Companies Scale Back Their Logistics Ambitions Amid Industrial Slowdown
Companies that set out to compete with the likes of Amazon by building their own fulfillment operations are now having second thoughts as disruptions to worldwide supply chains have eased and their efforts have proven to be more difficult and expensive than expected.
Such entities as Shopify, American Eagle Outfitters and meal-kit specialist Blue Apron are now scaling back their logistics efforts or getting out altogether, The Wall Street Journal reports.
This disinclination to pursue logistics comes at a time of contracting metrics in the U.S. industrial market. During the first quarter of 2023, net industrial absorption nationwide came in at 58.6M SF, down 47% compared with the same quarter a year ago, according to JLL.
Industrial space development, which cranked up in recent years, is still ongoing, with deliveries totaling 127.7M SF during Q1 2023, helping push up national vacancy during the quarter 40 basis points compared with Q4, to 3.8%.
Shopify, which acquired two logistics firms in recent years, decided to sell its fulfillment operation to two different buyers earlier this month. Though some employees will remain under the new ownership, Shopify laid off a fifth of its global workforce as it planned to refocus on managing online storefronts for merchants.
Blue Apron likewise is getting out of the logistics business, with its $50M sale of its logistics operations to FreshRealm this month.
American Eagle is also rethinking its own logistics operations.
“In the first quarter, we took measures to restructure Quiet platforms and strengthen profitability,” American Eagle Chief Financial Officer Mike Mathias said during the company's Q1 2023 earnings call this week, referring to its logistics subsidiary, which it established after acquiring logistics companies Quiet Logistics and AirTerra.
“We reset expenses to align with the current pace of growth in the third-party business,” Mathias said. “This included downsizing the workforce and streamlining costs to focus on areas where we see the greatest long-term runway.”
Doing one's own logistics has proven to be more difficult than anticipated during the pandemic-era days when the demand for shipping goods was through the roof.
“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,” Aaron Alpeter, founder of supply chain consulting company Izba, told the WSJ.