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Shopify & 6 River: Game-Changing M&A in Warehouse Automation

By Lisa Chai, Senior Research Analyst, ROBO Global

On September 9, Shopify, a leading e-commerce platform, announced an agreement to acquire 6 River Systems for nearly half a billion dollars. The deal reminds us of Amazon’s 2012 purchase of Kiva Systems, which kick-started an arms race to automate supply chains, warehouses, and fulfillment centers. In fact, since the inception of the ROBO Global Robotics & Automation Index, logistics and warehouse automation has been its best performing subsector, returning over 220%, including more than 30% so far in 2019.

With 4 deals in the past 12 months, Shopify has been on a bona fide acquisition spree. That said, the 6 River acquisition is its first warehouse fulfillment-related deal, and may well be the most important acquisition to date in the company’s quest to transition into a global retail operating system that spans global fulfillment and brick-and-mortar operations from a single e-commerce platform solution provider.

Founded in 2015 and headquartered in Massachusetts, 6 River Systems provides collaborative mobile robots to enhance warehouse fulfillment solutions. “Chuck,” the firm’s autonomous robot, integrates with existing warehouse management software systems and assists warehouse workers with picking, sorting, packing, and inventory replenishment. These robots have been operating in more than 20 warehouse facilities around the world, fulfilling millions of units each week for customers that include Lockheed Martin, CSAT Solutions, ACT Fulfillment, DHL, XPO Logistics, and Office Depot. Research firm Interact Analysis said it expects 6 River to grow its installed base of robots from about 200 at the end of 2018 to more than 1,000 this year.

Shopify’s acquisition of 6 River will bring expertise in fulfillment software and robotics, which should accelerate the build-out of the Shopify fulfillment strategy. By adding this solution that leverages artificial intelligence (AI) and machine learning, it will drive operational efficiencies and reduce costs with pick rates that are generally 2-3x better than traditional processes. This acquisition also comes at a very interesting time; venture funding has been very active in warehouse automation solutions with Fetch Robotics raising $46M in July and Locus Robotics raising $26M in April of this year. According to Crunchbase, 6 River had raised $47M in VC funding in the past few years with a $150M valuation according to the last capital raise.

The move could be compared to Amazon’s acquisition of Kiva Systems (the company co-founded by ROBO Global Strategic Advisor Raffaello D’Andrea), which was momentous in helping the company solve fulfillment challenges with autonomous robots. At that time, the news shocked the industry as the largest acquisition in the space—one that truly transformed the warehouse industry and enabled Amazon to profitably deliver on its promise of free, 2-day delivery to its Prime members. And yet with its acquisition of 6 River Systems, Shopify is taking this approach one step further. In this case, Shopify is purchasing more than the robots and cloud-based software it needs to succeed. The acquisition also includes a team of fulfillment and robotics experts (including former Kiva executives that helped develop Kiva Systems, now Amazon Robotics) who will be joining the company to help accelerate Shopify’s new warehouse strategy.

Next Generation Warehouse Fulfillment

For years, the gold standard in the space has been Amazon Robotics, which is famous for its recognizable orange bots that cruise around its warehouse floors as they pick and fulfill customer orders 24/7. For years, others have been scrambling to catch up both online and off using innovations like virtual reality, chatbots, and augmented reality that promote products in brick-and-mortar stores. But even with these customer-facing innovations, the biggest opportunity for improving the customer experience remains in logistics automation. In addition to cutting operational costs, logistics automation is the key to one of the most important goals for every retailer: dramatically reducing the time between order and delivery to the customer.

To achieve this holy grail, retailers have been following Amazon’s lead by turning to robotics, automation, and AI (RAAI). One company that has helped lead the way is ROBO Global Index Member Ocado Group, whose unique, end-to-end automation solution for online grocery retail has earned it the spot as the world’s largest dedicated online grocery retailer, with more than 580,000 active customers—and Amazon’s #1 rival. The result has been a double-digit jump in sales and spectacular growth: Ocado has been one of the ROBO Index’s top performers, with shares up 73% so far in 2019 and more than 300% in the past three years. Last year, Ocado struck a major deal with US retailer Kroger to provide automated solutions for up to 20 warehouse facilities. These next-generation warehouse facilities powered by Ocado have added to the massive disruption of the online grocery industry, as well as to the larger landscape of global logistics automation.

Another ROBO Global Index Member, Manhattan Associates, offers a software solution that enables retailers to optimize every aspect of omnichannel operations at every touchpoint—from headquarters to contact center to store. Manhattan Associates is also one of the ROBO Index top-performing companies, up 93% so far this year. Considering the level of investment by strategic investors and venture capital, investors should continue to see tremendous growth in the logistics automation subsector.

Shopify’s acquisition of 6 River Systems is sure to add to this industry momentum. The addition of new technologies and an experienced fulfillment and robotics team is expected to quickly scale up the capacity of its fulfillment network, help level the field for smaller merchants who compete with Amazon by offering comparable shipping options of 2 days or less at affordable rates, and strengthen Shopify’s focus on mobile B2B software to bolster its e-commerce technology that is currently used by more than 800,000 businesses in about 175 countries. Disruption is the name of the game, and Shopify is now ready to compete with the biggest players.

 

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