The Premise & Promise of Fulfillment-as-a-Service

By January 7, 2020Insights

It wouldn’t be a family vacation without a retail-related side trip, right?

On a holiday trip to Israel, our family toured Fabric’s 6,000-square-foot micro-fulfillment center (MFC) in a light-industrial part of Holon, a suburb of Tel Aviv. The Israeli startup was formerly known as CommonSense Robotics.

The sights were impressive: In response to online orders pouring in from drugstore chain Super-Pharm, long-armed lift robots grabbed blue-plastic totes from an 18-foot-tall, 3D matrix of storage shelves. They lowered those bins onto sled-like ground robots, which then sped off to arrange the orders for picking.

It was striking to see how many items—7,000 SKUs in total—can be packed into a small space when you have no need for walking aisles. What struck me most, though, was the sound—or more accurately, the lack of sound. I had expected to hear whirring robots, beeping forklifts, rattling exhaust fans and other noises typical of a light industrial area. In reality, the entire operation was silent (with the exception of my kids, who somehow didn’t break anything).

The visit underscored that automated fulfillment as a service promises to ramp up the speed, efficiency and cost-effectiveness of ecommerce for the broad base of retailers globally, improving their chances of competing with the likes of Amazon and Walmart.

At its Tel Aviv MFC, which opened this past April, Fabric is already fulfilling 600 Super-Pharm orders a day, with an average order size of 10 items each. The startup just closed on $110 million in Series B funding and is about to expand internationally, with an emphasis on the United States.

That’s not so unusual for Israel. Compulsory military service exposes young Israelis to the gamut of futuristic technologies (and training). It also gives them extra time to think about what they want to do when their stint in uniform is over. That could mean pursuing a PhD in computer science, or launching a startup bent on democratizing ecommerce.

Visiting Fabric’s MFC underscored that we are less than five years away from co-located retailers taking advantage of fulfillment as a service.

Imagine Fabric teaming with the retailers and restaurants at my local Northeast Park Shopping Center in St. Petersburg. I could go online and place a one-hour delivery order for my groceries from Publix, takeout from Asian Wok, dry cleaning from Sun Country Cleaners, and printer cartridges from Office Depot—a quantum leap with respect to convenience.

Squeezing Productivity Out of Lifeless Space
With extremely small space requirements, functionally obsolete and elbow-spaces can have a new life as an MFC inside a retail center.

Fabric’s Tel Aviv MFC has the capacity to pick 1,000 orders per day. Its (human) labor needs are low: between two and four pickers, a flow manager and a maintenance specialist. The startup’s whole model is to create networks that make it profitable for retailers to offer one-hour deliveries without themselves spending a ton of money upfront. The homegrown hardware and software sets this startup apart from other MFC competitors, but puts them squarely in line with Ocado, Kroger’s mega-scale distribution partner.

If Fabric or its competitors can make it cheap and easy for co-located retailers to subscribe to fulfillment as a service, shopping centers could benefit in major ways.

Right now, landlords are able to charge more for small-shop rents because these tenants get the benefit of anchor traffic. However, anchor traffic continues to decline, especially at department stores. MFCs could help shopping centers regain traffic even with fewer incoming cars.

As we discussed in “The Future Fulfilled,” MFCs could be located inside operational stores, dark storefronts or in low-cost areas like light-industrial zones. We’ll also start seeing “hybrid stores” which will blend front and back-of-house areas in new ways to serve the customer.

In fulfilling orders for a retailer with multiple stores in a major city, Fabric’s algorithms use real-time data on inventory availability and customer proximity to figure out which MFC will be fastest. But retailers in the same shopping center could all put SKUs in the same MFC, since their customers are in the same trade area by definition. To make rapid deliveries of online orders, all those tenants would need to do is pay per-pick fees, with no need to hire anybody, build robots or code AI algorithms.

We’re already seeing something like this happening with Kitchen United, where different restaurants use the same kitchen to fulfill orders for online delivery.

Co-located fulfillment won’t make sense for every shopping center, but it could work at properties with the right demographics and tenants. One day soon, leasing agents may woo top chains by giving them access to highly efficient fulfillment hubs, run (quietly) by robots.

Rachel Elias Wein

Rachel Elias Wein

Rachel Elias Wein founded WeinPlus, a strategy and management consultancy focused exclusively on retail and real estate organizations, in 2009. Ms. Wein serves as the principal strategic advisor for industry-leading public and private real estate owners and national retailers. With over 15 years of management consulting experience, Ms. Wein’s expertise is focused on leading enterprise-level strategic change.