Dive Brief:

• Chewy will open three automated fulfillment centers in the next 14 months to boost productivity while mitigating the effects of recent labor shortages, CEO Sumit Singh said on the company's Q2 earnings call.
• Singh said the company's efforts to improve its fulfillment center network "have become increasingly relevant as labor markets remain challenged, transportation networks become capacity constrained, and inflationary pressures on freight costs begin to rise."
• After the automated facilities open in Nashville, Tennessee, Reno, Nevada, and Kansas City, Missouri, Chewy will have a total of four automated facilities out of 14 FCs. Its first automated facility opened in Archbald, Pennsylvania, in October 2020.

Dive Insight:

More automated facilities will reduce Chewy's exposure to employee shortages, which can slow fulfillment times. CFO Mario Marte said on the call if current labor shortages continue, "they may lead to delays in orders leaving our FCs, similar to what we saw in the second quarter of last year, as demand surged and shipments lagged."

Chewy executives didn't elaborate on the extent of their labor shortage, but it's become a recurring issue in supply chains this year as companies grapple with heightened consumer demand. To attract and retain employees ahead of peak season, 47% of supply chain leaders say they plan to pay higher salaries or wages, according to an August survey from GlobalTranz and Edelman.

Chewy Vice President of Operations Mike Gilbert said last year he expects better operational efficiency, picking accuracy and lower fulfillment costs via the company's automation plan, driven by a goods-to-persons system using conveyor belts and pneumatic rollers. This shift also reduces warehouse traffic and heavy lifts for workers, Gilbert said.

Many retailers are making similar investments in automation. In its partnership with Symbiotic to automate 25 distribution centers, Walmart aims to improve storage density, pallet density and the order accuracy of its replenishment system. Automation at United Natural Foods distribution centers should double pick speed and improve order accuracy, President Chris Testa said in March.

Chewy's planned Nashville location joins Kansas City and Reno in the pipeline of company FCs that will open over the next 12 to 14 months, according to Singh. The Nashville facility will open in the fall of 2022 and employ 1,200 people, according to a news release from the Tennessee Department of Economic and Community Development.

"This new location will also extend our fulfillment network in the southeast region, allowing us to provide even faster delivery to more than 19 million active customers around the country," said Pete Krillies, vice president of real estate, facilities and procurement at Chewy, in a statement.

Chewy is also investing in existing FCs, as some will see automation retrofits starting in 2022, Singh said in the company's Q1 earnings call.

Within Chewy's FCs, the company is implementing efficiency-driving measures such as technology that produces custom-made boxes based on the size of the items being packed. Refining the picking, packing and shipping processes helps expedite how quickly packages leave the facilities, Singh said.

"This process is not only faster than manual pack-and-ship, but it also reduces the amount of corrugate and packaging materials used per order, which then reduces costs and is better for the environment," Singh said.