Don't look now, but it appears that dot-coms are investing heavily in distribution centers once again. Investment by that sector had languished since the furious build-out of multimillion dollar DCs by online retailers like Kozmo.com and Webvan.com during the dot-com frenzy in the late '90s. Many of those dot-coms ended up shuttering the facilities just as fast, often before moving a single product though their doors. Webvan.com, for example, had reportedly ordered $1 billion worth of state-of-the-art distribution equipment before closing up shop in 2001.
This month, we take a look at the revamped distribution center run by Peapod, an online grocer that survived the dot-com bloodbath and is now growing at an annual rate of 25 percent. As our story on page 44 relates, Peapod acquired DCs in Gaithersburg, Md., and Lake Zurich, Ill., from failed dot-com grocer Streamline.com in 2000. Up until last year, the Gaithersburg facility remained primarily a manual operation with serious capacity limitations. However, last fall Peapod completed a $1.4 million facility upgrade and automation project that boosted capacity by 50 percent. On a typical day, the Gaithersburg center processes about 1,200 orders, up from 1,000 orders before the upgrade. It has the capacity to process as many as 1,500 orders during periods of peak demand.
Peapod isn't the only dot-com on the move. Material handling solutions provider FKI Logistex recently won a $3.5 million contract from Internet electronics retailer ZipZoomfly.com to provide a fully integrated, automated material handling system for the company's new 250,000-square-foot DC in Newark, Calif.
David Campbell, major systems sales manager at FKI, says the Internet build-out is real. Last year, his company completed an 800,000-square-foot, $10.8 million facility for Zappos.com in Shepherdsville, Ky. He adds that a number of major retailers are currently looking to make similar investments.
But retailers are moving more cautiously this time around. For example, instead of occupying its own DC, ZipZoomfly.com will share the new facility with its sister company, Wrapables.com, which sells household items. Xtraplus Corp., the holding company for ZipZoomfly and Wrapables, expects both companies' volumes to double by 2008. Nonetheless, it's also building the DC with the long-term goal of providing third-party logistics services.
"We're seeing quite a bit more activity," says Campbell. "Dot-coms want to get the order out the door as fast as they can." That's a far cry from a few years ago, when online retailers built DCs as quickly as possible, and worried about things like throughput later.