UPS Invests to Learn About Direct Online Sales
September 30 2015 - 7:29PM
Dow Jones News
By Laura Stevens
United Parcel Service Inc. is investing in a tech startup that
allows brand manufacturers to set up websites and sell directly to
consumers, bypassing the middlemen.
Two-year-old Ally Commerce Inc., headed up by a former eBay Inc.
executive, has launched websites and other e-commerce services for
brands including D-Link, Bosch and Electrolux. The startup has
raised a total of $8.4 million in two rounds of funding, and UPS
declined to disclose the amount of its minority-stake
investment.
Direct-to-consumer online sales by manufacturers have become
e-commerce's final frontier, and it is fast-growing. By next year,
direct-to-consumer online sales are expected to become the largest
source of sales for brand manufacturers at 34% of the total,
according to a survey by Forrester. Brand manufacturers reported in
the survey that their online sales grew nearly 30% in 2013,
compared with about 14% growth for all e-commerce, according to the
U.S. Census Bureau.
At that time, Jason Rubottom was working at eBay and noticed a
tipping point as more than a dozen major manufacturers expressed
interest in getting into online sales. He ended up recruiting the
Atlanta-based founders of an online music-equipment retailer with
experience and technology, including the starting point for a new
cloud-based software platform to bring the same logistical
expertise to manufacturers.
Ally Commerce's technology allows manufacturers to tap the
company for everything from creating and running a website to
fulfillment of orders and returns. The company launched in January
2014 and did $10 million in sales its first year.
Shoppers already expect to be able to buy direct. The margins
are typically twice as good for the manufacturers if they sell
directly to consumers than through retailers and other channels,
Mr. Rubottom said. "This is consumer-driven," he added. "You want
to go to one spot, and you know you'll find it there."
Ally Commerce is the latest in a string of startup investments
by the strategic corporate venture arm of UPS, ranging from
crowdsourced delivery app Roadie Inc. to 3-D printing manufacturer
CloudDDM LLC. Currently, the delivery giant has a portfolio of
about 20 companies which have invented technologies that align with
UPS's interests--especially in areas that might affect UPS and its
customers' businesses in the next two to five years, said Rimas
Kapeskas, head of UPS's strategic enterprise fund.
When UPS invests in a startup like Ally Commerce, it is for
research purposes. It is often cheaper than UPS carrying out its
own research and development. "We want to understand how they're
operating. It's a very cost-effective deployment of our capital,"
Mr. Kapeskas added.
E-commerce is a special target for investments, he added,
"because it's transformed our business."
Growth in online sales has caused growing pains for UPS in
recent years, including back-to-back holiday seasons in which it
disappointed investors with its performance as online orders
surged. The company warned earlier this year that costs to ramp up
for its increasingly unpredictable holiday season will continue to
be a drag on earnings. The business is also low-margin, as delivery
drivers often go farther to drop off cheaper packages at houses
scattered throughout a neighborhood.
In response, UPS has sought more profitable e-commerce outlets,
including expanding its ability to handle retailers' returns. But
it remains to be seen how much of a role UPS might take in the
direct-to-consumer space. Mr. Kapeskas said that the company
typically doesn't purchase the startups in which it is
invested.
Ally Commerce now has 30 customers, including D-Link Systems
Inc. The computer networking-product manufacturer first started
using Ally Commerce about a year ago to sell its products on
marketplaces like eBay. Previously, the company struggled with
juggling filling single orders to consumers with its big shipments
to retailers. Now it ships routers and other products to Ally
Commerce, which fills the orders.
Write to Laura Stevens at laura.stevens@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 30, 2015 19:14 ET (23:14 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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