levels and prices.

“Retailers are saying ‘robots are the future,'” Michel Spruijt, Brain Corp’s chief revenue officer, told Reuters, adding that the shift could “free workers from tedious” tasks. His company also supplies robotics for Schnucks, Kroger, Carrefour and Albert Hypermarkets.

The renewed focus on automation offers opportunities for logistics groups, robotics companies and the likes of Amazon.

While it has grabbed headlines with stores using cameras to remove the need for a till, the Amazon Web Services unit also worked with groups including Adidas and Zalando to quickly scale up popular products and boost sales.

However, some unions have pushed back against automation. UK retail trade union USDAW said employers were too often wasting money on technology that doesn’t work as it should and doesn’t provide the necessary training.

And some caution that, given rapidly changing markets, large-scale automation won’t work for everyone.

Dan Myers, managing director of freight company XPO Logistics in the UK and Ireland, said retailers investing tens of millions of pounds for a payback of up to a decade needed to be sure their business model would not change in the meantime.

“There’s always a trade-off between the agility and flexibility of a human approach versus the efficiency of an automated approach,” he said.

By James Davey; Editors: Kate Holton and Alexandra Hudson

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