The Current, delivered daily.
Under the collaboration, FedEx will deliver more shipments to Boxed customers, which include a mix of consumers and businesses. The companies began working together in 2013, and are now growing their work together.
The companies said the new arrangement will provide more Boxed customers with access to seven-days-a-week shipping, and enable consistent delivery service. Additionally, Boxed will be able to save on transportation costs across its fulfillment centers.
Boxed makes bulk consumables that would typically be sold at club membership stores available through its ecommerce platform. In its first quarter earnings call this week, the company reported its Gross Merchandise Value increased 19.2% year-over-year to $53.4 million, driven in part by more B2B deliveries as offices reopen.
The partnership growth with FedEx comes as supply chain issues remain top-of-mind for many ecommerce companies. At the same time, companies are seeking price relief for customers amid inflation. Boxed said it will reinvest the savings into better pricing for customers and more promotions on products.
“In this challenging supply chain environment, ecommerce companies are seeking new avenues to counter escalating costs, and provide the best possible service to their customers,” said Boxed CEO Chieh Huang, in a statement. “This enhanced alliance with FedEx provides us with the opportunity to address both.”
Collaborations provide benefits two ways. In this case, Boxed can respond to customer preference for everyday delivery and realize savings by tapping FedEx’s delivery capabilities, while FedEx bulks up its work with an ecommerce company.
“The collaboration between FedEx and Boxed demonstrates how ecommerce providers and shipping companies can craft new solutions to collectively meet our customers’ new demands and needs today and tomorrow,” said Ryan Kelly, vice president of ecommerce, SAM and retail marketing at FedEx, in a statement. “We’re proud of this alliance and look forward to enabling Boxed and its retailers access to supply chain flexibility and capability that is unrivaled in the marketplace. It is what’s next for businesses of all sizes.”
FedEx has sought to grow its ecommerce capabilities, especially after the growth of online shopping over the last two years led to a big increase in package volume across carriers. In 2020, it acquired ShopRunner, a subscription service that allows shoppers to purchase from a variety of brands and offers two-day shipping. In January 2022, it announced a commerce-focused partnership with Microsoft. The intention behind that collaboration was to combine data insights from FedEx with the B2B offerings of Microsoft Dynamics 365 to create an order management application for brands and retailers.
Analysts see opportunity for FedEx to enable these two ecommerce collaborations to work together. A report by Citigroup, detailed by Reuters, identified an opportunity for FedEx to boost profit by $1 billion by making itself more visible to shoppers. This hinges on FedEx becoming the “universal shopping cart” for ecommerce by growing ShopRunner’s merchant partnerships and subscriber base.
"By leveraging ShopRunner assets through incremental technology investments with its partner Microsoft, we think FedEx can make itself a bigger part of the checkout process, increasing its role in the ecommerce sales experience," Citigroup analyst Christian Wetherbee told Reuters.
FedEx is already an important, if less heralded, part of the ecommerce landscape. Its trucks are visible to shoppers who see packages show up, even though orders are completed through brands and marketplaces. As ecommerce grows, it's becoming more apparent that supply chain is a customer-facing function. Partnerships can help logistics and delivery companies like FedEx deepen their integration on this front.
Trending in Operations
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
Scaling with sortation centers
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
Improving the ecommerce experience
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.