Online sales are skyrocketing as people stay home amid the pandemic. E-commerce as a share of total U.S. retail sales increased by more than 4% sequentially in the second quarter. More than 10 years of digital commerce adoption has taken place in the past three months, according to McKinsey.
It’s unclear whether these trends will stick in a post-pandemic world. But for now, it’s a boon for companies such as Flexe.
The Seattle startup was already growing quickly before COVID-19, but the pandemic has driven even more demand for its flexible warehousing solution.
Flexe operates a marketplace that gives retailers a way to purchase warehousing space on an on-demand basis and turn what was traditionally a fixed expenditure into a variable cost.
Consumer expectations for fast shipping, largely driven by Amazon, have forced retailers to invest in their delivery networks. But if a company wants to sell a product and deliver it next-day, they’d need 16 warehouses spread across the country in order to reach 98% of the U.S. population.
Flexe operates much like Airbnb — instead of using technology to match travelers with open homes and apartments, it matches retailers with warehouses that have excess capacity. The startup has described itself as a “warehousing-as-a-service” company.
Customers just pay for what they need at a given time. It’s similar to how cloud computing services such as AWS or Azure replaced a company owning and running their own data centers.
Retailers such as Ralph Lauren, Staples, Ace Hardware, and others use Flexe to support their online businesses and reduce the costly “last mile” delivery expense. Walmart, which saw its e-commerce business double year-over-year to more than $10 billion in the most recent quarter, is also a customer.
Flexe CEO Karl Siebrecht said the company’s business is “way ahead” of its original yearly estimates due to the surge in e-commerce spending. Flexe reported a 40% increase in e-commerce order volumes on its platform in June, compared to the 2019 holiday peak. It is seeing spikes across various online shopping categories such as baby products and home goods.
The fragile state of the economy is also attracting more customers. Retailers don’t know exactly how much to order for the rest of the year, or what products might sell better. They may need extra capacity, but signing a typical multi-year lease on giant warehouse space isn’t ideal.
“Our whole value proposition is around increasing your ability to be agile, to move quickly, to react to changing conditions in the market, to respond to consumer needs,” Siebrecht said.
The recent struggles of brick-and-mortar stores are also creating tailwinds for Flexe. Warehouse operators for physical retailers have a lot of latent capacity, Siebrecht said, and Flexe is able to bring them business given the high demand from e-commerce customers that are looking for extra space.
“We help them get into e-commerce fulfillment,” he noted.
More than 1,000 warehouses across the U.S. and Canada use Flexe’s software to bid on various offers.
In July Flexe inked a key partnership with Google Merchant Center, allowing retailers and brands to connect their Flexe fulfillment programs into Google’s shopping ads. This lets shoppers see estimated delivery times — something that Google has lacked, especially compared to Amazon, Siebrecht said.
“For brands that work with Flexe, they can effectively market their delivery promises in a search result page,” he noted.
The Google deal is notable given how Flexe is also somewhat of a competitor to Amazon.
Instead of selling with Amazon’s fulfillment business, Flexe offers retailers an alternative that lets them ship products with their own branded boxes and existing shopping software. The third-party warehouses, meanwhile, handle labor and administrative work. It also keeps retailers from having to share any data with Amazon.
But Siebrecht has said in the past that he doesn’t consider Amazon as a competitor. Flexe helps customers sell products through or to Amazon.
Siebrecht said he expects Amazon to continue innovating and building out last-mile capabilities to support its 1-day delivery initiative for Prime members. But he said newer tech companies such as Shopify or Instacart — and Flexe, for that matter — are helping level the playing field for non-Amazon retailers.
“What you’re seeing is an emergence of an ecosystem of technology providers that are starting to offer some of same things that Amazon can do so well and has historically done uniquely,” he said.
Flexe competitors include industry giant XPO Logistics, newer startup Stord, and UPS, which launched its own warehouse technology startup called Ware2Go last year.
Siebrecht, a finalist for Big Tech CEO of the Year at the 2020 GeekWire Awards, co-founded the company with Edmond Yue and Francis Duong after they attended a housewarming party and met an entrepreneur who complained about finding warehouse space for his barware company. Siebrecht was previously an executive at aQuantive and AdReady.
Flexe avoided making any layoffs and is now looking to grow its 145-person team. The company is ranked No. 66 on the GeekWire 200 index of top Pacific Northwest startups.
The company moved into a new 24,000 square-foot downtown Seattle office last year and plans to move back in when it is safe to do so.
The 6-year-old startup is coming off a fresh $43 million investment round it raised last year. Investors include Activate Capital, Tiger Global Management, Madrona Venture Group, Redpoint Ventures, Prologis Ventures, and others. Total funding to date is $63.5 million.
