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Retail Vendor Performance Management News Round Up for February, 2018

Amazon to Keep Adding Lots of FC Space; Automation Coming to Bangladesh Apparel Factories; Walmart Q4 eCommerce Growth Slows

Feb. 27 , 2018

by SCDigest Editorial Staff

Amazon Distribution Footprint to Keep Growing in 2018

Marc Wulfraat, president of MWPVL International, is one of the more interesting supply chain consultants out there. In addition to his normal work in supply chain and logistics, he has carved out a great niche as the foremost expert in ecommerce fulfillment generally and Amazon and Walmart specifically.

Wulfraat noted in some supply chain predictions for 2018 for SCDigest that in 2017, Moody's Investor Services identified 26 distressed retailers with troubled financials that could make them potential bankruptcy risks. The number represents a stunning 19% of the retailers that Moody's tracks and it surpasses the list of 19 recorded at the peak of the Great Recession. It is likely to get worse in 2018, even here in good economic times, Wulfraat added.

Supply Chain Digest Says...

The automation will help keep much apparel manufacturing in countries such as Bangladesh. But it may also lead to some production moving back to developed economies.

"This profound turbulence in the retail landscape is not just about distressed retailers," Wulfraat says. "Talk to any major retailer with a healthy balance sheet and the story of the day is that the business is shifting from away retail to on-line, and that store closures are being planned."

He notes for example the recent news that Walmart abruptly closed 63 Sam's Clubs stores, of which 10 will be converted into regional ecommerce fulfillment centers.
In the face of that, he notes that "Amazon will continue its record-level spending on distribution infrastructure build-out in 2018, which is good for suppliers of buildings and equipment, and bad for Amazon's competitors."

He calculates that in 2017, Amazon added about 26.6 million square feet of distribution space in the US and another 12.6 Million square feet in the rest of the world. In 2018, MWVPL is aware of an additional 23 million square feet of distribution space being added by Amazon to the US market, and the company expects that this number will be closer to an incredible 30 million by year-end 2018.

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The Robots Are Coming for Garment Workers Too

Very low cost wages have led Bangladesh to see its exports of apparel goods to reach almost $30 billion annually – but apparently even rock bottom labor costs aren't enough to stop automation there.

For example, as recently reported by the Wall Street Journal, the Mohammadi Fashion Sweaters Ltd. factory in Bangladesh's capital of Dhaka began automating the sweater knitting process at its factories in 2012, and by last year, the knitting process was fully automated.

"It doesn't make sense for us to slow ourselves down" and not automate, says Rubana Huq, managing director of Mohammadi Group, which makes sweaters for H&M, Zara and other Western brands. Her factories have replaced about 500 workers with machines - and the company may buy more, she says.

What's going on? Though still very low, labor costs in Bangladesh and other low cost countries are rising. In the face of that, technology is becoming so advanced that machines can increasingly handle difficult tasks such as manipulating pliable fabrics, stitching pockets and attaching belt loops to pants.

"All that is upending the economics of the apparel industry, which long served as the first rung on the economic ladder for poorer countries, especially in Asia," the Wall Street Journal says.
In fact, a 2016 International Labor Organization study predicted some Asian nations could lose more than 80% of their garment, textile and apparel manufacturing jobs as automation spreads.

The automation will help keep much apparel manufacturing in countries such as Bangladesh. But it may also lead to some production moving back to developed economies.

As an early example, banks of these so-called "sewbots" will be used next year in a Little Rock, Ark., factory operated by Chinese garment producer Tinyuan Garments. Nike, Under Amour, and Adidas are all developing highly automated shoe production facilities in the US and/or Europe.

One garment automation technology vendor, in fact, predicts sewbots will eventually make individual clothing items automatically on demand after they're ordered on-line, reducing the need of fashion brands to outsource production to Asia.

Walmart's eCommerce Growth Slows

Walmart's US ecommerce sales grew 23% in Q4 – a big drop from the 50% growth seen in Q3. In addition, quarterly earnings slumped 42.1% to $2.2 billion, as "investments" to keep prices low and the effects of on-line sales of lower-margin items hurt profits, the company said in its Q4 earnings call.

As a result, Walmart's stock price fell 10.2%, the largest one day drop in more than 30 years. That even as the company reported another solid quarter of gains in US comparable store sales, continuing a recent streak.

Walmart does say it expects ecommerce sales to grow 40% in 2018, off of a base of $11.5 billion in 2017 - a figure far below Amazon's US on-line sales.

"Our visibility into picking costs, shipping costs, margin rates, the costs to acquire a customer, and how the different cohorts are behaving as we make the marketing investments is really improving," CEO Doug McMillon said.

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