Retailers Offering 3PL Services: What Is Going On?

What is a third-party logistics provider (3PL)? What business are they in?

As I’ve commented in the past (see March 2014 post, “3PLs, What Business Are You In?”), the answers to those questions are very different today compared to a decade ago.

Today, you have several large retailers — yes, retailers! — who are not just selling clothing and other consumer goods, but selling logistics services too.

Of course, there is Amazon. The retailer has been a 3PL for a long time (see August 2016 post, “Amazon: Disruptor Or Distraction?”). There’s the company’s Fulfillment by Amazon service, its Amazon Freight offering, and the various acquisitions, partnerships, and investments Amazon has made over the years to build up its air, ocean, and parcel delivery capabilities. 

Last week, Amazon announced a new service called Amazon Warehousing & Distribution. Here are some excerpts from the press release:

Amazon Warehousing & Distribution provides low-cost, long-term storage that gives sellers the option to store their inventory in Amazon distribution centers and seamlessly replenish to fulfillment centers.

With one click sellers can send their inventory to Amazon Distribution Centers and significantly reduce storage costs, while eliminating complex pricing schemes and long-term contracts that are common throughout the industry. Sellers can integrate their upstream inventory storage operations with the Amazon Fulfillment Network, ensuring they always have the right amount of inventory in stock, in the right places and at the right times.

Sellers using AWD can also consolidate their global inventory, which they can then view and manage on Seller Central, simplifying their operations with one pool of inventory. In 2023, sellers will be able to use AWD to send their inventory to any location, including to wholesale customers or brick-and-mortar stores.

Amazon is basically taking its Amazon Web Services playbook and applying it to logistics. In other words, after amassing a large network of logistics assets and expertise to run its own business, it is leveraging these assets and expertise to power the logistics capabilities of other companies — that is, turn logistics from a cost center to a revenue/profit center.

It’s a playbook other retailers are starting to adopt.

Two weeks ago, for example, Gap launched a fulfillment service for retailers called GPS Platform Service. “For the first time, we are making Gap Inc.’s fast, flexible, and highly automated logistics and fulfillment network available to brands of all sizes through GPS Platform Services,” posted Kevin Kuntz, Sr. Vice President, Global Logistics Fulfillment at Gap, on LinkedIn. As Bryan Wassel highlights in Retail TouchPoints:

GPS Platform Service utilizes 13 distribution centers in North America with a total footprint of more than 9 million square feet. The network includes more than 9,000 logistics workers who process 1 billion units annually and who can get an item from the dock to in-stock in less than 24 hours. The service is capable of handling ecommerce fulfillment, B2B wholesale and retail stores distribution.

In January 2022, BJ’s Wholesale Club acquired the assets and operations of four distribution centers and the related private transportation fleet from Burris Logistics. And in November 2021, American Eagle Outfitters acquired Quiet Logistics for $350 million (a few months after acquiring AirTerra). 

You can’t forget about Walmart either, which has its Walmart Fulfillment Services and Walmart GoLocal offerings. Per Walmart’s press lease when it launched Walmart GoLocal in April 2021, “This business is an important part of the company’s overall strategy, which includes diversifying its revenue streams and profit pools [emphasis mine] with initiatives like Walmart Connect and Walmart Fulfillment Services.”

So, what’s going on here?

Two things, I believe. 

First, it’s a continuation of a trend I first wrote about in a March 2014 post titled, “Keeping Control: What 3PLs Must Convince Their Customers.” Simply put, a growing number of large retailers (and manufacturers) are starting to view logistics as a core strategic function, and so they are investing in assets, people, and technology to gain more direct control of their operations.

(For related commentary, please read “Is Taking More Direct Control Of Your Supply Chain Becoming More Important?” and “Taking More Direct Control Of Your Supply Chain.”)

Second, once they have made these investments to benefit their own operations, retailers and manufacturers are now looking to leverage these assets, people, and technology to “diversify their revenue streams and profit pools” by offering logistics services to other companies, particularly small and midsize businesses that can’t afford to make these investments themselves (and/or who still view logistics as not being a core competency). 

The challenge, of course, is that logistics is a low-margin business. Turning logistics from a cost center to a revenue generator is easier than turning it into a profit center.

Also, “Should logistics be a core competency that we keep in house instead of outsourcing?” is a very different question than “Should operating a logistics business be a core competency?” Answering “yes” to the first question does not mean that you should answer “yes” to the second question too. Some will learn this the hard way.

Every company is a technology company,” stated Meg Whitman, the former CEO of Hewlett Packard Enterprise, in a 2015 LinkedIn post. Maybe today she would argue that every company is a 3PL — even if they shouldn’t be.