Shopify Offloads Logistics Assets to Flexport, Ocado

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Shopify has pulled the plug on its ambitious in-house logistics business built up in recent years, selling Deliverr to global supply chain provider Flexport and warehouse robotics firm 6 River Systems to UK-based fulfillment automation firm Ocado, in deals expected to close in the second quarter.

Thus ends a short but expensive saga for Shopify that had observers wondering about the wisdom of launching a logistics business instead of simply outsourcing. It will continue to do so with Flexport, which becomes an official logistics partner for Shopify.

Shopify purchased Deliverr in May 2022 for $2.1 billion in cash and stock, and acquired 6 River Systems in 2019 for $450 million. It will get a 13% stake in Flexport as part of the deal, bringing its total position up into the high teens, the companies told the Wall Street Journal, while also gaining a board seat.

As a result of the moves, Shopify will lay off about 20% of its workforce as it focuses on what brought it success in the first place: being an ecommerce platform of choice for millions of merchants including DTC stars like Brooklinen, UNTUCKit, Leesa and Allbirds.

“Shopify should not have acquired 6 River Systems or Deliverr,” said Brittain Ladd, a strategy advisor with Shatranj Capital Partners and an Amazon veteran. “Shopify made a terrible decision and it’s a pattern within the company. They had to write down nearly $2 billion from the failed acquisitions. Partnering with companies for these logistics needs is a better strategy.”

Shopify’s stock got a boost from the news, as well as a first-quarter earnings report that beat expectations. Its $1.51 billion in revenue was up 25% from a year ago, and adjusted earnings per share were $0.01, where Refinitiv’s consensus was looking for a loss of $0.04.

“We are changing the shape of Shopify significantly today to pay unshared attention to our mission,” said CEO Tobi Lutke in a company-wide letter posted on its website.

Of the “side quest” into logistics, Lutke said, “We iteratively built a solution, step by step, through software, leases, and M&A deals, that could be an independent company one day. Shopify was the perfect place to bootstrap this effort from 0 to 1 and we have done this.”

The acquisition of Shopify assets was a major win for Flexport CEO Dave Clark, who joined last year after a 23-year career at Amazon, where he oversaw its massive logistics and automation network. There were rumblings about the timing of his departure, coming as it did as Amazon was beginning a major downsizing of its pandemic era logistics build-out.

While some observers said Flexport is now capable of competing with Amazon’s logistics operation – a notion that Clark downplayed to the WSJ – Ladd didn’t see that happening. “This does nothing to position Flexport as a competitor against Amazon, which has better technology and logistics capabilities,” he said.

As for the impact on Ocado gaining 6 River Systems, which makes autonomous mobile robots that can be leased, Ladd said he believed it would be small. “I’m sure Ocado made the acquisition because the price was so low,” he said. “They have additional product capabilities within their portfolio.”

Ocado’s shares fell 1.05% on Thursday to $6.06, less than half of its 52-week high of $12.45. The company said last month that supermarket partner Kroger was committed to opening more Ocado-powered robotic fulfillment centers, even though the rollout has been slower than originally projected, Reuters reported. Ocado closed its oldest fulfillment center last month after 21 years, saying its technology had been surpassed by a new site opening nearby, which will pick up some of the 2,300 idled workers.