It's the Warehouse, Stupid

This week, The New Yorker is offering an issue entitled "The Digital Age." Tucked in between the ads for netLibrary, Fineartlease.com, IBM, and AllTea.com is a fascinating article (not available online, unfortunately) by Malcolm Gladwell, in which he suggests that the real story of the e-commerce revolution has very little to do with the Internet itself but rather with the automation of warehouses and shipping.

To prove his point, Gladwell spends time up in Wisconsin at Lands' End, where he discovers that the executives there regard their Web site as merely an extension of their catalog-based way of doing business, not as some earth-shattering revelation. Site traffic spikes when a new catalog is mailed out, just as phone traffic spikes when a new catalog is mailed out. Web customer-service people are equipped to chat online with shoppers or to chat via phone while they surf alongside shoppers.

It's an important point: Web-based shopping hasn't saved Lands' End any money on customer service and order entry. All those people are still there working at telephones and computers. Maybe some day it won't need to print as many catalogs, and that could be a big cost savings, but it's not something the executives spend too much time thinking about.

At Lands' End, reports Gladwell, the real breakthrough was 1980s-era warehouse automation via an elaborate system of bar-coded invoices and plastic bins that roll around cavernous spaces assembling your order automatically and drastically cutting the amount of time it takes to get an order out the door. Mail-order shopping doesn't offer instant gratification, but it got a lot more instant once Lands' End was able to slash delivery time from three weeks to five days. That's what the executives think about.

I've had the chance to visit one of Amazon.com's six vast distribution centers, and it's really remarkable to see that much stuff under one roof, all being sorted, gift-wrapped, boxed, shrink-wrapped, and loaded into a fleet of 18-wheelers from UPS, Federal Express, and the USPS. My overall impression: Forget about investing in Amazon.com. Invest in UPS. One look at a warehouse like that, and you realize that it's not so important how the orders come in. What matters is how they get filled and how they get shipped out.

Gladwell also reports on trucking companies that operate in real time, using complicated communications systems to send trucks to pick up urgent shipments within minutes and hurry them on their way. Then he discusses the growing phenomenon of local home-delivery services such as Kozmo.com, a service I use here in New York to get home delivery of videos and snacks. Recently, Kozmo.com has started to deliver books, CDs, and even newsstand magazines. Hmmm. Interesting. Is there any way, Gladwell wonders, that all these services could be tied together so that I could order a sweater from Lands' End and have it delivered to me by Kozmo.com the same day? Could everyone involved in some huge macroscopic delivery network make enough money being part of the chain? Maybe so.

I love Gladwell's creative thinking on distribution, thinking that he grounds in historical perspective, beginning with the improvement of rural roads at the turn of the century that allowed mail and then parcels to be delivered to every home and farm. That infrastructure improvement made the mail-order business possible in the first place, and it led to the reinvention of the U.S. postal system, something that will probably have to happen again early in the next century as e-mail continues to swamp postal mail, and the post office continues to compete with overnight delivery services.

So the next time that you get a delivery from an online store, don't spend too much time pondering how cool it is that you shop on the Internet. Ponder how cool it was that the package arrives as fast as it does and with the right products in the box. And ponder how much more impressive all this is going to be when another 50 million of us start shopping online.

And remember: Order early to ensure timely holiday delivery.