Photo: Gap Inc.
Should SMBs trust Gap to handle their logistics?
Gap has formed a partnership with Ware2Go, a UPS-owned digital platform that matches merchants with on-demand available warehouse space and fulfillment services. The service is designed to help small- and medium-sized businesses (SMBs) that are seeking to move away from owned warehouses toward co-warehousing partnerships.
The Ware2Go partnership accelerates Gap’s GPS Platform Services division, which was launched last August and encourages retailers to take advantage of the logistics capabilities of the second largest apparel e-commerce player in the U.S. for next-day and two-day shipping, short-term storage and cross-docking. The business has so far only worked with a few larger national brands.
“We want to monetize what we have built. We have made some large strategic investments over the years and have a lot of capability,” Kevin Kuntz, head of global logistics fulfillment at Gap, told WWD.
The collaboration promises to let smaller brands and retailers outsource logistics and fulfillment to the robotics-driven warehouses run by Ware2Go and Gap in a pay-as-you-go model to speed delivery. The handoff will allow SMBs to focus on their strengths, such as product development and marketing.
According to Ware2Go survey data:
- Eighty-nine percent of SMBs own and operate at least one warehouse, with 47 percent having explored more flexible warehouse strategies over the last two years. Cost savings, reduced time spent on operations and access to better technology were cited as top benefits.
- Ninety percent of SMBs stated they would be open to the idea of sharing a warehouse with another retail brand and outsourcing fulfillment to that retailer as a partner.
“The future of fulfillment looks like SMBs owning zero warehouses,” said Steve Denton, Ware2Go’s CEO, in a statement. “Our merchants want to remain focused on growing their business and product portfolios, and not worry about the ins-and-outs of their inventory placement or building up a labor workforce to support peak season.”
The Gap’s third-party logistics platform closely resembles American Eagle Outfitter’s delivery network launched last year that’s built on its acquisitions of Quiet Logistics and AirTerra. Beyond Amazon.com’s massive Fulfillment by Amazon (FBA) platform, larger retailers in the third-party logistics (3PL) game include Walmart, which in August launched GoLocal, and Target through its Shipt acquisition.
- UPS-Owned Ware2Go And Gap Inc. Platform Services Collaborate To Offer Enterprise-Level Fulfillment Capability To SMBs – Gap
- Gap Inc. Opens Up Supply Chain to SMBs – WWD
- Gap Inc. Wants to Outsource Warehousing for SMBs – Sourcing Journal
- Do retailers face too many conflicts as they move into logistics services? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you see more benefits than risks for smaller brands and retailers in outsourcing logistics and fulfillment to Gap and other retailers? Do you agree that the “future of fulfillment looks like SMBs owning zero warehouses”?
Poll
Loading …BrainTrust
Nikki Baird
VP of Strategy, Aptos
Bob Phibbs
President/CEO, The Retail Doctor
Leveraging the logistics capabilities of larger players can be a smart move for small retailers/brands. However it’s important to pick the right partner. The costs and challenges of managing supply chain are well known, so it behooves smaller retailers/brands to leverage what already exists. Using an existing service could not only reduce logistics costs, but also deliver a better customer experience. But again, picking the right partner is critical. Small retailers/brands need to be careful about which partner they choose, but it’s a smart option that many should consider.
Agree completely. Outsourcing of most non-mission critical, repetitive functions is recommended, but it’s always about hitching your wagon to the right horse.
“…Picking the right partner…” I applaud your diplomacy, Mark! (And fully agree.)
Yes it’s an exercise in trust to assume a larger company will handle SMB fulfillment with the same care and priorities as their own. But partnership also frees smaller businesses to scale faster and reduce infrastructure costs. As long as performance standards are established that satisfy the SMB so as not to damage their own brand reputation, this is a win-win, and a potentially effective way for Gap to rent out their well established logistics expertise to generate a new recurring revenue stream.
One can provide a quick answer to this question, but it would be riddled with exclusions and caveats. It would be helpful to know the numbers around the concept as well as to understand the current quality of the Gap’s fulfillment operations. Are they very good at this? OK? Marginally proficient? SMBs should do proper due diligence before making the decision to outsource the fulfillment to any third party, but that they should outsource it to someone is a given.
I question the longevity of this move. I do agree that there is likely a good business case for SMBs to not own all their own logistics, and warehouse space has been constrained since before the pandemic. However with it becoming clear that online sales are not going to continue to grow at pandemic rates, there are a lot of retailers out there with too much warehouse capacity for their needs. Of course, for them it makes sense to offer it as a service to others. But this needs to be a business in its own right, not a hobby or a short-term way to monetize excess capacity. What happens to Gap’s commitment to this when THEY need that space again? As an SMB, I would sign up with someone who is in the logistics service business as their primary business, and nothing less.
The primary risks of outsourcing are loss of control, additional system integrations, lack of customization options, culture conflicts including managing remote teams, and unforeseen costs. Many of those risks will remain though they can be carefully managed and mitigated to leverage the benefits of outsourcing tasks that are not central to an SMB’s core competencies. Whether it’s more beneficial largely depends on the needs of each individual SMB because some may have established competitive advantages with their operations, including fulfillment. Therefore, I don’t think any of us can confidently say that the days of SMBs owning warehouses are over but I suspect it will offer some SMBs a great option to shed unnecessary distractions to focus on their primary business purpose.
The theory of SMBs owning zero warehouses for their logistical supply chains seems logical and very practical. It does offer SMBs the ability to laser-focus on their strengths, but what happens to overall customer experience when the front ordering side is wonderful but the last-mile delivery is awful? Does the SMB own the supply chain data? How is this data accessed and analyzed with rigor? As the SMB grows, when is the optimal point to break away and conduct its own logistics?
At this point it’s too early to make blanket generalizations. In theory, the idea of SMBs outsourcing logistics and fulfillment makes sense. In practice I suspect the road to logistical nirvana may prove a tad rockier. And that still leaves the issue of whether or not a particular retailer will be a good partner. Also, the question is an absolute in that asks about “zero” warehouses. I’m not sure every SMB will be trusting enough to turn full control over to a third party, especially one that might be a potential competitor.
I do not think SMBs should own warehouses, but to outsource to Gap? I wonder how their FBA capabilities are. What a distraction for Gap — but between becoming 3PLs and advertising vehicles like RMNs, retailers are looking to either add to or reinforce revenue. Are these distractions from the core business of selling clothing or genius moves? I think the add-ons work if the retailer is coming from a position of strength — financial and organizationally.
Simply, SMBs should not be in the fulfillment business. They don’t have the resources, the knowledge, or the scale to make it efficient. More than anything else, scale is a critical piece of warehousing and delivery.
Mr. Denton explained it perfectly. Merchants should “remain focused on growing their business and product portfolios, and not worry about the ins-and-outs of their inventory placement or building up a labor workforce to support peak season.”
Based on online experiences with Gap and its banners, I would not call Gap skilled in these operations. They seem to have their hands full with what they have. I fear the SMBs that sign on would get less than the necessary attention needed to compete in today’s online business.
That being said, yes, SMBs should not own any warehouses. There are multiple 3PLs that could fulfill their needs.
Like with many non-core functions in an SMB business it can make sense to outsource, but that requires a careful evaluation of all outsourcing options to know you have the right partner that meets your needs. For retailers like Gap, this is just one more step in the march towards delivering more B2B services vs B2C merchandise that brings with it higher margins. Large retailers are diversifying and finding ways to monetize business functions they have made strategic investments in over time. We’re seeing it in retail media, logistics, warehousing, etc. This trend will continue so long as their are business buyers!
I read this like the headline a few years ago about Gap sheets at Walmart. #Strawgrasping again. With Yeezy’s clothing displayed in garbage bags last quarter, who thinks Gap is a category winner? I just wish GAP would go silent for a year and decide what business they are in and excel at it instead of all these distractions.
This is concerning. Has Gap given up hope of maintaining its position as a retailer? What is offered here makes theoretical sense. But I have rarely seen approaches like this work out in reality as SMBs lose too much control of this critical resource.
In my own experience, eBay bought a fulfillment vendor we had used for years. Within four years, despite that vendor continuing to turn a profit they were closed down for strategic reasons. Net out, we lost a valuable resource despite that resource running their business well. Gap will not be managing this resource for their client’s best interest — but to serve the very different interests of a mixed retailer/fulfillment house.
My belief is that there are two kind of businesses that branch out beyond their core functions: those that are handling them so well that it represents another opportunity to master something, and those that are doing so poorly they think “well maybe this will work.” I’m not sure which the GAP is — though I’m sure we all have some thoughts on the matter — but if I were SMB, I sure as He** would find out before I turn my future over to them.
I am not a fan of retailers offering a service when such a service is not their core or foundational expertise. Yet, SMBs should not be in the logistics business, either. So, outsourcing is a viable approach to de-risk logistics but choose your partner wisely. The Gap has more work before earning the needed trust.
I agree that more SMBs will shift to zero-owned warehouses in the future as it will enable retailers to focus on core operations without having to worry about the logistics part.
However, this approach, in my opinion, is more logical for online-only retailers. Retailers with their own physical stores should leverage their store network for eCommerce orders to maximize sales; otherwise, they are passing up a significant opportunity.