Dive Brief:
- Shopify is selling its logistics business to Flexport, the companies announced Thursday.
- The deal will enable Flexport to expand into last mile and e-commerce fulfillment services, according to a news release. The logistics platform will become Shopify's official logistics partner and the preferred provider for Shop Promise, its program offering improved delivery date visibility.
- The deal, which is expected to close in the second quarter, includes Deliverr, an e-commerce fulfillment and order storage provider that Shopify acquired last year for $2.1 billion.
Dive Insight:
Shopify is abandoning its efforts to build fulfillment capabilities distinct from Amazon amid wider company challenges.
Beyond selling its logistics business to Flexport, 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.
"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," Harshida Acharya, partner and chief marketing officer at Fulfillment IQ, said in a LinkedIn post. "When companies forget the fundamentals, it can come back to haunt them."
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," Lütke said. "The next step is to take what we have and take it from 1 to N as a main quest."
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," Flexport CEO Dave Clark said in a note to employees.
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.
