Amazon’s Acquisition of Zappos Is “A Good Thing for Kiva,” Says Robot Company’s CEO

7/23/09Follow @wroush

Much of the buzz about Amazon’s surprise announcement yesterday that it is acquiring popular online shoe retailer Zappos for more than $900 million is about whether the Las Vegas-based company really needed to sell, or was pressured to do so by its main venture backer, Sequoia Capital. But the first thing I wondered when I heard the news was what the acquisition might mean for Kiva Systems, the Woburn, MA, startup whose robots staff a huge Zappos distribution center in Louisville, KY.

Zappos has been working with Kiva for almost two years, and the company’s shelf-toting robots, which help speed the process of order fulfillment, have been operating in the Louisville location for over a year. And in fact, the shoe seller recently ordered more Kiva gear to prepare for the holiday rush, says Kiva CEO Mick Mountz, whom I reached by phone this morning. “We don’t know anything more than what’s in the press right now, but our reaction is that this is a good thing for Kiva,” Mountz says. “They’re growing quickly, and growing their Kiva system to support that. If you take the press releases at face value, they are going to keep the two companies separate, and it’s all about growth. What that implies to us is that they’re going to need more Kiva equipment to keep doing that.”

A Kiva robot at workIndeed, Zappos CEO Tony Hsieh said in an open letter to employees that the Louisville warehouse might even grow into a hub for Amazon’s own inventory. “As many of you know, we were strategic in choosing our warehouse location due to its proximity to the UPS Worldport hub in Louisville,” Hsiesh wrote. “Amazon does not have any warehouse locations that are closer to the Worldport hub. There is the possibility that they may want to store some of their inventory in our warehouse or vice-versa. Right now, both Zappos and Amazon believe that the best customer experience is to continue running our warehouse in Kentucky at its current location.”

Kiva’s whole mission is to help companies get products off the warehouse shelves where they’re stored and into boxes for shipment to consumers faster, using agile wheeled robots that carry the shelves to stock pickers. That means Amazon has always been one of Kiva’s dream customers—and now, thanks to the Zappos acquisition, it’s an actual one. “What that means to our business is that the number-one and number-two e-retailers are now using Kiva, the number two being Staples,” says Mountz.

E-commerce companies have been Kiva’s strongest customers lately, according to Mountz. “From where we sit, e-commerce is doing pretty well right now,” he says. “Diapers.com recently got some expansion gear from us. Quiet Logistics, which is supporting the Gilt Groupe, just purchased some additional gear.”

And if Amazon wants to keep expanding at its current rate, it’s going to have to look at warehouse automation technologies, Mountz believes. “If you look at their business, they are at $20 billion a year and growing at 5 percent. That means they need to add a billion dollars of capacity a year—that means opening one or two new distribution centers every year. Along those lines, the Zappos folks have plenty of space down in Louisville, and a great location next to the UPS Worldport hub, so if we had to predict, we’d think they’re going to end up using that building for even more beyond the growth Zappos has planned.” [Update: In a follow-up e-mail, Mountz noted that Amazon's recent growth rate has actually been closer to 15 percent or $3 billion in additional gross revenues every year.]

Meanwhile, Kiva is busy building and delivering the equipment Zappos needs for the holidays, Mountz says. “We have ongoing, project-level dialogue with Zappos every week, and we’ll just have to see what they learn over time,” he says. “We think Kiva is going to be a big part of their material handling as they go forward.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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