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Why logistics’ latest unicorn is ready to break the $10B barrier

Microfulfillment company Fabric is about to take off

Fabric secured unicorn status in October with a $1 billion valuation. (Photo: Pexels)

Retail is in the midst of a metamorphosis

The role of the physical store is changing as consumers explore options other than in-store shopping –– according to the National Retail Federation, more than half of retailers currently offer or plan to offer a ship-from-store option, and another two-thirds currently offer or plan to offer buy online, pick up in store (BOPIS). And then there’s e-commerce, which now accounts for about 15% of all retail sales.

Increasingly, companies are spending less time trying to bring their customers to their stores and more time trying to bring their stores to their customers. This is the idea behind microfulfillment, the trend that’s taking over the retail industry –– instead of investing in their existing brick-and-mortar locations, retailers will buy up several smaller locations near their customer base to be used as fulfillment centers for e-commerce and other orders.

At the forefront of the microfulfillment movement is Fabric, a recent inductee into the unicorn club after a $200 million Series C raise pushed the company’s valuation over $1 billion at the end of October. But it’s only scratching the surface. Having reached the milestone while operating in just three cities – New York City, Washington and Tel Aviv, Israel – Fabric is well-positioned to make the leap to a decacorn, a company with a $10 billion valuation.

“At a high level, we enable on-demand retail for everyone,” CCO Colin Coggins told Modern Shipper. “Fabric was purposely built from the ground up as an urban solution for metro city centers.”

Scattered throughout the three cities in which Fabric currently operates are an array of microfulfillment centers, each equipped with software-led robotic automation to boost efficiency. By spreading inventory out across cities, Fabric helps companies better manage demand and meet customer expectations for rapid delivery.

“We know automation is not new in this space. But if you look at the competitive landscape, most of them were built from the ground up for 400,000-square-foot facilities or million-plus-square-foot facilities,” Coggins said. “But if you look at what you’re going to need when you’re isolating real estate in the city centers … that’s a whole different ball game that, quite honestly, we haven’t seen anyone really play.”

Changing the game

Consumers were already becoming used to same-day and two-day delivery before the pandemic with the advent of Amazon Prime, but when COVID-19 hit, rapid delivery became the new normal.

“What COVID did is it started making folks aware that if we don’t do this, we’re gonna lose customers, because our competitors are doing it,” explained Peter C. Lewis, president and founder of Wharton Equity Partners, one of Fabric’s investors in October’s funding round. “So we’re really kind of at this precipice, I think, of dramatic change. And we’re early in the game.”

Fabric stood out to Lewis because unlike other microfulfillment operations, its automated solution was purpose-built to be deployed in cities.

“We deal with tons of tenants who are struggling to get their products into the hands of consumers, in particular in these major cities,” Lewis told Modern Shipper.

Lewis, whose company invests primarily in tech companies and industrial properties, gives an anecdote that illustrates just how hot microfulfillment has become. About two years ago, Wharton bought a dilapidated warehouse in South Philadelphia, a decision that on its surface would certainly end in buyer’s remorse.

“The building was in complete disarray. It had rails running through the middle of it because it used to service subway cars, and the roof was a wreck. It was a mess,” Lewis recounted. “But it sat next to 4 million people — within 15 minutes, it was at the port, at the airport and on the major highways. And the minute I saw the building, we went ahead and bought it.”

Immediately, Wharton got to work. Through a capital improvement program, the company renovated and upgraded the building, and by the end of the process Amazon (NASDAQ: AMZN) had come in and leased the entire space. But the massive company wasn’t using it to store inventory.

“There’s no racks in this building,” Lewis said. “It’s all conveyor belts.”

Amazon had turned the building into a microfulfillment center for the city, where it could bring in products and quickly turn them around to be distributed all over Philly. But the microfulfillment value proposition becomes even more tantalizing when you add more centers and equip them with AI, like Fabric has.

“[Retailers are] able to move their goods around these microfulfillment centers in a way that artificial intelligence is kind of dictating where to carry inventory,” Lewis said. “This whole neural network is in the early, early stages of evolution.”

Supply chain brain

By scattering microfulfillment centers across a city, Fabric is creating a neural network of localized inventories, each equipped with data-gathering capabilities that enable retailers to predict demand in real time. That, in turn, makes stocking and fulfilling inventory a more efficient process.

“You can determine the propensity of which customers are buying what, when, why and how, determined by advanced data intelligence,” explained Coggins. “And if you combine that with automated, highly efficient microfulfillment centers and last-mile delivery platforms, you sort of have a way to win for the brand and for the customers.”

Fabric’s microfulfillment solution can also reduce capital expenditures for retailers. For one, with automation, they would no longer need to invest in on-premises tech in their warehouses, and they wouldn’t need to continually upgrade it as new tech comes out. That effectively lowers barriers to entry and levels the playing field for smaller companies.

“Think about a higher number of sales in the same amount of space, taking the same amount of product, the same amount of inventory, at 10% the footprint,” Coggins elaborated. “Operations are lower cost, there’s a huge reduction in error when it comes to manual labor, it’s ridiculously more efficient, and it’s closer to customers.”

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However, he emphasized that while automation is the ultimate goal for Fabric’s partners, it’s the citywide network of microfulfillment centers that’s really getting them excited.

“I think what most people take for granted is way too many retailers are struggling right now to meet today’s delivery expectations, let alone future delivery expectations,” Coggins pointed out. “It’s less about the robots and automation, and it’s more about what is the most effective approach to make sure that we can bring the retailers and the brands and their products closer to the consumers.”

According to Coggins, Fabric’s partners are particularly interested in the flexibility and testability that a network of microfulfillment centers can bring. He said that their conversations focus on things like understanding local inventory allocation, testing local market demand, exploring and optimizing local on-demand delivery, and testing branded same-day delivery.

“They’re not interested just because of automation,” he added. “They’re interested in, ‘How do we become the most innovative retail leaders in the space? How do we drive that vision? And how do we standardize this across the country?’ And we’re doing a really good job at that with our partners.”

More than a unicorn

Fabric’s neural network is up and running in only three cities, two on the East Coast and one in Israel, yet the company already has a seat at the table at the unicorn club, managing to bring on names like Walmart (NYSE: WMT) and FreshDirect as partners. With hundreds of other cities, both in the U.S. and abroad, still untapped, the potential is there for Fabric to shatter the $10 billion valuation.

“The value of having, let’s say, a microfulfillment center in New York and Chicago and LA and San Francisco and being able to go to a client and say, ‘We can give you coverage in all those markets,’ is really when you start seeing the value of this company grow exponentially,” Lewis explained.

Having just scratched the surface of a nationwide microfulfillment network, scaling into those cities and others will be the primary use of Fabric’s $200 million Series C funding. The company also plans on investing heavily into its software and hardware and building out a larger team to help manage its next phase of growth.

Lewis is about as bullish as they come when it comes to Fabric’s prospects, so much so that Wharton is entering territory that few real estate investment firms dare to enter.

“We’re willing, even as real estate folks, to build these buildings on spec because we have a high degree of confidence that the Fabric folks are gonna be able to fill the buildings with clients,” he shared. “One of the reasons we invested is we’re going to try to help the best we can on the real estate side, to push that effort aggressively. The demand is out there.”

With fully functioning networks of automation-equipped microfulfillment centers spanning New York City, Washington and Tel Aviv, the proof of concept is there. All that’s left to do is scale it.

“This is a complex, unique and quickly changing landscape when it comes to retail and e-commerce,” Coggins told Modern Shipper. “And so for us to be able to reinvent omnichannel fulfillment and delivery and capture that very hard, unique space is something that we’re really proud of.”

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Jack Daleo

Jack is a staff writer for FreightWaves and Modern Shipper covering topics like last mile delivery and e-commerce fulfillment. He studied at Northwestern University, majoring in journalism with a certificate in integrated marketing communications. Previously, Jack has written for Backpacker Magazine and enjoys travel, the outdoors, and all things basketball.