From ShipBob’s 40,000-square-foot warehouse in Los Angeles, one can get a window into how small retailers can leverage the power of the internet to potentially compete with the scale of larger online marketplace sellers.
In a 40,000-square-foot warehouse on a nondescript street in an industrial section of east Los Angeles, small retailers from around the world are competing for the precious dollars of online shoppers.
It’s here, at the Southern California facility of e-commerce fulfillment and technology provider ShipBob, that one can get a window into how small retailers can leverage the power of the internet to potentially compete with the scale of larger online marketplace sellers.
Founded in 2014, ShipBob provides outbound logistics services for e-commerce orders from retailers that would ordinarily struggle to meet demand. The outsourced fulfillment provider takes orders from wherever they may have originated – e-commerce platforms like Shopify and WooCommerce or marketplaces like Amazon and eBay – and provides customized packaging and delivery at their warehouses in Los Angeles, Chicago, and New York.
When they started the company in the summer of 2014, Shipbob’s co-founders, Dhruv Saxena and George Wojciechowski, were fresh off of their graduation from the technology start-up incubator Y Combinator. The pair literally went door to door to high-end boutiques in Chicago’s posh Oak Street area scaring up business, and spent many days standing outside local post offices pitching small business owners as they went in to drop off their daily outbound shipments.
The alternative for these boutiques was shipping order by order, paying higher parcel rates, with sales associates spending inordinate amounts of time packaging orders and fulfilling them in the store’s back room.
George Wojciechowski
“It’s a huge, underserved market,” said Wojciechowski. “They don’t have any good solutions. Our typical clients have bootstrapped it the last six months to two years. They need to scale, but can’t do it themselves. They can either go to a traditional 3PL or us, but the traditional 3PL isn’t necessarily going to provide them with the customized packaging solutions we would.”
For many online retailers, the customer experience extends not only to the online buying experience, but to the way the product is packaged as well. It’s a sort of gray area in logistics that has emerged in the past few years as e-commerce sales have exploded. Who exactly is looking out for burgeoning retailers that have outgrown the “do-it-yourself” model, but want to retain the personalized experience customers have come to expect as they grow?
These retailers often have little or no experience in freight logistics, but are still trying to capitalize on demand from markets that wouldn’t have been open to them just a few years ago.
E-commerce sales account for around 8 percent of total U.S. retail sales, according to U.S. Census Bureau statistics, but that likely underplays the role of e-commerce in product categories where online is a reasonable alternative to buying in-store. For instance, e-commerce’s share of apparel sales is estimated to be around 17 percent. Nearly two-thirds of apparel buyers surveyed in 2016 by the research firm HookLogic said they usually buys clothes online, according to a report in Women’s Wear Daily.
And while major retailers like Wal-Mart and Target still see 90 to 95 percent of sales tied to in-store buying, 13 of the top 20 e-commerce sites are operated by companies that are predominantly brick-and-mortar retailers, according to research in early 2016 by eMarketing, Inc. And e-commerce sales are undoubtedly growing faster than retail sales, by double digits in most sectors, compared to an estimated 3.6 percent growth rate in total retail sales, according to the National Retail Federation.
The metrics on e-commerce’s impact on overall sales are difficult to quantify for a number of reasons, according to industry experts. For one, not every retailer categorizes an e-commerce sale the same way, and since most statistics are self-reported, this presents a challenge. In addition, some retailers separate out their reporting of e-commerce sales completely from overall sales figures, making comparisons more difficult.
But e-commerce as a whole is growing at an explosive rate, and what’s more, cross-border e-commerce is growing faster still. Research and advisory firm Forrester estimates global cross-border business-to-consumer e-commerce will more than double over the next five years, reaching $424 billion by 2021.
“Cross-border sales will take an increasing share of online commerce, rising from 12 percent in 2015 to 15 percent in 2021,” Forrester said.
At ShipBob’s expansive warehouse in east L.A., workers diligently fulfill orders from the company’s nearly 1,000 customers, companies that range from a local sweatpant designer to a spice maker in Germany.
They are directed by ShipBob’s automated system, which provides details on which item should picked, packing instructions, and labeling directions. The number of SKUs ShipBob manages can range widely – from just a few products to literally thousands for a scarf company that has a different unique SKU for each and every product it makes.
In many ways, the ShipBob model is a micro-counterpoint to the massive robotic distribution centers Amazon and other companies are using to fill thousands and thousands of orders at scale.
If they’re going to have a chance of competing with this kind of operation, small retailers need fast, reliable, and high-quality fulfillment options of their own that aren’t prohibitively expensive. One of the few alternatives? Amazon’s own Fulfilled by Amazon (FBA) program, which provides small retailers with massive reach and simplicity.
“Getting goods to the customer [using FBA] is an automated process characterized by instant access, simple ordering, streamlined shipping, excellent tracking, and virtually no paperwork,” John Hammonds, a marketing specialist with the online freight rate marketplace provider Freightos, wrote in a November blog. “FBA sellers leverage Amazon’s network of fulfillment centers and robots to take care of inventory management and product picking.”
ShipBob’s Los Angeles facility.
But using the FBA program can also cut down on the customized packaging options available, and it doesn’t necessarily jive with companies moving from a business-to-consumer model to business-to-business. ShipBob customer and maker of luxury baseball caps Gents Co., for example, has seen its business transition from entirely B2C to 80 percent B2B, distributing its products to retailers like Macy’s and Nordstrom.
ShipBob’s L.A. facility opened in July with plenty of room to grow. That was by design, said Wojciechowski. Such real estate is relatively inexpensive – particularly compared to its smaller facility in New York – and gives ShipBob the space to bring additional product fulfillment to a massive population center. As its customers think more strategically about distribution with the counsel of ShipBob, they may well end up using the L.A. warehouse to fulfill more orders.
For a company like Gents Co., for instance, that might mean sending 10 hats to 10 different regional fulfillment centers closer to its retail customers in those regions, instead of sending 100 hats to a single fulfillment center for direct-to-consumer distribution.
The goal is to build a network of strategically-placed facilities that lets ShipBob customers make intelligent fulfillment decisions beyond just what the packaging looks like.
“Entrepreneurs need access to their inventory,” said Wojciechowski.
ShipBob, meanwhile, can reap the benefits of regional rate arbitrage across all its facilities and pass them on to their customers. Shippers are largely responsible for providing transportation of their product to ShipBob’s warehouse, and the service provider takes over from there. The company effectively acts as an inventory manager for its customers, providing a cost-effective place to store stock, while also allowing orders to be fulfilled more quickly from existing inventory.
Orders placed on customers’ e-commerce platforms, like Shopify, trigger signals to the warehouse for the item to be picked. Any order placed before 10 a.m. goes out the same day. After 2 p.m., items have tracking but are not guaranteed to go out same day. The nature of ShipBob’s services mean that the company customizes for each customer, but there is increasing interest from larger retailers as well.
Hammonds said the real trick in cross-border e-commerce is getting goods to the stage where they can be fulfilled. In other words, the freight component of that product’s journey is far more opaque from a price and visibility perspective than fulfillment.
“Freight technology is at last automating the last fully manual step in the FBA seller end-to-end process,” he wrote. “With it comes the quick, reliable tools – and low-touch automated processes – that underpin the FBA seller business model. It is now just a matter of time before getting the goods is as satisfying for Amazon sellers as it has long been for their buyers.”
In truth, ShipBob is just the tip of the iceberg when it comes to technology providers working to enable e-commerce retailers. In theory, so-called “pure play” e-tailers are better suited to fulfill online orders because their supply chains are built solely around such orders, avoiding the trappings of more traditional brick-and-mortar-focused supply chains, and because they tend to see more clearly the value of working with like-minded internet-based supply chain technologies.
This is the leapfrog effect in practice, where a smaller, lesser known company is able to scale more quickly because it’s not burdened by processes or technology that are either already obsolete or trending in that direction.
According to Wojciechowski, what’s holding back most small online retailers is that their ability to design and make products far outstrips their logistics acumen or bandwidth, and as a result, they’re more receptive to plug-and-play technologies that help them ramp up more quickly.
That’s a totally different proposition than large sellers face in meeting the challenge of cross-border e-commerce. A multi-billion dollar retailer generally has a sizable logistics or freight transportation staff and access to advanced supply chain technology. That technology, however, may not immediately (or ever) be suitable for fulfilling direct-to-consumer orders. Those major retailers could also theoretically be bypassed by suppliers using the Amazon FBA program or services like those of ShipBob to reach customers directly, and in a customer service-oriented way.
No one ever said the evolution to e-commerce sales was going to be easy, but the good news is that there is no shortage of options emerging for small retailers and manufacturers in search of help in meeting the ever-higher expectations of online consumers.
Eric Johnson is Research Director and IT Editor of American Shipper. He can be reached by email at ejohnson@shippers.com.
