Automated the long tail

If you have shopped online, the chances are you have benefitted, perhaps unknowingly, from "the long tail." The phrase, as it relates to e-commerce, was brought into common usage by Chris Anderson, the editor of Wired magazine in his 2004 article, "The Long Tail" and later in a book of the same name.¹

July 11, 2019

Angus Muirhead

CFA, Portfolio Manager, Credit Suisse Asset Management

Automated the long tail

For the online shopper the long tail describes the vast choice of goods and services available over the internet. Although internet shopping is a relatively new phenomenon, consumers have quickly grown accustomed to the broad choice available, from rare books, limited edition watches and bespoke holidays. No matter what, today most things can be found online. In this Thematic Insight, we look into the disruptive effect e-commerce and in particular the “long tail” of consumer choice, is having on distribution and logistics firms around the world.

The long tail opportunity

The "long tail" refers to goods which are not mainstream best sellers. It describes the vast number of lesser known, niche or eclectic goods and services that sell in smaller quantities, in contrast to the relatively small number of mainstream products which sell in great volume.

"Frustrated by the lack of skilled workers and pressured by outside forces like e-commerce, distribution companies are looking at more automated solutions for their distribution centers." Bridget McCrea, editor "Logistics Management" magazine (May 2018)

Traditional retailers are limited in both the range and volume of products they can display by the size of their shop and shelf-space available. For this reason they typically choose to stock the most popular, best-selling items; the products which are most likely to be bought by the largest number of customers. Traditional book stores for example are more likely to have a best-selling novel in stock, rather than an obscure title or rare edition; more likely a fashion retailer will have more common sizes in stock in popular colors, rather than unusual sizes.

Online retailers, in contrast, do not have such “physical” restrictions. For the online shop, shop size and shelf space is "virtual"; limited only to the screen size of your computer or smartphone and the patience of the shopper to scroll through the vast selection of items. The online retailer also has no need to "stock" inventory in an actual store, but can simply ship the product directly to the customer either from a huge warehouse located somewhere with cheap rent, or directly from the manufacturer.

Estimates suggest that a typical superstore in the US stocks 40 to 50 thousand different products, or stock-keeping-units (“SKU”s).2 That sounds like quite a broad choice, until we discover that Amazon lists 564 million products on its US homepage alone, and over 6 billion different products across 11 sites globally3. That is a very very long tail.

This relative flexibility affords e-commerce merchants a significant advantage, because it is now clear that the value of all the smaller, niche products in the long tail is in aggregate often as large4 if not larger than the value of all the blockbusters, megabrands and best-sellers. In Anderson-speak, "the tail is usually worth more than the head" (see Figure 1).

Figure 1. Chris Anderson’s “long tail” phenomenon: the tail may be worth more than the head

Figure 1. Chris Anderson’s “long tail” phenomenon: the tail may be worth more than the head

Sources: “The Long Tail”, Chris Anderson, Hyperion; Credit Suisse

While the online retailer can offer customers access both the head and tail, the traditional retailer is generally restricted to the head. And since the barriers to accessing the long tail are physical, it seems likely that traditional retailers need to push into the e-commerce world if they have any hope of compete on product range, price and scale.

The growth of e-commerce

Consumers, it appears, are starting to enjoy the variety offered by the long tail. As the breadth of goods available online continues to broaden and consumers, from young to old, become familiar with online shopping, more trusting of digital payments and appreciative of the convenience of home delivery, so the e-commerce industry continues to grow rapidly.

Today global e-commerce is estimated at just above USD 2 trillion and growing at 20% per year (approximately 6x faster than the overall retail market). As you might expect the growth rate is closer to 30% in parts of Asia and 15% in Europe and the US. Despite this impressive market growth over the last 20 years, e-commerce only represents around 11% of the retail market globally. However, current trends indicate that the e-commerce market should exceed 20% of retail commerce by 2025 and continue to grow in significance from there5.

As the e-commerce market grows, it is becoming more competitive. It is no longer enough to offer a broader range of products and deliver better service than traditional retailers, but now e-commerce merchants need to compete with other e-commerce merchants. As a result e-commerce retailers are pushing to improve their terms of service to the consumer, by offering free returns, free shipping and same or next day delivery. Many are also starting to allow consumers to customize purchases6, perhaps with bespoke sizes, color combinations, or embroidered text, and this product customization is starting to extend the length of the "long tail" further, offering even more choice to the consumer and even more complexity for logistics firms.

Reshaping distribution

While the retail-hungry consumer stands to benefit from e-commerce, logistics companies are facing a number of challenges. Most have benefitted from the increased demand for parcel shipments as a result of e-commerce, however, they have all, including Amazon, seen the cost of logistics and distribution grow at a faster pace than revenues (see Charts 1a. and 1b.). The problem is that their businesses were designed for a different type of logistics.

Chart 1a. Trend of distribution costs at FedEx and UPS

Chart 1a. Trend of distribution costs at FedEx and UPS

Sources: Company financial statements. Credit Suisse
Chart 1b. Rising trend of distribution costs at Amazon

Chart 1b. Rising trend of distribution costs at Amazon

Sources: Company financial statements. Credit Suisse

Warehouses and distribution centers are used to store finished products, as well as parts and raw materials. They are critical, not only to manage the supply chain and efficiently feed the manufacturing process, but also to deliver products to the customer in a timely manner.  Most distribution centers around the world today were designed for bulk shipments to retail outlets: a container placed on a truck at the port might be driven to a warehouse for unpacking and further distribution to local distribution centers; and from there it might be transported to retail outlets for sale to customers.

The demands from e-commerce are however, quite different to this traditional model. Rather than shipping a limited range of goods to a fixed number of destinations on a regular and scheduled basis, a vast array of goods are shipped to a massive and changing number of addresses on an ad hoc basis. Furthermore, rather than shipping product in bulk on pallets, they often need to be sorted and repackaged into boxes of single or multiple units, and into combinations of items of very different size and weight; from a 15cm plastic ruler and packets of popcorn, to garden tables, lawn mowers and steel gun cabinets.

Automation as the solution

Estimates vary, but approximately 80% of all distribution centers and warehouses globally have very little or no automation.7 In the old model of scheduled bulk distribution, automation was not needed; people with pallet trollies and forklifts were typically enough. E-commerce however, demands much greater speed to meet the demands of next day delivery and flexibility to allow cost efficient selection and packing of even low value individual items from a very “long tail” of inventory, and perhaps even customization of those items. In most cases human labor has proved prohibitively expensive or simply unavailable to effectively deliver the requirements of e-commerce distribution.

While Amazon and other large e-commerce merchants are now setting the pace in automated logistics, much of what their business runs on today is older infrastructure. Amazon’s first distribution centers were built 20 years ago and compared to current builds which often have floor space of more than 1 million square feet, the early centers were small (93,000 and 202,000 square feet) and nearly devoid of automation.8 Over the last 20 years Amazon has however, invested increasingly large amounts into technology to make the "fulfilment" process more efficient. As well as building solutions internally and buying systems from third parties, they have also made acquisitions to bring specialist technologies in-house: acquiring Kiva Systems, a maker of logistics robotics in 2012, and taking a stake in French company, Balyo, in 2019 to develop autonomous forklifts.9

Efficiency improvement at Fast Retailing’s Ariake warehouse

Amazon is not alone in their push to automate logistics. All the large players are moving in the same direction. Alibaba committed to invest USD 15bn into logistics technologies over 5 years, UPS developed the "ORION" predictive route planning system for their drivers, which reduces their mileage by about 100 million miles per year, FedEx has just unveiled “SameDay Bot”, an autonomous delivery robot, and Fast Retailing, better known for their "Uniqlo" brand of clothes, commissioned Daifuku to automate their warehouse in Ariake, Tokyo. The results claimed (see text in frame: Efficiency improvement at Fast Retailing’s Ariake warehouse) were so stark that in 2018 Fast Retailing announced they would automate all their distribution centers globally.5

As the large scale operators, such as Amazon, Fast Retailing, Alibaba, Walmart, and Rakuten, as well as logistics giants FedEx, DHL, UPS and Yamato, push the limits of logistics efficiency ever higher, smaller competitors face the choice to either outsource distribution to these giants, or to automate their own logistics to stay relevant. Fortunately for the smaller merchants, as technology advances it becomes cheaper as well as smarter, and while the leaders of the "materials handling" industry, Daifuku, Dematic and SSI Schaefer, offer fully integrated large scale solutions, we are also seeing a growing number of automation solutions suitable for smaller logistics facilities.

For example, Kardex AG of Switzerland offers the "Remstar" solution, often described as "warehouse in a box", and enables a huge increase in workforce productivity, while minimizing errors and floor space, and reducing the time needed to train staff (see Figure 2). And a number of companies, such as Boston-, Kyoto-, Soft- and RightHand-Robotics, have developed A.I. enabled robotic hands to automate unstructured tasks such as selecting and packaging items in distribution centers.


Today as technology and innovation continue to advance, automation and robotic solutions are becoming prevalent in a broader range of use-cases. Logistics is an area where automation remains a rarity, but is now being rapidly adopted en masse. Automating logistics will allow e-commerce to gain an even larger foothold in the retail market, enabling cost efficient, rapid delivery of an ever longer "tail" of products and services, direct to the consumer.

Credit Suisse “pure-play” strategies

Credit Suisse Thematic Equity “pure-play” strategies offer investors an opportunity to invest not only into the theme of robotics and automation, but also a number of other long-term secular growth themes such as Security & Safety, Digital Health, and Infrastructure.

While automation and robotic solutions will allow logistics companies to ship smaller, bespoke shipments to individuals more cost effectively, we surely have a responsibility to consider the environmental impact of such convenience. What happens to all the cardboard boxes used to ship our shopping? Surely delivering individual products to the consumer's doorstep has a much larger carbon footprint than the traditional "centralized market place" model.

Perhaps technology can also provide green solutions. It is possible that we will see fleets of autonomous delivery robots and drones, running on renewable energy or hydrogen fuel-cells, or that blockchain technology may be used to reduce waste in the supply chain. While it is difficult to predict exactly what the solution will be, it is clear to see that demand for further investment into logistics automation is likely to continue for the next 5 to 10 years.

Fund Facts
Credit Suisse (Lux) Global Robotics Equity Fund

Fund management

Credit Suisse Fund Management S.A.

Portfolio manager

Credit Suisse Asset Management (Switzerland) Ltd, Zurich
Angus Muirhead

Portfolio manager since

September 1, 2016

Fund domicile


Fund currency


Inception date

June 30, 2016

Management fee p.a.

For unit class AH, B, BH: 1.60%; for unit class EB and EBH: 0.90% 
For unit class IB and IBH: 0.90%; for unit class UA, UB and UBH: 1.00

TER (as of May 31, 2018)

Unit class B 1.85%, unit class IB 1.15%, unit class BH in CHF 1.85%, unit class BH in EUR 1.86%, unit class BH in SGD 1.60%, unit class EB2 1.10%, unit class UA 1.28%, unit class UB 1.31%, unit class UBH in CHF 1.29%, unit class IBH in EUR 1.17%, unit class EBH2 in EUR:1.11%, unit class AH in EUR 1.85%

Maximum Sales Charge

5% for all unit classes except unit classes IB, IBH, EB and EBH (max. 3%)

Single Swinging Pricing



MSCI World (NR)

Unit classes

Unit class B, IB, UA, UB, EB in USD; unit class BH and UBH in CHF; unit class AH, BH, EBH, IBH in EUR; unit class BH in SGD


USD unit class B:


USD unit class UA/UB3:


USD unit class IB:


SGD unit class BH:


EUR unit class IBH:


EUR unit class AH:


USD unit class EB2:


EUR unit class EBH2:


EUR unit class BH:


CHF unit class BH:


CHF unit class UBH3:




Please note that not all share classes may be available in your country.

Source: Credit Suisse, April 30, 2019

1 SSP is a method used to calculate the net asset value (NAV) of a fund, which aims to protect existing investors from bearing indirect transaction costs triggered by in- and outgoing investors. The NAV is adjusted up in case of net inflows and down in case of net outflows on the respective valuation date. The adjustment in NAV might be subject to a net flow threshold. For further information, please consult the Sales Prospectus.

2 For Institutional clients only.

3 In Italy: For instituonal clients only.

Fund Risks
Credit Suisse (Lux) Global Robotics Equity Fund

  • No capital protection: investors may lose part or all of their investment in this product.
  • The emphasis on Robotics companies can create significant exposure to certain sectors or regions.
  • Exposure to small and mid caps can result in higher short-term volatility and may carry liquidity risk.
  • Due to the possibility of increased exposure to the emerging markets the fund may be affected by political and economic risks in these countries.
  • Equity markets can be volatile, especially in the short term.

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1"The Long Tail: Why the future of business is selling less of more", Chris Anderson, 7.2006, Hyperion. Wired Magazine, Editor in Chief until 2012

2 “Grocery: The buying and selling of food in America”, Michael Ruhlman, Abrams Press, 2017

3 Estimate by “Scrapehero: “How many products does Amazon sell worldwide?” Jan 2018

4 Depending on the particular market segment

5 451 Research (2018): “Global Unified Commerce Forecast”, published on Sept 11, 2018

6 Until only a few years ago product customisation was too expensive for all but luxury products, but now, as cheaper and more flexible robotic and automation solutions become available to manufacturers, the potential to offer customisation at a reasonable cost is increasing

7 Estimate provided by a materials handling industry expert, who held a senior positions at both Dematic and SSI Schaefer

8 Amazon: Visual Capitalist September 2018; DCs built in1997 in Seattle and Delaware ;  Alibaba: Reuters news 25 September 2017;  UPS: “ORION backgrounder”, UPS pressroom;  Daifuku/Fast Retailing: corporate partnership announcement 9 October 2018

9 Source: Bloomberg financial


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