Shopify’s ‘side quest’ to develop its own fulfillment and logistics businesses is over.
The e-commerce juggernaut is selling its logistics unit to Flexport in a deal between two former CNBC Disruptor 50 companies.
The sale marks a reversal for Shopify, which had spent years building out its own logistics and order-fulfillment operations. The unit includes last-mile delivery startup Deliverr, which Shopify purchased last May for $2.1 billion, its largest acquisition ever.
As part of the agreement, Shopify will receive stock that represents a roughly 13% equity interest in Flexport, “bringing us to a high-teens ownership,” the company said in a statement.
Shopify and Flexport are deepening their alliance as Shopify seeks to compete with e-commerce rivals such as Amazon and Walmart. The companies announced a partnership in February that gives Shopify merchants access to Flexport’s freight services, including booking international shipments from suppliers to their warehouses.
Shopify president Harley Finkelstein said in an interview that after going on a “side quest” to develop the company’s own fulfillment and logistics businesses, it became clear that it could offer those services more effectively by integrating with Flexport.
“This allows Flexport to do what they do best, and allows Shopify to go back to doing what we do best, which is building incredible software for e-commerce,” Finkelstein said.
In a memo to employees, Shopify CEO Tobi Lütke wrote that “Side quests are always distracting because the company has to split focus. Sometimes this can be worth it, especially when engaging the side quest creates the conditions by which the main quest can become more successful.”
“In the beginning, as a small startup, companies are intensely focused,” Lütke wrote. “It’s often said that larger companies are more sluggish but this is not because of their size, it’s because of all the side quests and distractions they accumulate along the way. This happens because larger companies can afford to be somewhat inefficient, especially during stable economic boom times. But once they need to adapt to some new paradigm they can’t. They will get replaced by more focused competitors, or collapse outright.”
Lütke added that Shopify has been “subtracting everything that’s in the way of making the best possible product,” as he forecasts a “decade of high velocity and massive change” ahead.
Flexport, which topped last year’s CNBC Disruptor 50 list, has become one of the most valuable logistics startups after raising roughly $2.3 billion to date. Flexport’s ocean, air, truck and rail-freight forwarding and brokerage services became critical tools as supply chain bottlenecks roiled the global economy last year.
Flexport has been bulking up its roster of ex-Amazon executives, including hiring away its CEO Dave Clark from the e-retailer last June, where he spent nearly two decades and built out Amazon’s transportation and logistics unit.
Clark said in an interview that the acquisition will allow Flexport to scale the shipping capabilities it can offer for Shopify merchants, and other online businesses.
“The big difference between what we’re going to offer, and an Amazon or maybe a Walmart logistics or some of the other places offer, is this isn’t just for one system or store or platform,” Clark said. “We have very much the same vision that Shopify has. We’re just about the success of the merchant and our customers, and we don’t care if they sell in their stores or on Amazon or on Walmart.”
Flexport will be Shopify’s official logistics provider, and a preferred partner for its “Shop Promise,” a badge displayed on Shopify merchants’ listings that guarantees next- and two-day delivery, similar to Amazon’s Prime delivery promise. Shopify will also retain its Shopify Fulfillment Network app where merchants manage their logistics process.
It was quite the day of news for Shopify, which reported first-quarter earnings that beat analyst estimates on both the top and bottom lines. It also cut 20% of its workforce.
Shopify also announced that it is also selling 6 River Systems, the warehouse robot maker it acquired in 2019 for $450 million, to U.K. retail tech company Ocado. Terms of the Flexport and Ocado deals weren’t disclosed.
