Cyber Monday 30th November 2009

Amazon gets set for "Cyber Monday"

In a vast warehouse, the size of eight football pitches and around 15 minutes from the centre of Milton Keynes, more than a thousand workers are gearing up for what will likely be Amazon's busiest Christmas yet.

Products from kettles to keyboards, ping pong balls to DVD box sets are stacked densely on four floors of shelves, on a structure known as the "library tower", a large edifice in the middle of the distribution centre. As the business has grown the company has built up toward the eaves of the warehouse. Pickers weave their way through, shoving items in yellow plastic crates and sending them on a conveyor belt for packing, like latter-day elves.

The top floor of the tower offers a view across the docking area where the goods arrive, stacked in cardboard boxes and resembling Rachel Whiteread's show in the Turbine Hall of the Tate Modern, when the artist cast the insides of 14,000 boxes.

With Christmas approaching, online retailers are readying for what has become known as "cyber Monday", the busiest internet shopping day of the year that commonly falls on the first Monday of December. On cyber Monday last year, 8 December, Amazon claims that 1.4m items were ordered from its UK site, over 16-items per second and the most it has ever received in a single 24-hour period. This year, Amazon is forecasting that sales will be 21% to 36% higher. It has hired several hundred extra workers for the Christmas period.

The firm has contracts with several delivery firms as well as Royal Mail and maintains that it would be unaffected by any potential disputes. "This will without doubt be our busiest Christmas ever," said Allan Lyall, vice president for European operations. "Around this time of year we are looking at two to three times our normal run rate. Last year a delivery truck was leaving the warehouse every five and a half seconds."

Milton Keynes is one of four Amazon distribution centres in Britain – there are two in Scotland and the largest is in Swansea. Milton Keynes appears to be the land of distribution centres. There is an even larger John Lewis warehouse on the way to Amazon, serving the stores and customers of the John Lewis website, and giving the impression that, sensibly enough, not much hangs around in Milton Keynes for very long.

Amazon has set up a fifth temporary centre in Peterborough to help it cope with the Christmas demand.

Like high-street retailers, online shops have not been immune to the recession. But as the high street faces another possible bloodbath, many online retailers are at least still growing, owing to the deepening penetration of broadband, consumers becoming more comfortable buying online and cash-strapped shoppers hunting for bargains.

Figures for the growth of online shopping vary. According to the Office for National Statistics, online sales accounted for 3.5% of total retail sales during December last year, with average weekly sales of £238m. But if the percentage is still relatively small, it is growing. The ONS said online sales during that month were up 19.6% on the previous year.

IMRG, an industry group that represents internet retailers, perhaps not surprisingly reckons the figure is much higher, although it also includes ticketing and travel. It suggests that internet sales now make up between 10% and 15% of total retail sales in Britain.

Amazon has grown steadily since it was launched in 1998 and claims 98m people worldwide have bought something from one of its sites in the past year. The Seattle-based business has broadened its range from books, most recently starting a UK online shoe shop, and moving into office equipment and lighting – although media, including books and DVDs, still account for a little over half of Amazon's global sales. It has worked its way back into investors" affections and last month its share price on Wall Street surpassed its peak during the dotcom boom for the first time.

David Smith, director of operations at IMRG, says the fastest growing categories online are clothing and electricals. Recent results from Asos, the online fashion retailer, would certainly appear to partly support that. The company last week reported operating profits of £4.4m for the six months to the end of September and sales in the UK were running 33% higher than the same period a year earlier.

"The rate of growth has slowed because of current economic conditions, but sales online are still growing," Smith said. IMRG is forecasting growth of online sales of around 15% this year, compared to previous rates of 35% to 50%. "More and more people are doing their research online as well and comparing prices, so the influence of the internet is still growing. We are seeing more women shopping online and an older age group, just as they are using things like Facebook, and they are the people with the disposable income."

The likes of Amazon and Asos are facing increasing competition from the high-street brands, many of which are beginning to take online retailing more seriously. When John Lewis launched its website in 2001, the aim was to eventually generate the sales of a medium-sized store – about £100m. Last year they reached £327m, outstripping its most successful department store and accounting for about 13% of the John Lewis division of the group. Online sales continue to grow at about 30% a year.

Robin Terrell, managing director of John Lewis Direct, says the site has become increasingly important as around half of all shopping visits start with the website, as customers research prices and range. "The website now represents the brand. People are researching more and more online before visiting the shop and we have really been working to join up the customer experience."

Because websites are easily compared, competition comes down to range and prices. John Lewis boasts that its 650,000 square feet centre makes extensive use of technology to lower costs. Amazon makes similar claims. Its site in Milton Keynes is driven by software to improve efficiency. Handheld devices tell the pickers where items are and even work out the most efficient route through the labyrinth of shelving; software works out the dimensions of the products and tells the packers how big the boxes should be and how much stuffing needs to be used for fragile items.

They are also competing on speed and delivery charges. "Logistics used to be the oily bit, but it is now sexy," says Terrell. In London and Birmingham this year, Amazon is guaranteeing delivery ahead of the big day for any orders received before 8.30am on Christmas Eve, for a fee. "There is still a lot of growth out there," says Lyall. "Competition is only a good thing for customers because it encourages us all to innovate."

Speedier delivery times mean that cyber Monday might lose some of its potency in the years ahead, as shoppers worry less about their gifts arriving on time. But there is also another reason. Smith said cyber Monday evolved because shoppers would see things on the high street over the first weekend of December and then use the faster broadband speeds in their offices to place an order. As more homes get broadband, that becomes less relevant. "If you draw a graph of broadband penetration in the home from about 2006, then the growth in online shopping is very similar."

Posted in Blog on 26th November 2009