(Bloomberg)—Chieh Huang has borrowed a lot from Amazon.com Inc. to expand his e-commerce startup Boxed Wholesale, which sells bulk packages of paper towels, granola bars and maxi pads, including free delivery within two days on most orders and an inexpensive house brand of products. And, like Amazon founder Jeff Bezos, Huang started the company in his garage in 2013.
Chieh Huang, CEO, Boxed Wholesale
One big difference between Boxed and the e-commerce giant: the startup sells only about 1,500 products, mostly household goods, compared with Amazon’s roughly 350 million items from books to televisions to mixed nuts. Now Boxed has spent tens of millions of dollars on a new automation system, launching this month, to triple the output of its 140,000-square-foot warehouse in Union, N.J., without needing more space or workers.
Huang is betting that elaborate system helps keep costs down and lets Boxed thrive in the sales battle for household goods, a $700 billion category dominated by supermarkets and big-box retailers.
“By having a smaller number of products, Boxed can get stuff out the door more cost effectively by reducing the warehouse footprint and the complexity of the operation,” said Clint Reiser, director of supply chain research at ARC Advisory Group. “It becomes a competitive advantage.”
While Amazon, No. 1 in the newly released Internet Retailer 2017 Top 1000, has also invested heavily in automation, most notably with its $775 million acquisition of warehouse robot-maker Kiva Systems in 2012, it keeps hiring warehouse workers as it seeks to sell everything to everyone. Amazon’s fulfillment expenses—the cost of storing, packing and shipping products—increased 31% in 2016 while product sales increased 19%.
Boxed (No. 326 in the Top 1000) has warehouses in New Jersey, Dallas, Las Vegas and Atlanta. It offers shoppers bulk-sized products like those found at Costco Wholesale Corp. (No. 8) and other warehouse clubs, saving customers membership fees and the hassle of crowded parking lots and aisles. The idea is catching on. Boxed said it had sales of $100 million in 2016, up from $50 million the previous year. The average order size is about $100 and includes 10 items, meaning most orders meet a $50 threshold for free shipping, the company said.
“Our strategy is to not chase Amazon,” Huang said. “We have to build our business our own way.”
Boxed lured investors because it is targeting a major consumer category that has been slow to shift online and involves people making frequent purchases, said Jeff Richards, managing partner at GGV Capital, a Boxed investor.
“One of the hardest things to achieve in e-commerce is repeat purchases,” Richards said. “You go to a fashion site and buy a shirt and never return or you use a coupon on a site and never come back again. Household goods are something you buy every single week and you never stop because you always have to clean your kitchen and feed your kids.”
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