BROOKSVILLE, Fla. — At first glance, this warehouse looks like many others: forklifts are unloading pallets from the back of dozens of semi-trailers. Canned soup, soda and cleaning supplies whiz by on conveyor belts. Bound goods are sorted by department and aisle before being stacked high like in an elaborate Tetris game.
The difference? Tasks are performed by giant automated claws and rolling robots instead of humans. The driver’s seats of the forklifts are empty.
Welcome to the future of Walmart.
The big-box retailer previewed at an investor event last week how it plans to use automation to manage inventory, stock shelves and keep up with online orders faster and more cost-effectively. The company took investors on a tour of a roughly 1.4 million square foot facility in Brooksville, Fla. — the first automated distribution center for packaged groceries and other durable household items.
Walmart plans to add the same automation from Symbolic — a warehouse equipment company in which Walmart took a majority stake last year — to all of its 42 regional distribution centers, though there was no timeline for doing so. About a third of stores will be served by the automated facilities by the end of January, the company said.
Walmart’s automation is part of a broader plan to increase profits. CEO Doug McMillon said the retailer’s sales will grow about 4% year over year in the coming years — a slower growth rate than the roughly 8% growth seen over the past three years driven by the Covid pandemic, but still faster than any growth The retailer posted 3.1% and 3.6% in the three years before the pandemic.
McMillon added that he expects profits to grow faster than sales over the next five years as Walmart adds automation and expands its higher-margin businesses like advertising, last-mile delivery and fulfillment services.
He said Walmart has given customers more ways to shop online and to make those purchases faster. It offers more general merchandise, including exclusive brands in categories like clothing. And it also has more sellers who have joined its third-party marketplace.
“We are now in a phase where it is less about scaling in-store pickup and delivery, e-commerce assortment and e-commerce FC [fulfillment center] square footage and more about execution and improving operating margin,” he said.
Walmart projects that three years from now, about two-thirds of its stores will be served by some form of automation, about 55% of its fulfillment center volume will be routed through automated facilities, and that average unit costs could improve by about 20%.
For Walmart, the country’s largest employer, the automation push means some of its 1.6 million reels will become obsolete.
At the Brooksville facility, few people appeared to be on the distribution center floor during the investor tour, although Walmart said the total number of employees at the facility has not changed.
David Guggina, Walmart US executive vice president of supply chain operations, said automation is about increasing capacity, not cutting jobs. He said memory retention has improved significantly because the work isn’t as physically demanding. He declined to give specific sales figures, but said that in the first year after the Brooksville facility was automated, no employees left the job.
In an interview with CNBC, McMillon said he expects the retailer’s workforce to remain about the same size. But he said its composition will change. For example, he said Walmart might need fewer people to offload pallets in warehouses, but more people to deliver online orders to customers’ doors.
Walmart recently laid off hundreds of employees at e-commerce facilities across the country. McMillon said those layoffs came after a surge in online sales in the early years of the pandemic as the company tried to understand what its sales trends would be post-holiday.
Walmart hasn’t disclosed how much it will spend on the automation projects. At last week’s investor event, Chief Financial Officer John David Rainey said the company expects its capital expenditures to be slightly higher than last year, at about 2.5% to 3% of revenue.
He said about 90% of the company’s capital expenditures will be in “high-yield areas” like e-commerce, supply chain and in-store investments.
As Walmart plans the larger rollout, some employees have already made a change in their routines. Jose Molina, who shared his experience as part of the organized tour, began working at the Brooksville distribution center in 1995. For years, he said, he kept track of inventory with pen and paper. He got tired of lifting heavy boxes with a pallet truck or operating a forklift.
With the automation, Molina watches the robots unload the truck and intervenes if they encounter a problem, he said. Scanners count each item so it can skip pen and paper or mental arithmetic. He leaves work without feeling exhausted and at the end of his day coaches high school football.
“Sometimes I even kick the ball,” he said.
Brad Thomas, a retail analyst at KeyBanc Capital Markets, toured the Tampa-area facility during the investor event. He said he was excited about the investment after seeing the real results behind a nearby shop.
Thomas pointed to two trailers loaded with pallets and ready to be unloaded from the distribution center. One was manually wrapped by employees and contained a pile of items from numerous departments, piled up in a random pile. A box of pop tarts uncertainly supported other items at the bottom of the towering pallet.
The other trailer was grabbed by a robot that was organized using automation for quick and easy unloading for workers. Like objects together, heaviest at bottom.
The contrast, Thomas said, helps highlight what he sees as a significant transformation for Walmart — the company’s “most exciting setup it’s had in the last 10 years.”
“A decade ago, Walmart was still catching up in areas like e-commerce, and I think a lot of the investments that were made are bearing fruit,” he said. “We’re actually seeing areas like automation where Walmart is arguably more of a leader than a follower.”
Other retailers are also pushing into automation. food giant Hook opens giant, robotic sheds with UK-based company Ocado to expand its online grocery business, including one that allowed it to break into the Florida market without building a single store.
Amazon has increasingly automated the picking and sorting of packages in its warehouses. The $775 million acquisition of Kiva Systems in 2012 was a pivotal moment in that transition, giving Amazon access to robots that can move shelves of goods from worker to worker, speeding up the fulfillment process.
Walmart is using automation to get more online orders to customers with next-day or two-day shipping. The retailer currently picks, packs and ships orders at 31 fulfillment centers across the country and plans to build four automated fulfillment centers, including one that has already opened in Joliet, Illinois, 45 miles southeast of Chicago.
The retailer has an additional 46 distribution centers to support the fresh side of its grocery business and has an automated grocery distribution center in Shafter, California. It plans to open another one later this year in Lancaster, Texas, and next year in Spartanburg, South Carolina.
It’s also testing mini-fulfillment centers at the back of stores, where associates work side-by-side with automation to complete online grocery orders.
— CNBC’s Annie Palmer contributed to this report.
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