Sent Items #139: Sunday, June 4, 2023

Hi!

Happy Summer! Happy Birthday week to me (it’s June 7). Off to Vegas on Thursday to celebrate with my younger brother who will be turning 32 on June 7 as well. We are twins 5 years apart and since his 21st we have celebrated our birthdays together in Vegas.

Thanks for still reading after I migrated to Beehiv. My open rates for the first issue were right at my usual ~60%, so it doesn’t appear it got stuck in too many spam folders. I’m trying my darndest to get content more regularly, but much of my headspace has been consumed working on a new digital platform we are working on at Second Marathon (more info to come shortly…)

A few hot topics:

1. Shopify has sold its logistics business, including Deliverr and 6 River Systems (link) - No surprise that last month Shopify divested its logistics business, as CEO Tobi Lutke referred to it as a “side quest”. Back in Sent Items #123 in January 2022 (link) I wrote about Shopify’s struggles managing its own 4PL fulfillment network, and the difficulty I have wrapping my head around the true value they provide to growing brands. In Sent Items #124 in February 2022 (link) I wrote that it appears that “V1” SFN is no-longer, and building a model that looks more like Deliverr. Then in Sent Items #131 in July 2022 (link) after Shopify acquired Deliverr, I wrote “As I’ve discussed previously in Sent Items it’s difficult wrapping my head around their recent acquisition of Deliverr. As Warren Buffett once said (via Ben Graham), “Price is what you pay; value is what you get.” Regardless of the price, the value of Deliverr within Shopify just doesn’t make sense.” Less than a year later Shopify admitted the same.

   The irony is I’m not sure Deliverr will fare much better under Flexport’s ownership. At least there are admirable supply chain leaders at Flexport, under Dave Clark’s leadership, who can guide this business better than those who refer to it as a “side-quest”.

   I stand my ground in disbelieving that 4PLs are the answer. I’ve said for years how underwhelmed I am with this “cool, sexy, venture-ridden” 4PL model. Growing eCommerce brands demand a high-level of customization, dynamism, account management and real-time information. Fulfillment is the business of exceptions management - a need information now industry - and creating additional layers between brand and 3PL is just counterintuitive. Larger 3PLs understand this and have mostly avoided partnering with 4PLs.

   Brands want to go direct to the source, and those that are too small for 3PLs probably shouldn’t be outsourcing to a 3PL at all, unless it’s Amazon, who can afford to offer fulfillment at a discount due to the additional revenue streams they generate on a sale. The challenge is finding the right 3PL partner for a given brand. Searching “best 3PLs”, or Facebook groups, Twitter, or Reddit threads are not the right approach to finding the best partner for you. Unfortunately most brands haven’t realized this, leading to the continuous cycle of “everyone hating their 3PL”.

2. SoftBank-Backed Veho Struggles as Logistics Startups Fail to Deliver (link) - Speaking of logistics models that are broken, it’s no surprise that Veho is struggling. To me they are no different than Jokr, Getir, Buyk, Fridge No More, GoPuff and any others that raised hundreds of millions of dollars at the height of the COVID logistics bubble of 2020-2021 promising to ferry groceries to customers within 10 to 20 minutes. I tweeted in January 2022 (link) that these models won’t last and gravity always, eventually, wins.

   While I believe most of the “get a $0.19 banana delivered free in under 10 minutes” cohort have fizzled out, Veho is still around. While I don’t know their team and financials, when my wife began receiving her Rent the Runway deliveries and returns via Veho I knew this was a ticking time bomb. If UPS, FedEx, Postal Service don’t want to make these deliveries, there is no way a company whose annual volumes match what those carriers do in a single off-peak hour can make the economics work. It’s a ploy to show top line growth - a venture investors’ dream - that will not end well.

3. Retailers Clamp Down on Returns (link) - Very interesting changes happening in Returns. Increasingly brands are shortening return windows, increasing fees to generate returns, and offering discounts to discourage returns. Like a credit score, I wonder when a company will create “eCommerce Scores” for individuals. Imagine if a brand knew that I returned 30% of online purchases, or 70% of footwear purchases. Or that I triggered a Customer Service outreach 50% of the time, or a chargeback 10% of the time. Wouldn’t this be neat info for brands to use to their advantage?

   The biggest change I’ve noticed is Amazon charging a $1 fee to return items via UPS, given there are Whole Foods stores within reach of my location. Amazon clearly tested this $1 price point, and determined that it created enough friction to mindlessly trigger a return, or instead bring to a Whole Foods (where you’ll likely pick up groceries). Returns will continue to be a huge focus area for eCommerce brands as sustainability and margin rear their respective heads. (Disclosure: I am an advisor to Two Boxes, a platform solving the pain of in-warehouse return processing).

4. Logistics of Logistics Podcast (link) - I was on Joe Lynch’s podcast the Logistics of Logistics a couple weeks back where I shared my thoughts on picking the right 3PL partner for your Brand - our focus area at Second Marathon (link). Give it a listen and let me know your thoughts.

Cheers for now - off to celebrate #37 later in the week.

- Matt

You can always hit reply with any feedback, or email at [email protected] and follow me on Twitter.

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