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Amazon Gets Robotic

March 27, 2012Written by Tom Ryan

In its biggest acquisition since the 2009 purchase of Zappos, Amazon agreed to pay $775 million for Kiva Systems, a maker of robots that move items around warehouses. While expected to help speed up deliveries, the bigger benefit is expected to come from cost savings from reducing manual labor.

Kiva's orange robots, which slide about grabbing and moving shelves and crates of products, are used by many retailers including Gap, Staples, Toys "R" Us and Saks. The deal with Amazon is expected to close in the second quarter.

"Amazon has long used automation in its fulfillment centers, and Kiva's technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow," said Dave Clark, vice president, global customer fulfillment, Amazon.com, in a statement.

To some, the acquisition was notable since Amazon often looks to outsource through licensing agreements, such as its partnerships with Viacom and Discovery Communications to distribute streaming online video content.

The move comes as Wall Street is said to be losing patience with the company's measly operating margins and the payroll for its full-time as well as temporary-holiday warehouse staff stands as its highest variable operating costs.

While touting its two-day shipping Prime service, Amazon is in the process of adding 17 warehouses to its current 52 warehouses to better manage its growth. Offering fulfillment services for third-party retailers is also a growing revenue generator.

"It's an internal infrastructure play, and it comes at a time when their headcount has been growing faster than revenue," Colin Gillis, an analyst at BGC Partners LP, told Bloomberg News. "One of the knocks on Amazon is that their fulfillment is an expensive, manual process. They're not getting the benefits of scale. So they're taking some steps towards it."

Amazon also recently disclosed in a corporate filing that its fulfillment network "becomes increasingly complex and operating it becomes more challenging" as it expands.

StorefrontBacktalk also wondered how Kiva's customers would feel about Amazon ownership. Wrote Evan Schuman, "How will all of them feel about systems in their warehouses — which know everything about product flow and, even worse, can control speed, accuracy and efficiency of product flow — being owned and controlled by Amazon, a direct rival?"

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