Online Retail

Hermes Builds a Delivery Giant

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Hermes' great new hall of goods.
  • Why it matters

    Why it matters

    Amazon is getting more and more demanding of its delivery companies and Germany’s Hermes hopes to win some of its business through updating its facilities.

  • Facts

    Facts

    • Hermes’ new warehouse is one of the biggest pieces of real estate on one level in the whole country.
    • The unit cost €90 million to build.
    • Online sales of furniture and home furnishings generated total revenues of €2.7 billion.
  • Audio

    Audio

  • Pdf

For five years Hermes has been working on a construction site in the Westphalian town of Löhne. The Otto subsidiary has persuaded countless landowners to sell, fought citizens’ initiatives and excavated half a million cubic meters of earth.

The result is one of the biggest pieces of real estate on one level in the whole country, measuring the equivalent of 51 soccer pitches.

The longest side wall of the hall at 100,000 m² (120,000 yd.²) measures more than half a kilometer (a third of a mile). It is from here that the Hamburg-based company will begin the central dispatch of bulky online orders like washing machines, furniture and electric cookers – both for itself and other companies.

The gigantic construction is replacing ten now-obsolete buildings, but it will not make business less expensive for Hermes. Higher expenditure on rent virtually cancels out savings on truck journeys between stores which are no longer needed.

So why the enormous expenditure of €90 million on construction costs?

“It’s true that the investment will not reduce our costs in the short term,” said Dieter Urbanke, chief executive of the Otto company Hermes Fulfilment, “but we are speeding up our logistic processes considerably.”

Delivery of most large devices to consumers will now come one day earlier. That will make it easier, Mr. Urbanke added, “to achieve the service objectives agreed with online retailers.”

Mr. Urbanke would not reveal the name of the client applying this pressure, citing client confidentiality. But there is little doubt that he is alluding to the online retailing giant Amazon.

For a long time now, the U.S. company has been decidedly inflexible when it comes to speed of delivery. In Great Britain, Amazon booted out the unreliable package service Royal Mail last year and took over deliveries itself.  The same thing happened in the United States, where the online retailing giant took over deliveries in several big cities to be more punctual, after Fedex and UPS botched Christmas two years ago.

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