Shopify hands its logistics business to the man who built Amazon's
As Flexport picks up most of Shopify's logistics network, it looks like CEO Dave Clark is ready to build...again.
Dave Clark. (Photo via Amazon)
As Flexport picks up most of Shopify's logistics network, it looks like CEO Dave Clark is ready to build...again.
Shopify doesn’t want to build a logistics business anymore, but Shopify’s logistics business isn’t done being built.
As Shopify announced on May 4 that it would sell the key pieces of its logistics business, leadership signaled that the ecommerce software company was done pursuing “side quests.” Even while acknowledging that logistics is a side business “that all eccommerce entrepreneurs are eventually pulled into,” due to the complexity of moving the physical goods that are sold online, Shopify President Harley Finkelstein told analysts that “we do something in the world better than anybody else, which is building commerce software. And that's what we want to be able to do.”
It was an about-face for Shopify after spending $2.1 billion to acquire the startup Deliverr last year in its largest-ever M&A move. And it came on an especially tough day for Shopify, which laid off 20% of its workforce in concert with the announcement, marking its second such reduction in a year.
Yet the side hustle of a business that’s turning the ship around can end up right in the path toward another business’ destination.
Flexport is buying the majority of the logistics business in a deal that will give Shopify a 13% stake in the company.
Decade-old Flexport’s primary focus was already on the supply chain, and the company was an existing partner to Shopify. Last year, the company brought on a new CEO in Dave Clark, who previously led the build of Amazon’s vaunted logistics network and led the company’s commerce division. Now, it will have the assets and team of Deliverr, which built software to position items close to demand, and a network of logistics facilities to move them. It will also have built-in ties to millions of brands that use Shopify to run their ecommerce stores. Flexport will become the official logistics partner of Shopify, and preferred provider for Shop Promise, which provides guaranteed five-day delivery.
For Flexport, this equation will produce immediate benefits. The company will introduce last mile and ecommerce services for customers right away. But with Clark at the helm of Flexport, there’s also an opportunity out on the horizon.
In a note to staff, he called Shopify’s network “the last piece of the puzzle that enables us to drive technology-fuelled solutions across the product life cycle, from the manufacturer’s floor, across the oceans and skies, through ports and [fulfillment] and now, right into the hands of customers.”
It looks like Clark was up on Sunday thinking about what's in front of him:
\u201cThere\u2019s nothing better than a Sunday where you love your work so much you can\u2019t wait for Monday to keep building. The acquisition of Shopify Logistics opens up incredible possibilities for Flexport. Can\u2019t wait to hit the ground running. Together, we'll revolutionize the world of\u2026\u201d— Dave Clark (@Dave Clark) 1683488324
Hand the keys of a logistics network to Dave Clark, and he is likely going to know what to do with them. As The Current wrote last year upon Clark’s departure, the executive’s legacy at the company is intertwined with the logistics buildout of the 2010s. It created a fulfillment and delivery network that is now the size of UPS. It also turned the cost center of storing and moving goods into a massive new business line that offered these services to Amazon’s own third-party merchants through Fulfillment by Amazon.
Now, Clark will lead a business that is often compared with Fulfillment by Amazon. Shopify Fulfillment Network was built to give brands that use the platform access to storage, fulfillment and returns services. As Clark told CNBC, Flexport will continue to build that out. The goal will be to build a logistics network that is available to merchants that sell on any platform. From CNBC:
“The big difference between what we’re going to offer, and an Amazon or maybe a Walmart logistics or some of the other places offer, is this isn’t just for one system or store or platform. We have very much the same vision that Shopify has. We’re just about the success of the merchant and our customers, and we don’t care if they sell in their stores or on Amazon or on Walmart.”
Clark is shying away from the idea that Flexport will take on Amazon. He characterized Flexport as an “extension” of the Amazon network to Fox Business’ Maria Bartiromo as opposed to a competitor. But it’s clear that he wants to go big. He also spoke about the ambition to build an end-to-end network prior to last week’s announcement. When asked by Reuters in March about whether he would aim to repeat the feat of building a global ecommerce logistics network, he said he wanted to “do it again for everyone else.”
Photo by Marcin Jozwiak on Unsplash
Assembling a global ecommerce logistics network isn’t easy, and Flexport faces plenty of challenges ahead.
Flexport’s prior expertise is in freight forwarding, but it is still new to last-mile ecommerce despite a Shopify partnership that has been growing. Now, a team at Flexport led by former Deliverr CEO Harish Abbott will be tasked with building out a network that likely was never prioritized fully by a company that made its big splash at a time when it was crashing into economic headwinds that forced it to change course.
Flexport is also entering a crowded market for ecommerce-focused third-party logistics that just saw a big growth spurt during the pandemic. There are giants in this space. Amazon has recalibrated after its network grew even larger during the pandemic. FBA continues to be an easy-mode option for sellers and the recently-launched Buy With Prime offers the same type of badge-and-delivery guarantee service as Shop Promise. Walmart is also pouring resources into automation as it expands its supply chain network in part to boost profits by offering fulfillment to its merchants. Logistics-as-a-service is also gaining fashion among a wider group of retailers. Gap Inc. is now offering its own warehouse space up to others.
There are also cautionary tales emerging among even the new entrants to the market. American Eagle Outfitters tried to build its own logistics alternative to the big players through the acquisition of Quiet Platforms, but recently replaced the division’s CEO while admitting that the results didn’t meet expectations.
Yet Flexport now has a leader who has built one of those marketing-leading networks before, and a direct line to the platform that powers 10% of ecommerce.
That’s a strong base from which to build.
The figure underscores the importance of the marketplace to Amazon's business.
When it comes to selling physical goods through online channels, the Amazon model is dominant.
The company’s commerce business has four distinct components: A marketplace with a constantly expanding assortment of goods driven by third-party sellers, an advertising network that helps sellers stand out, a fulfillment network that delivers items quickly and conveniently, and a membership program that builds loyalty, while connecting shoppers to the other parts of Amazon’s consumer ecosystem.
Each of these elements are mutually-reinforcing. At this point, it would be difficult to grow one without another. A third-party seller on the marketplace likely buys advertising to stand out in a sea of brands, and uses Fulfillment by Amazon to store and ship inventory in part because it’s the most convenient way to access Prime customers.
Yet these parts also exist as their own lines of business that have helped Amazon unlock new avenues for growth beyond the rote sale of goods. Services provided to third-party sellers, Amazon Ads, FBA and Prime all generate their own revenue, and most of these are growing rapidly.
Just how important are they to Amazon?
The company offered some details on one of these areas in a new report this week: Third-party sellers. These independent sellers that list, manage and ship their own products are distinct from first-party sellers, which effectively sell items to Amazon and leave the ecommerce company responsible for the sale to the consumer. As Amazon points out, most third-party sellers are small and medium-sized businesses. First-party sellers tend to be the larger name brands.
As it turns out, third party sellers are very important to Amazon. Key stats from the report:
Independent sellers account for 60% of sales in Amazon’s store.
U.S. sellers sold more than 4.1 billion products—an average of 7,800 every minute. These sellers averaged more than $230,000 in sales in Amazon’s store.
Brand owners in the U.S. grew sales over 20% year over year in Amazon’s store.
Amazon sellers are based in all 50 states.
Over 260 million products were exported globally by U.S.-based sellers.
The results in part underscore how much energy Amazon has put toward growing the marketplace, and the uptake in sellers that has arrived as a result.
“Amazon invests billions of dollars annually to provide entrepreneurs with a constantly improving set of valuable tools and resources to help them gain access to capital, quickly launch in our store, build their brands, and rapidly scale and reach more customers,” said Dharmesh Mehta, vice president of Worldwide Selling Partner Services at Amazon, in a statement. “Amazon is committed to the success of small businesses, and we are excited to continue innovating on their behalf and help them grow into thriving success stories.”
Make no mistake: There is also a massive benefit to Amazon’s business. In the first quarter of 2023, third-party seller services generated $30 billion, and grew 20%. Compare that to AWS, which is typically seen as Amazon’s big profit driver, and you’ll find that the cloud division generated about $21 billion while realizing 16% growth.
While third-party seller services aren’t always running ahead of AWS, the fact that they are growing in areas close to each other is a sign of how much opportunity lies in the marketplace for Amazon. Factor in that Amazon’s $9.5 billion (Q1) advertising business is also tied in part to the marketplace, and it’s clear that the impact extends beyond a single budget line.
Amazon’s success with third-party sellers is a big part of the reason why the marketplace model is being widely applied across commerce. Walmart is doubling down on growing third-party sellers on its marketplace as it follows an ecommerce playbook that has similar components of Amazon, and Macy’s opened its ecommerce business to third-party sellers last year. Shein recently brought its own marketplace to the U.S., and the fast fashion platform is using it as a means to expand the number of categories.
While Amazon will likely to continue to couch its communications about third-party sellers in the language of support for small businesses, it is a major reason that the company has been able to grow to the giant it has become, and remain there. With the growth of ecommerce and the rise of retail media, plenty of others in commerce will continue to apply the model, as well.
For a bit more info on Amazon, the company also shared the below rankings in the report on third-party sellers:
The most-shopped categories from third-party sellers:
The five states with the most third-party sellers: