Shopify (NASDAQ:SHOP) recently announced the acquisition of 6 River Systems, a well-known provider of warehouse technology, for roughly $450 million. The deal is anticipated to boost the growth of the company’s fulfillment network, launched this June.
Fulfillment centers are crucial for the success of e-commerce providers. SHOP is a new entrant in this space, currently dominated by Amazon (NASDAQ:AMZN) and retailers like Walmart (NYSE:WMT). eBay (NASDAQ:EBAY) is also eyeing this space with its upcoming Managed Delivery service. These companies maintain a network of fulfillment centers, which enable sellers to outsource warehousing and shipping.
These relieve sellers of the need to own physical space to store products and also from inventory management. Sellers transport products to fulfillment centers and the outsourced provider ships them to customers.
Initiatives to Boost the Competitive Prowess of SHOP
The latest acquisition is part of Shopify’s broader plan related to the development of its distributed fulfillment network. The company intends to invest $1 billion to expand its footprint in this space.
Shopify’s fulfillment network utilizes AI driven inventory-allocation technologies to help merchants avoid additional shipping charges. By ensuring optimized utilization of space and time, merchants can manage inventory and stock better. Moreover, consumers can benefit from the quicker delivery of products.
The latest deal will add cloud-based software and collaborative mobile robots (self-driving cart systems) called “Chuck” to Shopify’s fulfillment network. Notably, these robots are of great use in fulfillment centers as they aid in shifting goods in warehouses.
Moreover, the buyout of 6 River Systems will strengthen Shopify’s fulfillment network team. Notably, the founders of 6 River Systems were previous Kiva Systems (now Amazon Robotics) executives, who helped develop Amazon’s robotics business. Their expertise is a game-changer for SHOP in this competitive space.
Notably, SHOP stock has returned 159% on a year-to-date basis, compared with Amazon’s gain of 21.9% and eBay’s rally of 47.4%.
Year-to-Date Performance
Amazon Is the Robotics Leader
Amazon’s dominance in the fulfillment center management space is driven by automation and robotics strength. Its acquisition of Canvas Technology in April reflected its sustained focus toward reinforcing the operations of its fulfillment centers and warehouses with the aid of robotics technology. Canvas is best known for its fully autonomous cart system that leverages 3D imaging techniques.
The company benefits from improved efficiency as a result of the deployment of these robots. This is expected to further boost its competitive leverage against prominent retailers like Walmart, Target and Kroger.
Further, Amazon’s strengthening robotics arm, Amazon Robotics, along with the increasing number of robots in its fulfillment centers, which is more than 100,000 at present, will continue to bolster the company’s presence in the retail space.
Notably, in June, the company introduced two kinds of robots — Xanthus and Pegasus — which are likely to accelerate and smooth the operations of its warehouses and fulfillment centers. Moreover, the company is gearing up to unveil two more robots — Xanthus Sort Bot and Xanthus Tote Mover.
Additionally, Amazon launched a self-driving delivery robot, Scout, which is capable of delivering packages safely to doorsteps. It is currently available in Snohomish County, WA.
eBay Planning to Strengthen Its Footprint
In July, eBay announced Managed Delivery, a cost-effective fulfillment service slated to launch next year, starting with the United States. The new service will allow sellers to store inventory closer to buyers in strategically-located warehouses across the country, resulting in faster delivery time and lower shipping costs.
The service is expected to attract small and mid-sized sellers that will eventually aid eBay’s struggling marketplace business. Moreover, the service is anticipated to improve buyers’ experience.
However, we believe intensifying competition from SHOP and Amazon’s dominant position will make it tough for eBay to gain momentum in this space.
Zacks Rank
Shopify, Amazon and eBay currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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