Slowing E-commerce is Putting a Strain on Logistics
E-commerce growth has slowed leaving pandemic-fueled firms in a bind. Blue Apron, American Eagle Outfitters, and Shopify are just a few of the companies that ramped up their logistics networks in 2020/21 with customers homebound and purchasing online. Amazon has been the gold standard in this arena, but few firms can achieve scale. Now that online commerce is back to pre-pandemic levels, delivering goods at the same speed to home after home is proving to be a strenuous undertaking.
American Eagle was especially aggressive over the last three years having established a logistics subsidiary, Quiet Platforms, to facilitate increased demand. The company spent hundreds of millions of dollars to scale, eventually offering its services to similar and even rival retailers. Management reports that delivery costs were indeed streamlined, but the overall performance of Quiet Platforms in 2023 is not meeting expectations. As a result, the workforce has begun to undergo a trim.
A major component of the e-commerce ramp-up was the construction of last-mile delivery services. Namely, centralized systems, warehouses, sorting and loading solutions, and the corresponding transport to the customer’s residence. Buyers will always want their product as quickly as possible, but the most time-consuming and expensive part of the shipping process is the “last mile.” One estimate places 53% of the shipment’s total costs just on the last mile. Moreover, chain inefficiencies can result in up to 25% losses during this stretch alone.
It took Amazon roughly two decades to build its logistics network. This spans trucks, planes, warehouses as well as the collaboration of FedEx and United Parcel Service. Yet even the Seattle behemoth has had to pull back on logistics growth in this challenging economic environment. Blue Apron is another example of a company that scaled rapidly during the pandemic. Their pre-measured meal kits with attractive and easy recipes were supported in great numbers by a slew of homebound clients. In the face of rising demand Blue Apron hired 1,200 new employees and opened two warehouses. Today sales are stagnant and Blue Apron is selling its logistics assets to a specialized firm.
Shopify was another company seeking to rival Amazon during 2019 and 2020. They acquired two logistics firms but are now selling their fulfillment operation to Flexport. Shopify, like Blue Apron, is focused on the merchant experience and letting third parties handle the logistics. The pandemic demanded a strategic shift, but the shift back to pre-pandemic markets has been costly.
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