Just a couple of weeks ago, ecommerce front end software provider Shopify abruptly announced it was ending its plans to build out an Amazon-like fulfillment network. The goal was to provide its web merchants a one stop shop for web ecommerce enablement and order pick, pack and ship, akin to Amazon’s Fulfilled by Amazon 3PL service.
Supply Chain Digest Says...
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in February, specialty retailer Gap announced a program similar to the American Eagle strategy, saying it was entering the fulfillment market as a 3PL, in partnership with Ware2Go, a unit of UPS focused on flexibly leasing space to shippers.
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After lots of investment in building a network and supporting technology platform, Shopify decided it wasn’t going to work, with news it is selling its acquired fulfillment inventory planning software Deliverr to freight services provider Flexport, and its mobile robot maker 6 River Systems to UK-based Ocado Group, a provider of automated order picking systems. (See So Much for Shopify’s Grand Fulfillment Strategy.)
Shopify is not the only one rethinking such strategies.
Wall Street Journal, recently noted that “As growth in online commerce retreats to pre-pandemic levels, several companies are signaling that delivering goods to homes on a regular, reliable basis has proven more challenging than expected.”
That includes apparel retailer American Eagle and home meal provider Blue Apron.
In April 2022, American Eagle announced it was building out what amounts to third-party logistics capabilities even rival retailers could use.
To that end, over the previous two years American Eagle had spent major dollars to acquire two logistics firms, including AirTerra, a Seattle-based parcel shipping start-up, and Quiet Logistics, a 3P that operates several distribution centers around the US.
American Eagle at the time said it wanted to “Uber-ize” the global supply chain, turning into shared services available to other retailers.
While the program has reduced fulfillment costs for American Eagle brands, the company this year began trimming Quiet’s workforce, stating that unit’s third-party services had not met expectations.
Michael Mathias, chief financial officer of American Eagle, said on an earnings call last week that the retailer has “reset expenses to align with the current pace of growth in the third-party business,” according to the Wall Street Journal.
Brian Lemerise, vice president of fulfillment at warehouse space provider Stord and former president of Quiet Logistics, told the Journal that many companies find building a network of warehouses and last-mile delivery services can be a lot more expensive than expected. Unless companies “understand the complexity of it, it’s very easy to very quickly spend a lot of money without a lot of return,” Lemerise added.
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In Blue Apron’s case, it offered weekly delivery of pre-measured ingredients and easy-to-make recipes to its customers’ homes. The company opened two distribution centers, adding 1200 workers to assemble boxes to keep goods fresh using expedited shipping.
Now, growth has slowed, and the expensive business of delivering perishable items is weighing on the bottom line.
So last week Blue Apron announced it is selling its logistics assets to FreshRealm, which makes meal kits for grocers Kroger, Publix and Walmart, in a deal worth up to $50 million.
Company CEO Linda Findley said FreshRealm will handle the logistics operations while Blue Apron focuses on new product development. She expects BlueApron to cut costs by outsourcing manufacturing and delivery because FreshRealm can spread its expenses among several retail customers, according the Journal.
Just in February, specialty retailer Gap announced a program similar to the American Eagle strategy, saying it was entering the fulfillment market as a 3PL, in partnership with Ware2Go, a unit of UPS focused on flexibly leasing space to shippers.
The new partnership will focus on small and medium-sized businesses (SMBs).
Ware2Go and Gap said that together they can provide SMBs access to world class fulfillment centers, where advanced technology, automation and robotics can deliver a scalable network that provides as fast as one-day click-to-door fulfillment.
Will this one see better results that American Eagle and Shopify’s experience?
It’s only been a few months, but the odds against a rousing success seem high.
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