After layoffs and warehouse closures, Walmart and Chewy are accelerating investments in automated fulfillment centers

These mass layoffs and warehouse closures exemplify some of the ways retailers are heavily rolling out automated warehouses after years of slowly experimenting with these technologies. Experts said that retailers aim to streamline costs and speed up their delivery capabilities by investing heavily in automation. They added that warehouse technology has become more advanced and it shields retailers from labor shortages or changes in consumer demand.

“It makes sense to actually go with that automation,” said Patrick Penfield, professor of supply chain management practice at Syracuse University. “Automation doesn’t call in, doesn’t get sick, can work unlimited hours. So it’s coming to the point now where it just is more cost-effective to use up more automation than labor.”

E-commerce helped fuel the boom in warehousing jobs during the early days of the pandemic, which resulted in some retailers over-investing in traditional warehouses, Penfield said. Now retailers are beginning to recalibrate their investments away from labor and into innovative automation technologies. Recent data from the Labor Department indicate that U.S. employers slashed 11,800 jobs in warehouse and storage between February and March.

Getting serious with warehouse automation

Walmart and Chewy have invested in automation technology in smaller capacities in the past. Chewy first invested in automation back in 2019 and it opened its first automated warehouse a year later in Archbald, Pennsylvania. Walmart, on the other hand, initially brought autonomous robotics from Symbotic to its Brooksville, Florida distribution center in 2017.

In the past, Penfield said that warehouses had robots to bring materials from point A to point B. Now he said these robots are also able to package items. That would lessen the need for workers to do certain tasks.

For instance, at a 3.8-million-square-foot warehouse in Clay, New York, only around 1,000 workers are employed due to robots being used in the facility. Penfield said that just a few years ago, the idea that a giant facility would be run by so few workers is unheard of. 

“The technology now is just getting so much better,” he said. “A lot of companies are seeing ROIs of less than a year with some of this automation that they’re procuring.” 

During its investor day meeting earlier this month, Walmart told attendees it would lean more toward automation moving forward. Executives said Walmart’s investments in technology, including supply-chain automation are producing returns well above what they expected. 

“By the end of FY26, we expect approximately 65% of stores will be serviced by automation,” said John David Rainey, chief financial officer at Walmart. “We estimate approximately 55% of our fulfillment center volume will move through automated facilities, and unit cost averages could improve by approximately 20%.” 

In the case of Chewy, investments in automated fulfillment centers mean having to shed off outdated assets. CEO Sumit Singh cited the success of its automation investments as the reason why Chewy closed down two of its oldest fulfillment centers during an earnings call in March. The company said that it plans to open a fourth automated facility in Nashville in the first half of the year.

“The punch line here is that in 2023, we expect to continue benefiting from the strategic investments we made just a few years ago in warehouse automation,” Singh told investors and analysts. “Moving forward, we remain committed to demonstrating strong operating discipline in running the business and tightly managing expenses along the way.”

Thanks to increased productivity and ongoing volume shift into automated facilities, Chewy said that its system-wide variable fulfillment cost for every order declined 13% year-over-year.

Hilding Anderson, head of strategy for retail in North America at Publicis Sapient, said that fulfillment centers do have an expiration date as their operations can become outdated. For example, HelloFresh closed down its Richmond, California facility in October as its layout has become inefficient and its refrigeration systems are out of date.  

“There’s an actual lifecycle for any physical facility,” Anderson said. “You got to look at where it is and how cost-effective it is to upgrade.”

As retailers continue to roll out automated fulfillment centers on a broader scale, Penfield said that this could change the job description of warehouse workers. He added that retailers might begin employing more warehouse workers with advanced degrees. 

“I think what will happen is that you will see less warehouse workers with a high school degree basically,” Penfield said. “What you’re going to be looking for are folks more with an engineering technology type of background.”

Amazon is already preparing for this shift by planning to upskill 300,000 associates by 2025. While these high-tech warehouses reduce the need for labor, it still needs people to ensure the machines run smoothly. The company said it is investing $1.2 billion in upskilling workers who are employed in highly automated distribution centers.