Retailers Transform Into 3PLs to Combat Disruption

by Nancy Chau | Nov 11, 2022 | 3PL, Blog, Supply Chain, Warehousing

Big-Box Retailers Are Turning Into 3PLs to Combat Supply Chain Disruptions

Retailers have undergone significant digital acceleration as consumer behaviors have shifted. New market dynamics have driven consumers to change their priorities around how and what they purchase. Loyalty to brands is quickly becoming a thing of the past and consumers will purchase from whoever can get them the product they want the fastest and at the lowest price. These are reasons why product availability has increased by 58% and quality of service has 46% since the onset of the pandemic. To keep consumers happy, a company must be able to meet the needs of its customers. If it cannot, customers will go elsewhere.

The e-commerce business boom stemming from COVID-19 has contributed to supply chain disruptions, exorbitant shipping rates, and increased return order volumes. On top of that, consumers demand lower shipping costs, faster shipping options, and an improved customer experience. This has pushed retailers to take control over their supply chains with new business ideas. Retail industry leaders believe that investments into their own supply chains will help them cut down on costs and get products to customers faster.

The pandemic led retailers across the nation to invest billions of dollars into their supply chains. Improvements to technology and the development of millions of square feet of e-commerce fulfillment space are only a couple of examples. Now, retailers are identifying other logistics networks as assets and potential revenue streams. This is leading them to not only sell consumer products, but also logistics services, giving companies a new target market and turning them into third party logistics service providers.

Retailers now believe that in house logistics helps to control the supply chain and providesa competitive advantage. Like Amazon, retailers want other businesses, even competitors, to turn their customer experience over to them so that they can use the retailers’ warehouses and distribution networks to manage the flow of goods. Guaranteed in-house capacity and driver loyalty are advantages to having a private fleet of transportation vehicles over outsourcing transportation services.

By offering warehouse logistics and supply chain services to companies that cannot make logistics and supply chain investments themselves, large retailers are helping smaller companies continue to exist. By utilizing a retailer-owned 3PL, other retailers are trusting the retailer’s logistics expertise. This enables smaller or struggling companies to focus on other aspects of their core business, such as increasing sales.

Take Amazon for example. The company acts as a third-party logistics provider for half of the sellers on their marketplace and has shared plans to build out local delivery networks around the world. Wayfair has also ventured into scaling its logistics capabilities, providing 3PL services for its suppliers.

Retailer-owned 3PL services are also helping manufacturers. In the past, manufacturers partnered with retailers to leverage shelf space. Today however, manufacturers are leveraging online merchandising and logistics networks from retailers. Companies such as Walmart and Target have even chartered cargo ships to import goods from their manufacturers.

Experts predict that as retailers invest in cargo transportation, warehousing and distribution services, supply chains will transform into shared networks. With a combined network of services, locations, and resources, links in the supply chain will become more effective, helping companies mitigate potential supply chain disruptions.

Retail Companies That Have Invested

in Their Own 3PL Services

Amazon

Amazon does it all and for good reason. Managing inventory storage, distribution, and order fulfilment has historically been costly and complex. The past two years have amplified logistics and supply chain challenges, prompting the company to invest in its supply chain. Since the pandemic, Amazon has doubled its distribution network to over 400 million square feet, subleasing close to 30 million square feet of warehouses space to other retailers.

In 2021, the company spent $75.1 billion on fulfillment. It also recently acquired Cloostermans, a company that designs technology to manage the flow of robots throughput in warehouses. Last years, Amazon purchased a $131 million stake in Air Transport Services group. Amazon is currently a third-party logistics provider for one in eight B2C e-commerce shipments in the United States.

Amazon Freight

Amazon freight was started in 2016 and since then has expanded from five states to the lower 48 states. This division of Amazon Global Logistics services moves Amazon freight between sites like warehouses and delivery stations, withing the Amazon network.

Amazon Warehousing & Distribution

To support its sellers, serve consumers, and generate revenue, Amazon has announced its Amazon Warehousing and Distribution (AWD) service. This new service enables both small and large retailers to use its new, purpose-built inventory storage and automated distribution systems. This service will provide greater inventory control for its customers as well as cut their costs.

AWD is a pay-as-you go service. Since all logistics and supply chain tasks will be completed through Amazon, retailers can utilize Amazon’s infrastructure to improve their business. Amazon leaders believes that the company can effectively replace some 3PL services, many of which are affected by supply chain issues.

Fulfillment By Amazon

Fulfillment by Amazon (FBA) was first launched in 2006. It is a service that enables third-party retailers to outsource all their e-commerce order fulfillment to Amazon. Here is how FBA works: Businesses send products to Amazon fulfillment centers to be warehoused and distributed. When a customer makes an online purchase, Amazon makes sure that the proper inventory is picked, packed, and shipped to the customer.

FBA helps its clients:

Manage customer orders
Send shipments on time
Obtain current information on product availability
Attract Amazon Prime customers

FBA generated $103 billion in seller fees, making up almost 22% of Amazon’s revenue.

Walmart

In a recent press release, Walmart emphatically stated that its goal in acquiring companies that could improve its 3PL service offerings is to diversify its revenue streams and profit pools.

Recent Walmart Acquisitions

Volt Systems is an Omnichannel technology company focused on vendor management and product tracking. This will provide Walmart and its third-party logistics customers with greater visibility into:
- Store level data
- Actionable analytics
- Shelf intelligence
Alert Innovation produces custom-built inventory-handling technology. Alert’s Alphabot system is designed to store, retrieve, and dispense orders with automated robots.
Parcel is a last-mile delivery start-up company that specializes in temperature-controlled e-commerce package delivery.

GoLocal

GoLocal is Walmart’s last-mile delivery service, operating since August 2021. The company recently celebrated its 1 millionth delivery. With this service, Walmart leverages its own delivery platform to service the needs of other retailers. GoLocal is powered by Walmart’s Express Delivery Service and other transportation logistics providers the company has acquired. Walmart plans to enhance the last-mile delivery service by purchasing 4,500 electric vehicles from Canoo.

Walmart Fulfillment Services

Walmart Fulfillment Services (WFS) is Walmart’s third-party logistics arm and offers end-to-end fulfillment services for Walmart Marketplace sellers.

WFS experienced a 500% increase growth in gross merchandise handling last fiscal year.
Retailers utilizing WFS experienced 50% in sales growth.
WFS has a 90% retention rate, driven by Walmart’s Preferred Carrier Program. This program saves sellers on inbound transportation costs.
Walmart expects to have over 200 million inventoried products in its worldwide e-commerce fulfillment centers.

American Eagle

Digital sales have grown in a short period of time and their importance to American Eagle Outfitters (AEO) has grown as well. AEO acquired two supply chain companies whose technology benefits their transition into offering 3PL services to other retailers through a shared supply chain services network.

AEO has stated that AirTerra and Quiet Logistics Inc. will enhance its ability to defer carrier decisions which will optimize costs and service levels for shippers and carriers. This will be beneficial to AEO and other retailers, as companies struggle to get goods to store in the wake of supply chain constraints.

AEO purchased e-commerce delivery startup AirTerra in 2021 for an undisclosed amount. The company utilizes a shipper aggregator warehousing solution that help AEO deliver packages more quickly and with greater reliability and less cost.
AEO acquired order fulfillment company Quiet Logistics Inc., in a $350 million deal. AEO has stated that the acquisition provides the company with greater agility, speed, and diversification in fulfilling orders for their brands as well as others. In the first quarter of the year, AEO’s orders had a 13% reduction in delivery times. The company has order fulfillment warehouses in Boston, Chicago, Los Angeles, Dallas, St. Louis, and Jacksonville.

Gap

In August 2022, Gap introduced their GPS Platform Services. This third-party logistics arm of the retail clothing company provides supply chain solutions that enableother retailers to take advantage of Gap’s logistics capabilities. Gap is currently the second-largest e-commerce apparel company in the U.S. for:

Next-day and two-day shipping
Short term storage
Cross-docking
Customer returns

GPS Platform Services utilizes 13 distribution centers throughout North America, with combined 9 million square feet of warehousing and storage space. This service has the capabilities to not only handle e-commerce fulfillment, but also handle B2B wholesale and retail store distribution.

Gap recently invested $100 million in expansions at its 1.4 million square feet fulfillment center in Gallatin, Tennessee and its 400,000 square feet distribution center in Phoenix, Arizona

Costco Wholesale

Costco’s plans to take control of its supply chain revolve around bringing parts of it in-house. This will help the company to better control costs and improve revenue generation by offering services to other companies. It will also enable Costco leadership to grow the company’s e-commerce sales of big and bulk “white glove” items at a faster rate.

In 2020, Costco purchased Innovel Solutions for $1 billion. Innovel, a nationwide logistics service provider will provide its current clients and other Costco clients with:

Final mile delivery
Complete installation
“White glove” capabilities

Innovel’s supply chain network offers service to nearly 90% of the United States with over 11 fulfillment warehouses, over 100 final-mile cross-dock centers, and over 15 million square feet of warehouse space.

The term “white-glove” refers to assistance provided with an elevated level of care and attention to detail.

Wayfair

Wayfair has been able to navigate unpredictable supply chain disruptions by creating its own in-house third-party logistics provider. Named CastleGate Logistics, the 3PL provides Wayfair with over 16,000 suppliers that can effectively ship goods to customers, saving on time and logistics costs. This capability provides other retailers with dependable access to:

Drayage and inbound transportation
Consolidation
Ocean freight
Insurance
Customs clearance

CastleGate Logistics also has a network of 16 fulfillment centers across four countries, enabling Wayfair to provide increased support to its customers through:

Warehousing
Inventory management
Pick and pack
Last-mile services

BJ’s Wholesale Club

Earlier this year, BJ’s purchased Burris Logistics and its network of temperature-controlled warehousing and distribution centers. The Burris brand includes:

Custom warehousing and services
Freight brokerage
Food redistribution
Temperature-controlled warehousing.

The addition of the cold-storage warehouses and the Burris private fleet of transportation vehicles is part of BJ’s strategy to expand its supply chain capabilities in delivering fresh produce to its customers. The four temperature-controlled facilities are located in Massachusetts, Maryland, Florida, and Kentucky.

Conclusion

The e-commerce business has altered retail shopping forever. Many retailers are seeking 3PL services to manage logistics and supply chain services amid continued supply chain disruptions. This has led other retailers to leverage their growing e-commerce logistics assets into nationwide supply chain networks. This gives large retailers the ability to offer omnichannel fulfilment and distribution services to other retailers. This generates a new form of revenue for retailers with 3PL services and helps other retailers move products.