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Why Some Brands Are Launching Their Own Logistic Business

Charting the U.S. Logistics Competitive Landscape

Photo by Ismael Paramo on Unsplash

Lately, it seems that more and more brands are getting into the third-party logistics (3PL) business. Last month alone, Gap Inc. launched GPS Platform Services to offer its network of warehouses and inventory systems to other retailers, while American Eagle relaunched the Quiet logistics platform after acquiring it last year. Even convenience store chain 7-Eleven bought a logistics startup called Skipcart and is reportedly ready to launch its own 3PL service.

Altogether, these brands with extensive brick-and-mortar footprint are starting to leverage their supply chain capacity and logistical know-how to launch a new side-business to other less logistically-savvy brands. For instance, American Eagle recently added high-profile clients Fanatics and Saks Off Fifth, and announced a partnership with shipping tech company Pitney Bowes to facilitate last-mile delivery from warehouses to consumers. The apparel retailer reported that, with its relaunched Quiet platform, it was able to cut down on its shipments per order and reduced its delivery times by 13% in Q1 2022.

Why Now?

A key driver behind this new trend seems to be a result of the accelerated shift towards ecommerce over the past two years, as well as a response to the ongoing supply chain issues. Retailers who raced to build fulfillment centers in the past year to meet the demand for next-day delivery services are now faced with excess logistics capacity, and many have decided that rather than scaling down their logistics operation, they are going to compete with the likes of Amazon and Walmart for enterprise customers seeking 3PL services.

In today’s on-demand economy, fast, free delivery is common consumer expectations, and facilitating efficient product delivery and returns is crucial to creating a positive post-purchase brand experience in ecommerce. Even Apple has started to incorporate package shipping updates into Apple Wallet for purchases made with Apple Pay. In order to achieve that, every brand needs to modernize their logistics operations and make sure that they can deliver the best customer experience.

Moreover, third-party logistics (3PL) is a growing industry in the U.S. There has been a year-on-year increase in revenue every year besides 2019, when the total industry revenue dropped to USD $212.8 billion. By 2023, the 3PL market is expected to exceed $297 billion.

Source: Armstrong & Associates via Statista

Taken together, it is no wonder why so many brands are getting into the 3PL business. As a result, the U.S. logistics landscape is in a rather dynamic, fluid state, as seemingly every major retailer starts to realize the importance of owning a robust backend operation to implementing omnichannel strategies. While Amazon still leads the market in terms of overall size and capability, competitors like Walmart and Shopify are quickly catching up. Moreover, new innovations in automated delivery and micro-fulfillment networks are also bringing new life into the competitive landscape.

Let’s take a look at the three main players shaping the U.S. logistics market.

Amazon: Still the Industry Standard

As the undisputed leader in the U.S. ecommerce market, Amazon has been leveraging its logistics prowess to not only set the bar for the retail industry on fast two-day (and lately, same-day) delivery, but also making a pretty penny out of its logistics software stack. Amazon Logistics is a well-known shipping & delivery service, which complements existing providers such as USPS, FedEx, and UPS. Sure Amazon has its own fleet of delivery trucks, ships, and cargo planes, but the main business of Amazon Logistics is a marketplace for independent delivery contractors and businesses through the Amazon Flex program or the Amazon DSPs (Delivery Service Partners) program, who bring their own vans and deliver packages for Amazon on a for-hire basis. Some would argue Amazon’s competitive advantage in logistics is its strongest moat for keeping its customers happy and keep buying more.

Starting last summer, Amazon has introduced a slew of new services aiming at further improving its logistics capability, including partnering with mom-and-pop shops in remote rural areas for last-mile delivery and returns, as well as expanding Amazon Lockers into more locations, including convenience stores, airports, and even a police station in D.C.

Most notably, in September 2021, Amazon started offering white-labeled shipping service to other retailers and brands. Similar to how AWS started as an internal product that Amazon built for itself, Amazon has realized that the world-class logistics operation it has can also be turned into an enterprise product. This strategy of “build it well and sell excess capability as a B2B product” is exactly what led the likes of Gap and American Eagle to enter the 3PL business.

Walmart: Brick-and-Mortar Stores as Logistic Assets

As the biggest brick-and-mortar retailer in the world, Walmart has a robust logistics network that it has been rapidly upgrading to keep up with the omnichannel shoppers. Compared to Amazon, what it lacks in technological capability (which it has been fixing through acquisitions), Walmart is more than making it up with its extensive network of brick-and-mortar stores, which now double as distribution centers to facilitate fast delivery.

As retailers look to streamline their shipping processes and meet customer expectations for rapid delivery, upgrading logistics operations is now a priority for many. Yet, building out new shipping infrastructure can be an expensive endeavor, especially as labor costs continue to rise and retailers compete for warehouse space. This is why retailers with large numbers of physical stores across the country, like Walmart, have a big advantage in leveraging their brick-and-mortar locations as fulfillment centers, so that they can send out orders faster and reach rural communities more efficiently.

According to a company blog post published in June, Walmart now operates “31 dedicated ecommerce fulfillment centers and 4,700 stores located within 10 miles of 90% of the U.S. population” to fulfill online orders at exceptional speed. This unparalleled proximity to consumers, especially in suburbs and less populated areas, is especially beneficial for Walmart’s grocery delivery service.

In the same post, the company also announced its plan to build four next-gen fulfillment centers over the next three years, which will incorporate robotics and intelligent fulfillment solutions provided by Knapp. This is in addition to its continued effort to retrofit regional distribution centers by adding automated solutions from partners like Knapp, Symbotic and Witron to modernize its entire supply chain operations.

Just like Amazon, Walmart has its own white-labeled shipping service called Walmart GoLocal, which was launched in August 2021. The company mentioned in a press release last month that it expects to scale GoLcal to serve clients at 5,000 locations by the end of this year. Time will tell which one the merchants prefer in the long run, but right now, Amazon still has an edge simply because it has a bigger merchant marketplace.

Shopify x Deliverr: Building an Amazon Alternative

As the leader in independent ecommerce solution providers, Shopify is very much aiming to become a one-stop partner for entrepreneurs. Last year, the company expanded Shop Pay, its one-click checkout service, to any merchant selling on Facebook or Google, which further solidified its position as the lynchpin in the “anti-Amazon alliance.” Moreover, it acquired logistics service Deliverr in May for $2.1 billion, which signals an even bigger ambition to provide full-stack ecommerce solutions for small businesses. The company reportedly plans to merge Deliverr with its existing fulfillment network, which is anchored by the 6 River Systems business it acquired in 2019, to form a broader logistics unit.

Shopify’s biggest advantage comes from the fact that it is a neutral ecommerce infrastructure provider. Unlike retail giants like Amazon or Walmart, or new entrants like Gap or American Eagle, Shopify does not own a retail operation — it exists solely to serve merchants with an increasingly all-in-one solution for starting your own online shop. Thanks to its neutrality, Shopify is also able to strike wide-ranging partnerships to integrate Shop Pay into many online store’s check-out pages, which, in turn, also increases its appeal to shoppers looking to complete the check-out process faster.

If Shopify can stick to its strategies of appealing to both merchants’ and shoppers’ demands for a more user-friendly online shopping experience, it will continue to grow in prominence — not necessarily as an Amazon alternative but as a first choice for small business owners — and play an integral role in the larger commerce infrastructure. This is especially interesting in the context of a recent wave of renewed anti-Amazon sentiments among certain consumer segments, either for their union-busting tactics or labor practices. Even some TikTok creators are banding together to boycott Amazon to pressure Amazon to meet the requests of its workers.

Check back next week to dive into the other innovations driving the logistics landscape with us, including automated last-mile delivery, ultra-fast local delivery services powered by micro-fulfilment centers, and more sustainable logistics practices.

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Richard Yao

Richard Yao

Manager of Strategy & Content, IPG Media Lab