Fulfilling Work: The Shippers More entrepreneurs hire 'fulfillment' outfits to store and ship their products

By

Stu Woo

June 23, 2011

Brett Teper faced a logistical problem when he and a partner founded ModProducts LLC's ModKat, which makes high-end litter boxes for cats, a few years ago. The New York City residents needed a way to cheaply store and ship their bulky goods.

Their solution was to outsource product distribution to Shipwire Inc., one of several services that small- and medium-size businesses are increasingly using for storage and shipping, or "fulfillment."

 

HANDING IT OFF: Packed boxes head toward the trucks at an Amazon.com fulfillment center in Phoenix. Associated Press

With Shipwire, Mr. Teper doesn't touch his products. They are sent from a Taiwanese manufacturer to a Shipwire warehouse near Los Angeles, where they are packed. When a customer buys off ModKat's website, an employee approves the order, which then goes directly into Shipwire's system. The boxes are shipped within 24 hours.

The service "allows us to do this without really thinking about ... fulfillment and logistics," said Mr. Teper.

Businesses such as Shipwire, Webgistix Corp. and Amazon.com Inc. AMZN +1.75% 's Fulfillment by Amazon, among others, do the work. EBay Inc. plans to test its own service this year, a spokeswoman for the online marketplace said. A small group of eBay sellers in the U.S. and China will be able to have eBay handle all parts of fulfillment. It's unclear whether eBay would run its warehouses or use a contractor.

These services have become increasingly popular for small businesses that have outgrown the garage or don't want to deal with the hassle of storing and shipping their own goods. They can shave a day or two off delivery times because they have warehouses around the country. They have a software platform that is compatible with popular online-commerce systems that small retailers use.

The services typically charge a monthly fee for storing the products—Amazon charges about 45 cents per cubic foot per month—and per-item fees to pack and ship the products.

Shipwire, which is based in Palo Alto, Calif., and operates warehouses in California, Illinois, Canada and Britain, said it had annual revenue growth of 118% from 2007 to 2010, though it declined to disclose the underlying numbers. At Las Vegas-based Webgistix, which has warehouses in Nevada and New York, Chief Executive Joseph DiSorbo said sales had grown more than 40% a year. An Amazon spokesman declined to disclose data for its fulfillment service, saying only that it was "pleased with the growth."

There are drawbacks to fulfillment services. Mr. Teper said he'd had some problems with big-box retailers that had software that didn't work well with Shipwire's. Shipwire said it was working on the issue. There have been a few shipping errors, he said, though he noted that Shipwire had handled them all.

Mr. Teper said the service is worth the cost. Shipwire charges his company about $10 to ship to California locations and $15 to New York. While it would be slightly cheaper if he shipped the litter boxes himself, that doesn't take into account the cost of renting a warehouse and hiring someone to staff it, he said.

Sandra Gunthorpe-Orr, founder of an online toy store called Star Bright Kids Co., said that by using Amazon, she can't complete her orders using gift wrap with her company's own logo. Nonetheless, she said, the Amazon gift wrap "seems to get the job done." She said the company fulfills about 150 to 200 orders a day for most of the year and as many as 2,000 orders a day during the holiday season.

"There's no way we could ramp up" without using an outside service, she said. "We'd have to hire and have to lay off after the season."

Amazon's program is open both to Amazon.com sellers, such as Ms. Gunthorpe-Orr, and to merchants who sell on other sites, with lower rates for Amazon.com sellers. All such orders come in an Amazon box that cannot be modified or personalized. Products "fulfilled" by Amazon are eligible for the retailing giant's free-shipping offers. Amazon takes a cut of sales from the small merchants that sell on its site.

Brent Doud, founder and sole employee of Ladder Golf Inc., which makes a backyard game similar to horseshoes, said he saves about $40,000 a year using Webgistix. He said he previously paid about $50,000 a year to rent space in a San Diego warehouse to store his products and to hire an employee to staff it.

In 2009, he started using Webgistix, and said the reduction in costs and hassle allows him to focus on building up his company.

"I probably couldn't do this if I didn't outsource," he said.

Write to Stu Woo at Stu.Woo@wsj.com