Follow the Automated Road

By Taylor Muckerman - August 6, 2012 | Tickers: AMZN, DDS, ODP, WAG | 0 Comments

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When the world’s largest online retailer pays a substantial premium for a company that they believe is the wave of the future, other companies and investors should take notice.  In March 2012, Amazon (NASDAQ: AMZN) announced the purchase of KIVA Systems, which manufactures and sells a state-of-the-art warehouse automation system that includes mobile inventory systems, which are transported by orange robots wirelessly connected to the firm’s enterprise systems.  Whether or not Amazon decides to license the technology or keep it in-house has yet to be seen.  One thing is for sure though, investors would be mindful to keep an eye on the margins and inventory efficiencies of those companies that are already employing the KIVA robots. 

Several publicly traded companies have begun to apply this warehouse streamlining technology, and whether it’s a coincidence or not, their margins and efficiency levels are gaining traction in a positive direction:

Walgreen (NYSE: WAG)

In 2007, Walgreen became one of the first high profile clients of KIVA Systems.  By 2009, they were so impressed that they decided to recruit more KIVA robots than any other customer.  All told, they were utilizing north of 1,000 ottoman-sized, orange droids.  It was clear that WAG was reaping the benefits of their investment:  "I don't need to tell my competitors how much more productive it makes us," says Randy Lewis, senior vice-president for supply chain and logistics at the Deerfield (Ill.) drugstore chain. "It's been a good investment."  Since then, the partnership has continued to expand along with Walgreen’s productivity

Office Depot (NYSE: ODP)

Office Depot began letting the KIVA bots roam a few of their warehouses in August 2010.  Taking a look at their financial reports shows that these automated laborers might just be doing their part.  Taking a look at the figures below, it is clear that after the implementation of this technology, Office Depot has become more efficient and more profitable.    

Dillard’s, Inc. (NYSE: DDS)

In order to enhance the experience of their online shopping customers, Dillard’s decided to turn to KIVA.  According to Dillard’s President, Alex Dillard, “We chose Kiva because we want our customers to have the same gratifying experience with our online store as they do when making an in-store purchase. Kiva is ideal for us because it can easily expand and adapt to changing merchandise as we introduce new products to our online store.”

These three different businesses all saw similar results almost immediately after letting the KIVA team install their systems in a varying amount of their fulfillment centers.  Seeing results such as these is probably what prompted Amazon to pay the kind of premium that they did for KIVA ($775M).  As repeat customers, these retailers are likely to continue to see improvements, along with several other big name brands that utilize a herd of these robots themselves.  Keep an eye out for these firms as long as Amazon continues to allow outsiders to tag along on their orange shirttails. 

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