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Automated Warehousing Propels GXO Growth

If there’s ever an argument for why businesses should prioritize the deployment of automated systems in their warehouses, GXO Logistics makes a great case.

While GXO saw 12 percent revenue growth to $2.3 billion in its first quarter, revenues derived from the contract logistics and warehousing company’s automated operations outpaced the wider business at 18 percent growth. The revenue bump comes despite the overall decline in cargo demand and increasing vacancy across U.S. industrial real estate.

Market research company Interact Analysis indicated that 26 percent of warehouses are expected to be automated by 2027—up from 18 percent at the end of 2021—but GXO is already ahead of the game.

Thirty-one percent of the company’s warehouses are currently automated, according to Mark Manduca, chief investment officer of GXO Logistics. Manduca says GXO aims to automate 40 percent of its warehouses by 2027, but “it’s just getting started.”

“Some of the solutions that we’re putting in are 50, 60, 70 percent automated,” Manduca told Sourcing Journal.

The company has been ramping up its automation strategies in the wake of its spinoff from XPO Logistics in August 2021. Total technology and automated systems across the company’s facilities increased 64 percent year over year, with vision technology like sensors more than doubling at 103 percent and goods-to-person systems increasing 38 percent.

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With these systems in place, picking accuracy can increase from a human eye-driven 95 percent in a non-automated warehouse to a recurring 99.9 percent, Manduca estimates.

“If you think about that change, the five items out of every 100 that you were putting in the wrong place, has now become substantially less than one,” Manduca said. “That is a game changer for an e-commerce company.”

The number of collaborative robots deployed within the warehouses, called “cobots,” skyrocketed 96 percent in the same time frame. Manduca says cobots can remove variable costs for customers by as much as 40 percent, and can increase inventory throughput fivefold.

According to Manduca, GXO Logistics is trialing over 100 different automated technologies within its 869 warehouses at any one moment.

“The reality is, if you look at all our tech and automated systems…that’s the kind of growth and demand we’re seeing from our customers. The kind of implementations that we do are very bespoke to the customer,” said Manduca. “While we can cross-pollinate our knowledge from 1,000 different customers, we make the solution fit for purpose for that specific customer so it is and feels unique.”

GXO’s shared warehousing strategy heavily plays into this ability to cater to the automation needs of individual businesses. For example, global fashion brand Vivienne Westwood is a current customer of GXO, taking up 9,500-square-meters of the outsourced logistics company’s shared services site in Carisio, Italy. GXO’s support for Vivienne Westwood includes value-added services such as reconditioning, quality control, labelling, packing, gift boxing and re-labeling.

The wider outsourced warehousing strategy can significantly benefit apparel and fashion players, Manduca said, noting that the logistics firm has cut inventory per SKU for some brands by as much as 50 percent.

“That removes wastage from the system. It stops you from having to put stuff into wholesale channels and sell it at zero percent gross margin,” said Manduca. “On day one, we can help essentially take your gross margin up because you’re selling less stuff at wholesale and you’re selling more stuff at premium retail. You’re holding the right T-shirts in the right areas with the right types of SKUs.”

Omnichannel retail businesses like Vivienne Westwood made up 42 percent of revenue generated by GXO in the first quarter.

Things have been looking up for GXO, which has expanded its $300 million shared space distribution network, GXO Direct, into the U.K. in March, to help businesses position inventory closer to target customers while cutting costs and transit times.

GXO Direct helps companies only use the warehouse space they need, when they need it, with “pay-as-you-grow” pricing models and shared access to technology, workforce management and value-added services like returns management.

But the company isn’t stopping at the U.K., where it has 30 facilities. GXO is expanding the direct program to continental Europe.

Manduca didn’t reveal how many warehouses will be part of the direct program, and didn’t specify the markets into which the program would expand. But he hinted that e-commerce has seen a “real upswing” in France, which is GXO’s third-largest market by revenue, and that the company also is seeing good growth in Spain and Italy. Netherlands, the fourth-largest market for GXO, also appears to be a possibility.

The company also is gaining inroads into Germany thanks to its $1.3 billion acquisition of Clipper Logistics last October, according to Manduca. Clipper gave GXO another 50 warehouses, totaling 10 million square feet across Europe.

Manduca even credits the acquired company for helping GXO recently land and expand with businesses like Farfetch, which he said was “probably a contract that we wouldn’t necessarily have won, were it not for the fact that we had Clipper onboard.”

GXO currently has a sales pipeline of $2.3 billion, which represents business that is currently in the negotiation stage but not yet won. Baris Oran, chief financial officer at GXO, said in the earnings call that the pipeline typically turns over twice a year, meaning the company’s market opportunity is roughly $4.6 billion for the full year.

Through the end of April, the company secured more than $800 million worth of incremental revenue for 2023, equaling revenue growth of 9 percent year-to-date. The company signed new partnerships and expanded relationships across multiple verticals and markets with Vivienne Westwood, Sainsbury’s, Google, Kellogg’s and Unilever among others.

In addition, about $362 million in revenue is locked in through 2024, which puts the company 38 percent ahead of where it was at this stage last year.

For the first quarter, GXO Logistics generated a net income of $26 million, or 21 cents on a per-share basis. When adjusted for one-time gains and costs, earnings were 49 cents per share.

The company raised its full-year adjusted diluted earnings guidance by 10 cents per share to between $2.40 and $2.60 per share, and maintained its outlook for organic revenue growth of 6 percent to 8 percent.