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Logistics across the Atlantic - IRM50, January 2015

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US retailers are looking to the UK as a stepping stone to the rest of Europe. But it’s not just retailers that are eyeing up our market. Suppliers, too, see the UK’s mature market as a target for their products – from software to logistics services. Emma Herrod went to Louisville, Kentucky, home of UPS’s global air operations and a growing number of ecommerce companies, to get a view from their side of the pond.



The US’s largest online flash sales business Gilt has been operating out of Kentucky since 2011 when it moved its warehousing to the state following a period of growth. Chris Halkyard, Chief Supply Chain Officer, Gilt, is happy to cite the closeness of UPS as one of the reasons why it set up its operations here; others are the low cost of land and the availability of workers. In fact, 156 ecommerce companies have now set up their distribution centres close to UPS’s WorldPort facility in Louisville.



Gilt was founded in 2007 as an outlet for luxury designer fashion merchandise purchased at sample sales. It has since expanded into accessories, men’s and children’s clothing, homewares and Gilt City, which offers experiences and deals at establishments such as restaurants and spas in 12 cities across the US. The firm also has a growing private label business. Womenswear and accessories, though, still account for the majority of its business.



The company has seen phenomenal growth over the past 4 years with US publisher Internet Retailer estimating that Gilt has achieved an annual growth rate of 37.1% since 2009. It estimates the company’s turnover in 2013 was $600m, up from $550m in 2012. It ranks 54th amongst US retailers.



Halkyard explains that Gilt has nine million members and ships to 180 countries as it sets its sights on growing international markets, a path it set out on just 18 months ago. International sales account for 10% of its business, with Canada, Russia, Korea, the UK and Australia all becoming good markets for the company.



As well as flash sales, it holds full price sales to highlight a retailer or brand to its customers plus site takeovers where it will run another company’s site.



Rather than operating a business model in which product is drop shipped from original suppliers (although this does happen occasionally), the company holds stock and fulfils the majority of orders from its automated warehouse near Louisville. Inbound supply chain is contracted to a freight forwarder so Gilt can “extend our four walls throughout the country and the world,” says Halkyard.



Goods in are mainly less than truck load but they all go through the same process of checking that the product matches the purchase order and the quantity is correct, barcoding for identification (using UPC barcoding as much as possible), receipted and then put away in a location dependant on what the sell-through rate is expected to be.



The company holds 150 sales a week with new products on offer each day. From goods in to the start of the sale is usually 2 weeks, says Halkyard. Sales start at 12 noon and each averages 25,000 orders a day with 88% of these shipped within 24 hours.



Staff are cross trained so they can work inbound and outbound. To help retain staff – there is a lot of competition from other retailers and businesses in the area, including UPS – Gilt tries to make its warehouse a great place to work. “We can’t afford to be the highest payer,” he says.





The robots move themselves to any of the 7 pick locations as the products they are carrying are





Gilt operates a goods-to-person fulfilment operation with 256,000 pick locations across a 3-level pick model in its 303,000sq ft warehouse. The facility is set up to “get product within feet of a human,” explains Halkyard. High volume items are located closest to the packers. If they are small, they are located in mobile pod shelving which can be picked up and carried to the packer by one of the robots developed by Kiva Systems; the packer simply tells the system that they are ready to pack an order that requires one of the items contained on that shelving rack. Separate tote boxes on the induction conveyor system carry each order to the pack station, and since items are scanned, the smart conveyor knows where each tote needs to go.



A central computer keeps control of the Kiva robots which continually relay their location as they pass over and scan codes set out on the floor. Halkyard explains that Gilt tells Kiva where product is and how many; Kiva decides the rest so that it’s optimised with the robots moving themselves to any of the 7 pick locations as the products they are carrying are needed. The robots don’t see people and they’ll recharge automatically when needed, he explains. The packer checks all totes against the order and has to then decide how best the orders should be packed.



Gilt’s average order is fewer than 2 items. Once packed, the box goes to the manifest area where its barcode and label are scanned to provide information for the shipping label.



Kiva has been used by other large US retailers including Gap, Staples and Saks. A company that liked the system so much that it bought the company was Amazon: in 2012 it paid $775m for Kiva Systems, which now operates as an Amazon subsidiary.



Anticipating future expansion, the Gilt facility is larger than the business currently needs so it operates fulfilment for sports apparel flash sales site The Clymb.com. Gilt is also in discussion with other retail companies to offer the same services.



As with other online fashion retailers, a large percentage of Gilt’s goods are returned and because it does not replenish stock it operates a wait list for customers wanting to buy items that sell out in the initial sale. It also has a full dry cleaning facility as part of its returns process and for use before items are photographed in its creative studio.



UPS hub



The UPS WorldPort air hub is close by so parcels do not have far to travel before they are on their way to customers. In fact, orders can be fulfilled late into the evening with shipping from 10pm, 11pm or even midnight.



WorldPort is the centre of UPS’s global air operation. On a typical day, it handles 1.6 million packages from 125 UPS aircraft arriving at Louisville International Airport. The planes are unloaded, packages sorted and then reloaded ready to depart for domestic or international destinations before the night is out (2am is the busiest time for flights in and out of WorldPort). The highly automated, 5.2 million sq ft facility, which is the size of 90 American football fields, has seen $2bn in investment and now has 155 miles of conveyors and 546 tunnel cameras and can sort over 400,000 packages an hour. People only handle the packages as they are loaded into the facility when taken out to a waiting airplane or lorry. WorldPort is also a bonded facility and has the world’s largest customs clearance area.



Kurt Kuehn, CFO, UPS, explains that it has a good appreciation of the growth of ecommerce and the opportunities that international markets offer retailers and UPS as a logistics company. It has been investing aggressively to stay ahead of the capability and capacity that the retail industry requires of it, not just as a carrier but as a partner that is becoming increasingly entwined with retailers’ operational processes through ‘end of runway’ capabilities such as warehousing and order fulfilment.



He believes that over the next ten years retailers will have a greater focus almost entirely on emerging markets as global B2C become increasingly significant. “The world is becoming smaller and more connected,” Kuehn says.



“We need to make sure that we maintain flexibility and adaptability into the future,” he says, explaining that the company can then, with its 107 year pedigree, remain an island of stability to help customers make the most of business opportunities.



Kuehn explains that UPS sees a lot of movement of goods within Europe but much less going from the continent to the rest of the world. His view is that “politicians and business people should work together to allow this to be fluid and increase the competitiveness of our economies”.



UPS is helping to do this through CEO David Abney’s participation in President Obama’s Export Council, which is negotiating trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US in order to reduce friction and barriers to international trade on both sides of the Atlantic. Although, as Abney points out, for UPS, “exports from any place is good”.



Independent research by the Centre for Economic Policy Research shows that TTIP could boost the EU’s economy by €120bn mainly from cutting red tape and greater coordination between regulators.



Abney comments that while there’s a healthy trade between the US and EU at the moment, one of the most frustrating things is that many of the regulations on both sides of the Atlantic are very close to being the same. “Some of our regulations and inspections are so close to being identical or almost there but because they aren’t recognised on the other side of the Atlantic you can end up doing dual inspections,” he says. “It’s a huge opportunity for both sides of the Atlantic,” he adds.



Although big companies have the resources to handle the current regulations, they would like some of the tariffs removed. But it’s the SMEs that can’t handle it. Abney says: “They don’t have the resources to cope with meeting two sets of regulations and understand what you can do where.” Currently, only 1% of US SMEs are exporting and they are mainly exporting to neighbouring Canada because it offers the simplest export opportunity. “In Europe, it’s more like 13% that are exporting outside of the EU.”



With retailers around the world looking to new markets, everyone needs to watch their own proposition in their home market as well as competition from abroad while also taking advantage of the huge opportunities that new markets afford. So just as you get your home foundations in order, it’s time to look for new challenges – and challengers – ahead.









EUROPEAN EXPANSION



Since making retail one of its top priority industries, UPS has announced that it is expanding its network of Access Point locations and self-service lockers across the US and Europe, upping the number from the current 12,000 locations in 7 European countries to 20,000 locations in key markets throughout Europe and the Americas by the end of 2015. UPS Access Points include the network of 7,000 locations set up by Belgium company Kiala, which UPS bought in 2012.



In a bid to reduce the level of failed first deliveries in Europe, UPS has also launched its UPS My Choice service. Already in use in the US, My Choice notifies registered customers of when their package will be delivered and enables them to reschedule delivery or reroute it to another address – including an Access Point. The service has been rolled out to Austria, Belgium, Canada, Denmark, France, Germany, Italy, Mexico, Netherlands, Poland, Puerto Rico, Spain, Sweden,



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Featured In
InternetRetailing Magazine - January 2015 - Issue 50 (IRM50)

InternetRetailing Magazine - January 2015 - Issue 50 (IRM50)

Featured In
InternetRetailing Magazine - January 2015 - Issue 50 (IRM50)

InternetRetailing Magazine - January 2015 - Issue 50 (IRM50)

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