E-Commerce has quickly emerged as arguably the most fiercely competitive marketplace in terms of turning over consumer goods. One of the difficult adjustments for retailer to make in this time of transition is warehousing, logistics, and distribution of all these products. Staying competitive in the E-Commerce field is not easy. In fact, consideration of fundamental factors makes you quickly realize just how jaunting the task can be.
While building a warehouse in the Central United States would not present a tremendous cost to a large chain retailer, the cost of delivering the product must be considered as well. If a certain product has to make a 5 day, $25 journey across the continental United States, it is more than likely that the average consumer would either acquire it from another e-commerce retailer or simply drive to the store to pick it up. This means that retailers need to invest significant amounts of money to either cover shipping costs or have the product warehoused closer to the consumer.
However, a more recent trend has been to use a third party which almost entirely eliminates the need for a retailer to warehouse their own inventory. CommerceHub is a technology company that uses a platform which connects retailers with suppliers that can ship directly to customers. The platform is utilized by some of the largest merchants, ranging from Walmart to Dell. The effective result is a distribution network which reduces delivery costs, as they utilize local suppliers. Furthermore, these merchants are able to carry a much larger assortment of products due to the fact that they have access to an immense amount of suppliers without the need to warehouse the products.
A recent WSJ article highlights the company’s platform and sales figures, most notably highlighting a 23% increase in revenue in 2017. Nearly a quarter increase in revenue in a single year demonstrates just how much retailers value this type of resource. It eliminates the need for these companies to pick and chose what they should stock in their warehouse based on forecasts, rather relying on suppliers to handle those figures. This provides a tremendous cost saving opportunity, while overall increasing the efficiency of delivering a product to the customer.
It was recently announced that CommerceHub would be acquired by two private equity firms in a transaction valued at $1.1 billion. This represents nearly a 25% premium per share over their market value. The terms of the deal can provide some serious insight into what investors are speculating regarding this type of business.
Do you think that this type of platform is a viable solution to handle inventory management for e-commerce retailers?