E-commerce service provider Shopify, apparel retailer American Eagle Outfitters and meal-kit delivery company Blue Apron are among the companies that set expansive strategies in hopes of gaining greater scale, with some looking to establish distribution channels to compete with the sprawling logistics network of Amazon.com. 

As growth in online commerce retreats to prepandemic levels, several companies are signaling that delivering goods to homes on a regular, reliable basis has proven more challenging than expected. 

“The reality is that logistics is hard. Supply chain is hard, and you spend your whole existence in supply chain trying to make sure the things that were supposed to happen happen, and you have customers that effectively tolerate (only) perfection,” said Aaron Alpeter, founder of supply-chain consulting company Izba. “That’s just a very difficult business to be in.”

Alpeter said many companies and their investors are looking more closely at the effects of logistics operations on bottom lines now that the urgency of overcoming supply-chain disruptions has receded. 

“I think that there’s a lot less forgiveness in the marketplace where you can’t just blame supply chain issues for things and you’re being forced to account for your decisions,” he said. “You need to be profitable, you need to manage your cash flow and all those sorts of things that people should have been doing all along, but it’s just the math has changed so dramatically in such a short period of time.”

Retailers of virtually every size raced to bulk up online delivery offerings at the onset of the pandemic in early 2020, as consumers shifted to shopping online for everything from home décor to cleaning supplies.

American Eagle, for instance, sought to expand its logistics operations even faster by offering its burgeoning capabilities to other retailers. It established a subsidiary, Quiet Platforms, after buying logistics providers Quiet Logistics and AirTerra, and spending hundreds of millions of dollars to build scale to spread out its own fulfillment costs. 

While the effort has cut delivery costs for American Eagle brands, the retailer this year began trimming Quiet’s workforce after saying the subsidiary’s third-party services had not met expectations.

Michael Mathias, chief financial officer of American Eagle, said on an earnings call Wednesday the retailer has “reset expenses to align with the current pace of growth in the third-party business.”

Brian Lemerise, vice president of fulfillment at supply-chain platform Stord and former president of Quiet Logistics, said many companies discovered building a network of warehouses and last-mile delivery services was 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,” said Lemerise.

Amazon built its logistics network over more than two decades, boosted by fast-growing sales on its marketplace as it became the nation’s dominant e-commerce retailer. Its distribution network spans warehouses, trucks and planes, and rivals United Parcel Service and FedEx. Amazon over the past year has pulled back on its logistics growth amid slowing sales.

Blue Apron built its manufacturing and distribution operation as a pioneer in the meal-kit sector, offering weekly delivery of pre-measured ingredients and easy-to-make recipes to the doorsteps of its customers. The company opened two warehouses and hired about 1,200 workers to assemble boxes to keep goods fresh during expedited shipping.

However, the early growth in the meal-kit business, boosted in part by homebound consumers, has pulled back, and Blue Apron has struggled to increase sales and keep customers in the expensive business of delivering perishable items.

The company said last week 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. Blue Apron Chief Executive Linda Findley said FreshRealm will handle the logistics operations while Blue Apron focuses on developing new products. She expects BlueApron to cut costs by outsourcing manufacturing and delivery because FreshRealm can spread its expenses among several retail customers.

“As long as it’s just us, there’s still only so much scale you can get at speed,” Findley said. “This lets you get that scale faster by more people taking advantage of the infrastructure.”

Source:www.wsj.com