Shopify is abandoning its efforts to build fulfillment capabilities distinct from Amazon amid wider company challenges.
Shopify is selling its logistics business to Flexport, and it is also selling the robotics startup 6 River Systems, which it acquired in 2019. Fulfillment solutions provider Ocado Group announced Thursday it is the buyer. Terms of the deal were not disclosed. Flexport is an end-to-end supply chain platform software.
“The company’s strategic reversal serves as a critical reminder to other businesses and entrepreneurs about the importance of striking the right balance between tech innovation and logistics management, when companies forget the fundamentals, it can come back to haunt them.” - (Harshida Acharya, partner and chief marketing officer at Fulfillment IQ),
The moves come as Shopify’s business struggles. The company saw an operating loss of $193 million in Q1 results announced Thursday, versus a $98 million loss for the comparable period a year ago. Shopify is also cutting about 20% of its staff, founder and CEO Tobias Lütke said in a letter to employees.
Shopify executives spent much of the past year touting the company’s advancements in providing merchants with services throughout the supply chain. The e-commerce platform made a flurry of announcements in 2022, including an inbound logistics program with Flexport, as it made a strategic bet around what Lütke called “the vertical integration of logistics.”
In his letter to employees, Lütke said that building logistics infrastructure was “clearly a worthwhile side quest for us.” He noted how coordinating the efforts of different service providers could be a challenge for merchants on their own, so Shopify accepted that undertaking on their behalf.
“Shopify was the perfect place to bootstrap this effort from 0 to 1 and we have done this, the next step is to take what we have and take it from 1 to N as a main quest.” - Tobias Lutke (CEO Shopify)
For Flexport, the agreement advances its ambitions to expand its global services and support small businesses’ supply chain needs.
“This acquisition is the last piece of the puzzle that enables us to drive technology fueled solutions across the entire 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,” - Dave Clark (Flexport CEO)
Shopify will receive stock representing a 13% equity interest in Flexport under the agreement’s terms, and the company is also entitled to name a director to Flexport’s board. Shopify did not disclose the value of the stake in its announcement.
Nucleus notes how difficult it is to build a delivery network internally. And sees this debate defining the next decade or two. We tend to think this quote “The company’s strategic reversal serves as a critical reminder to other businesses and entrepreneurs about the importance of striking the right balance between tech innovation and logistics management, when companies forget the fundamentals, it can come back to haunt them” rings all too true. The technology is a tool that helps with, but cannot replace the importance of supply chain management expertise. Supply chain as a service.