With Kiva purchase, robots go the distance at Amazon

Bob Moon Mar 20, 2012

With Kiva purchase, robots go the distance at Amazon

Bob Moon Mar 20, 2012

Kai Ryssdal: If you’ve ever ordered anything from Amazon.com, odds are your package came from one of the company’s enormous warehouses — multiple football fields enormous.

Amazon employs thousands of people to run through its order-fulfillment centers, as they’re called, carefully picking and packing up the tens of thousands of different things it sells. Amazon spent more than $4.5 billion staffing those warehouses last year.

Today, it took a big step toward getting a handle on its biggest single operating expense by committing to employing robots. Here’s our senior business correspondent Bob Moon.

Bob Moon: Amazon is buying Kiva Systems, a company that makes warehouse robots, for $775 million.

Hmmm, robots packaging things — might remind you of that movie a few years back…

“Wall-E” movie clip: Name? Wall-E! Wall-E.

But these robots aren’t nearly as cute or sophisticated. Think of a bright orange machine, something like a fork lift, picking up items from shelves and delivering them to workers who box them up. A computer guides the machines through a carefully laid out grid.

At BGC Partners, analyst Collin Gillis says this move could be just what Amazon needs to control its labor costs and boost its narrowing profit margins.

Collin Gillis: As their revenue has continued to grow, their fulfillment costs and their head-count have actually grown faster. And that’s resulted in Amazon having razon-thin margins, right? They make about a penny on every dollar of revenue.

Ironically, Amazon has been holding out the promise of more jobs as it’s negotiated to build warehouses here in California and elsewhere, in exchange for tax considerations. At Evercore Partners, analyst Ken Sena argues that this move to bolster automation won’t necessarily cost jobs.

Ken Sena: I think to the extent that they can expand the centers, you know, those centers will come with jobs. But I think for Amazon, they’re trying to make more with less, and make those centers as smart as they can and as efficient as they can.

Some Amazon owned companies — including Zappos — have already been using the robots, along with other big retailers, including Crate and Barrel and Staples. Amazon has indicated Kiva will keep doing business with other companies, but some analysts wonder if Amazon might eventually keep the technology to itself to gain a competitive advantage.

I’m Bob Moon for Marketplace.

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