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Bad news for Shopify, Blue Apron and AEO points out the importance of devising a solid supply chain strategy. And pairing it with solid execution.
As The Wall Street Journal reports, the eCommerce provider, meal-kit delivery company and apparel retailer are pulling back on plans to deliver their products directly to consumers. All three hoped to gain market share by rapidly expanding distribution capabilities to challenge Amazon – a tall order.
Shopify, Blue Apron Had No Strategy
In my view, The Wall Street Journal’s headline, “Companies Find Ambitious Logistics Strategies Haven’t Delivered,” is inaccurate regarding Shopify and Blue Apron. Those two enterprises basically had no strategy, just assumptions.
Shopify and Blue Apron assumed that they had the customer. So they might as well do logistics just like Amazon did. Even though neither Shopify nor Blue Apron had particular expertise in logistics. That “strategy” does not work unless you have the scale that Amazon has to become profitable in logistics. Neither did.
AEO Failed by Executing through M&A, not Building Organically
AEO, for its part, had a great strategy. The company aimed to scale by offering its logistics services to other retailers. This is the perfect way to play it, as many retailers, large and small, are frustrated by dealing with Amazon.
Unfortunately, AEO failed in execution. Amazon spent decades assembling its fleet of vehicles, warehouses, planes and final mile providers. AEO tried to build quickly through a flawed M&A process. The company spent hundreds of millions of dollars upfront to buy logistics providers. Instead, they could have built organically, supported by the continuing growth of eCommerce.
Yet even though the company is pulling back, AEO’s focus on a solid strategy did yield some positive results. They cut delivery costs for American Eagle brands. Instead of totally abandoning this strategy and selling off its logistics assets like Blue Apron and Shopify, AEO is simply reducing its workforce and expansion plans. With the infrastructure and strategy in place, AEO could be well-positioned for future growth. And yes, eCommerce continues to grow, just not at the explosive numbers of 2020. Lack of skyrocketing growth makes it hard for AEO to justify those huge capital outlays.
As Tompkins Ventures Business Partner Aaron Alpeter told The WSJ: “The reality is that logistics is hard. Supply chain is hard, and you spend your whole existence in supply chain trying to make sure the things that were supposed to happen happen, and you have customers that effectively tolerate (only) perfection.”
Without Solid Execution, Expect Solid Supply Chain Failures
What AEO, Blue Apron and Shopify are facing should give executives pause in this world of perpetual disruption – supply chain strategy is important, and pairing a good strategy with solid execution is paramount for success.
But your company has options, and if you want to lead your enterprise to supply chain success, I would love to discuss them with you. Going it alone is not wise in this world.
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.