The media have covered the supply chain crisis as the holiday buying season approached. The logistics disaster caused delivery backlogs hitting US importers at their busiest selling season. The fallout led several parties, including the government, to scramble for solutions to salvage the situation. It seems that retailers and logistics companies are converging as one way out of the bog. Will
The restrictions and lockdowns of Covid-19 may have boosted eCommerce but left malls and brick and mortar stores near empty. The fallout was that many businesses shut down – even mega-retailers Sears’ and J.C. Penney’ stores now stand empty. According to some real-estate analysts, in 2020, over 40 retailers filed for bankruptcy, and retailers announced over 4,000 permanent store closures. Let’s not forget that many of these are small importers. Even if they don’t import directly, their suppliers are also hugely impacted.
For malls, empty retail space means no rent from tenants. Also, some of the largest mall owners are trying to make deals to save some retailers. Besides the Pandemic’s effect on business, its impact on the supply chain is driving retailers and logistics companies towards vertical integration to minimize the obstacles.
In August of this year, news flooded the industry of talks between mammoth corporates Simon Property Group and Amazon to possibly turn some of the property owner’s anchor department stores into Amazon distribution hubs. US real estate investment trust Simon Property Group is the country’s largest owner of shopping malls – which means retail. At the same time, eCommerce is a core of US tech giant Amazon.com, listed as one of the country’s “Big Five” in the information tech industry, along with Google, Apple, Meta, and Microsoft. Ironically, many retailers have denounced Amazon as the mall industry’s biggest disrupter. So, what have the two in common? The possibility to convert Sears’ and J.C. Penney’s empty retail stores into warehouses.
In September, American Eagle Outfitters (AEO) acquired Seattle-based parcel-delivery start-up AirTerra. The goal was to leverage its network of stores and distribution centers to fill orders and offer same-day services. In addition, the company has been investing in logistics, entering Amazon turf. In fact, upon news of the acquisition, AEO Executive VP and COO Michael Rempell said, “It’s kind of like Amazon.” In addition, Jay Schottenstein, AEO Executive Chairman & CEO, referred to the benefits afforded by the warehouses they had built. These enabled direct-to-customer delivery for their eCommerce sales and stores from one facility.
Not resting on its laurels, the retailer acquired third-party fulfillment provider Quiet Logistics in a $350 million deal in November to further control its supply chain. AEO’s ingenious response to rising prices, lack of delivery services, and pandemic shortages have been these initiatives.
Around the same time, Ashley Furniture bought Wilson Logistics, a large truckload and logistics provider in the western US – another retailer and logistics supplier using vertical integration to minimize obstacles of a congested supply chain.
This merger wasn’t the last we’d hear of retailers investing in 3PLs and asset-based providers. On December 8, Whiplash, a leading US provider of omnichannel fulfillment and logistics services, announced a multi-year contract with performance-clothing brand Free Fly Apparel. The JV includes services for wholesale distribution to specialty retailers and direct-to-consumer (DTC) fulfillment. Free Fly Senior Manager, Mary-Chelsea Banister, was impressed how Whiplash “looked to the long-term, mitigating issues with scaling and preparing for the new normal following the pandemic.”
As to the “why” retailers and logistics are converging? As Greg Morello, Whiplash President & CCO, explains, “the exponential increase in supply chain complexity caused by rapid growth in order volume is a common pain point for merchants, especially with the boom in eCommerce sales triggered by COVID-19.”