Inside fashion’s ‘smart’ warehouses

To receive the Vogue Business newsletter, sign up here. Luxury department store Harrods says it is investing “several millions” in new warehousing technology over the coming year, with plans to significantly upgrade its facilities in time for peak 2024. And the retailer is not alone. LVMH is making a big investment in this space as it prepares for growth across houses including Louis Vuitton, Fendi and Tiffany. Hugo Boss plans to double the number of automated shuttle and robotics systems within its central distribution centre for Europe within the next three years, having already invested “in the three-digit million euros mark” in robotic technology over the last decade, a spokesperson tells Vogue Business. Recent advances in AI are leading to the emergence of “smart warehouses”, which are automated but can also improve decision making. Radio frequency identification (RFID) technology combined with AI can offer fashion businesses a near-perfect, real-time picture of inventory levels at locations all over the globe, removing guesswork and reducing overproduction. Other developing technologies include the use of robots and drones for tasks like order picking and item transportation, while AR glasses or headsets can be used to assist workers with inventory checks. Blockchain and IoT (Internet of Things) sensors can enable tracking of emissions and waste across the supply chain. Investment in warehouse automation is set to accelerate “significantly” over the next five years, according to a 2023 report by supply chain and logistics consultancy Scala. Almost a quarter of those surveyed, including fashion retailers and manufacturers, plan to invest more than £20 million “in the foreseeable future”. By 2026, 75 per cent of large enterprises globally will have adopted some form of smart robots in their warehouse operations, consultancy Gartner predicts. “It’s about taking operations to the next level by mining data to a much higher degree,” explains Harrods supply chain director Simon Finch. “Not having to do it yourself; the systems are doing it for you. That’s the sort of jump we can now make,” he says. Harrods plans to invest in three key areas to improve its warehousing: increasing capacity by replacing manual racking with automated racking; using robotics technology to flex up and down more easily during peak times (rather than relying on hiring additional workers); and using AI to enhance the automation. As interest in this sector grows, investors are circling start-ups that specialise in automation and robotics. Japanese firm Mujin, which specialises in intelligent robotics for manufacturing, logistics and supply chain operations, raised $85 million in a Series C funding round last month. UK-based start-up Dexory recently secured $19m in a Series A funding round, which it will use to develop its forecasting technology and accelerate its production of robots. However, concerns persist about the impact of automation on the workforce. Finch says some departments in Harrods’s distribution centre that currently require 40-50 people to operate will just need one in the future. Meanwhile, the cost of upgrading warehouses — which varies depending on the size of facility, level of automation and choice of technology — makes it hard for smaller to medium-sized fashion and retail businesses to remain competitive. Why fashion needs smart warehouses Fashion’s investment in warehousing has been growing in line with e-commerce sales, which surged during the pandemic and remain ahead of 2019 levels (e-commerce now accounts for 26.8 per cent of global apparel and footwear sales, up from 19.3 per cent in 2019, according to GlobalData). It’s also been driven by the desire to offer faster delivery options, such as same-day and next-day, to give brands and retailers an edge over their competitors. “[Smart warehouses] can sort, store and ship items faster and more accurately than traditional warehouses,” says Daniela Klotz, a principal and fashion and luxury sector lead at supply chain consultancy Inverto. New technology can better handle the complexity of various clothing styles, sizes and seasonal trends, as well as fluctuating demand across the year, she adds. Efficiency and cost savings are not the only motivating factors for investing in smart warehousing tech. Reducing waste and improving efficiency and tracking will be increasingly important as tighter sustainability regulations come into play. Some of these regulations will extend sustainability compliance to logistics partners and warehouses. For example, the EU Strategy for Sustainable and Circular Textiles will hold brands responsible for end-of-life textile waste, which will impact how brands and retailers process returns. The EU Ecodesign for Sustainable Product Regulation (ESPR), which is being finalised this year, will make it illegal to destroy unsold products, and require brands to report on what happens to unsold stock and inventory. Returns are a particularly thorny issue. The average return rate of online fashion orders in the US is 24.4 per cent, according to retail insights firm Coresight Research. These returns could cost the US industry as much as $25.1 billion to process in 2023, it says. “Often, the complexity and cost of reprocessing, refurbishing and relisting stock for sale outweighs the cost of destroying the items,” says Lydia Brearley, founder of sustainable fashion consultancy Enkel. Smart warehousing technology — such as AI-powered demand forecasting and inventory optimisation to reduce overproduction and unsold inventory — will enable far greater control over the tracking and management of data, which will be crucial to help brands comply with these new requirements in the future, she adds. With increased visibility and efficiency in the supply chain, businesses can be more accurate which will lead to less trucks, less failed deliveries and reduced double handling, says Milan Andjelkovic, co-founder and COO at global supply chain consultancy TMX. “An automated warehouse is just one link in the chain, but when you look at the end-to-end proposition — you can create a more sustainable supply chain with a smart warehouse.” A threat to jobs? It’s no coincidence that the countries and regions investing the most in smart warehousing are those where labour costs tend to be higher, such as the US, UK and Europe. Jane Jones, president of workers union Usdaw, says it has “significant concerns” about how this kind of technology is being introduced and used in the workplace. With the rapid growth of automated decision-making processes by employers, she says the protections offered to workers are evaporating. Usdaw estimates that nine in 10 UK employees (across all industries) will need to retrain by 2030, as result of advancement in technology and AI. “To truly safeguard our members from the risks of the tech revolution, we need to deliver a proper legal framework that focuses on the protection of workers’ rights; gives workers a voice when new technologies are being introduced; and delivers specific provisions on equality issues, providing real safeguards against discrimination,” says Jones. However, Lars Rønning, VP EMEA of business development for automated warehouse storage and retrieval system AutoStore, argues that automation and robotics are being implemented to assist people working in warehouses, not steal their jobs. “The aim is for automation to take over the menial, repetitive tasks that many don’t want to do and shouldn’t be doing. Normally, we see that on-the -job training is down to hours, and not days. This then leaves room for workers to add value where they are better suited, and engage in tasks involving analytics, continuous improvement, and quality assurance. This means that people get upskilled into roles that benefit them.” How smaller brands can keep up Without big budgets to invest in their own facilities, smaller fashion brands must rely on their third-party logistics providers (3PLs) or supply chain partners, to whom they outsource their warehousing and logistics. British supply chain partner Wincanton has been investing heavily in new smart warehouse technology, including robotics and automation, to allow its customers (large and small) to access the technology with a much lower capital investment. It has around 160 warehouses (a mix of traditional and smart) across the UK: some are dedicated to specific retailers and others are shared user spaces, with annual charges starting at about £200,000. Carl Moore, managing director of digital and e-fulfilment at Wincanton, says: “Things are costing more than anticipated, for businesses as well as for consumers, so a lot of our customers are capital constrained. We’re prepared to invest in robotics and automation at a time when retailers want and need to — but they aren’t able.” Supply chain and logistics firm GXO, which operates over 970 warehouses worldwide, says partnerships with brands enable it to employ smart technologies to help even the smallest of brands. “These technologies are increasingly affordable, modular, adaptive, easier to deploy and scalable, reducing the barriers to SMEs accessing these benefits,” explains Russell Atkinson, managing director of fashion and apparel at GXO. He says GXO spends up to $50 million per automation project, and up to $10 million on software. “As a result of our investments and those of our customers, we’re seeing a range of anything between 10-50 per cent improvements in productivity and output because of new tech and automation in the warehousing space.” For fashion, GXO is particularly excited about RFID. “The development of fabric RFID tags is a real game changer, which will significantly help our customers manage fragmentation by increasing precision of their inventory in store and speeding up replenishment,” says Atkinson. “We’re increasingly working with fashion customers to leverage the benefits of RFID tags, and in time we’d expect this technology to become commonplace with more of the supply chain embracing it.” When it comes to deciding on what technologies to invest in, there is no one-size-fits-all approach. “A business considering investing should first understand their supply chain and the issues they are wanting to solve with automation,” says Natalie Frow, managing director for retail at DHL Supply Chain. “If customers are getting their deliveries late because picking is complex or labour is hard to come by, picking automation is worth considering. On the other hand, if you are regularly impacted by out of stocks and obsolete products then automated picking will offer limited value – instead AI would help you to understand your consumer demand, and warehouse layout and inventory controls is likely to pay dividends.” The future of smart warehousing is “interconnectivity of all these data systems”, says TMX’s Andjelkovic, to give brands full visibility of inventory. “There are still manual interventions between systems that don't talk to each other. The North Star really is that you can see everything from end to end, and it’s all interconnected. You can then do intelligent decision making, and real-time decision making.” Comments, questions or feedback? Email us at feedback@voguebusiness.com.

Make better business decisions

Make better business decisions