Amazon continues to be the 800-pound gorilla in the room for companies in the retail sector. Today, a startup called Fabric, which is building technology to help those other retailers — big and small — compete more squarely against that muscle specifically in fulfillment with robotics technology, “micro-fulfillment” centers and last-mile operations, is announcing $200 million in funding. It’s a big round at a big valuation — over $1 billion, Fabric says. The round underscores both the demand in the market and opportunity to challenge Amazon.
“As it is, we already have more demand than we can serve,” said Elram Goren, Fabric’s CEO and co-founder, in an interview, who has his sights set on where it might apply its technology next. “At the same time, we are seeing bigger opportunities beyond the proposition beyond our micro-fulfilment centers, how they interact in the network and the supply chain.”
Singapore’s Temasek — which participated in Fabric’s $110 million Series B in 2019 — led this Series C, with Koch Disruptive Technologies, Union Tech Ventures, Harel Insurance & Finance, Pontifax Global Food and Agriculture Technology Fund (Pontifax AgTech), Canada Pension Plan Investment Board (CPP Investments), KSH Capital, Princeville Capital, Wharton Equity Ventures and other unnamed backers also participating. It has raised $336 million to date.
Fabric’s customers today include the likes of Walmart, Instacart and FreshDirect, and Goren said the funding will be used both to continue moving deeper into the grocery sector, including helping them build out their own “marketplace”-style operations, as well as to bring its robotics and micro-fulfillment technology to other kinds of e-commerce retailers by expanding its network across the U.S. (where it is now based, out of New York) and Israel (where it originally started), and soon other markets.
“Essentially, we are using the same tech stack for both groceries and e-commerce,” he said in an interview. Part of that was out of practicality. When Fabric started in 2015, he said a lot of the company’s thinking was focused around groceries, since e-commerce penetration was very low, at about 1%. Now it’s at 10%, he added, a $1 trillion business. “A lot of our thinking is shaped by what we saw as the opportunity. But in time we learned the opportunity was a lot larger and we have relevance in other areas. It’s retail but more abstractly, we are building a new way to move things so that you can have a faster and more efficient way of getting them.”
E-commerce has been growing at clip for decades, but the trend accelerated drastically in the last two years, not least due to COVID-19 and the chilling effect that had on in-person retail. Citing figures from McKinsey, Fabric notes that the 35% penetration that e-commerce had in 2020 (that is, the amount of sales that were transacted online versus in-person) was more than double the year before (16% in 2019), with a chunk of that growth taking place over just a few months (growth that had taken 10 years prior to COVID-19).
But although it’s easy enough — and getting easier all the time — for us consumers to find what we want, click on it and get it delivered to our doors, that flow hides a huge and complex set of processes. One of the less transparent of those processes is fulfillment, which can include receiving goods, inventory storage, pick-and-pack costs, kitting and other sorting services (bringing unrelated items together), customer support and more. Estimates vary widely for how much of a percentage fulfillment is in the total costs for a product sold online rather than in-store, depending on locations of fulfillment centers, size and amount of items, methods used to run operations and so on.
Fabric competes against other startups building technology to improve the fulfillment process, such as ShipBob, Byrd and parcelLab, all of which have raised money this year. These newer players in turn are looking to get into a business that has otherwise been dominated by a wide range of third-party logistics and fulfillment (known as 3PL) providers in what is a fragmented and in some ways quite analogue market, relying on warehouses and teams of workers; and of course Amazon, which provides services to hundreds of thousands of third-party merchants through its FBA program.
Fabric’s robotics solution is key to how it differentiates on this front. It has built a vertically integrated set of hardware and software that can be implemented in a customer’s own warehouses, or in its own, to automate the process of selecting, moving around and packing items. Goren said that it reduces the costs of fulfillment operations by some 75%, meaning that it doesn’t remove humans from the chain altogether.
“There are some things that can only be done by humans,” he said. The plan is to continue to build its own hardware but also, over time, to explore how and where it might integrate with whatever bigger customers might already be using.
The micro-fulfillment, meanwhile, is a concept that is based around providing space to multiple tenants within a space where Fabric deploys robots to run it; but also potentially involves Fabric itself taking space within larger warehouses that it does not own itself. A typical micro-fulfillment center involves robots and humans at scanning and controlling stations; a 6,000-square-foot station can process up to 600 orders a day, including one-hour deliveries.
One big opportunity in delivery and fulfillment operations has been in better serving dense, urban communities, which represent demographics with disposable income, a regular need for shopping since domestic storage is more limited, and smaller geographic areas to cover more efficiently. This will also be a target for how Fabric expands, Goren said. Economies of scale in these markets also present a compelling case for more efficiency overall that has an impact in other ways, too.
“We believe the movement to local fulfillment presents an opportunity to make retail and e-commerce more sustainable, and we’re thrilled to partner with the leader in micro-fulfillment to make this vision a reality,” said Eric Kosmowski, managing partner at the Princeville Climate Technology Fund, in a statement. “By leveraging existing real estate with a small footprint in close proximity to end consumers, utilizing more sustainable packing materials, and minimizing shrink and waste through smart inventory management, Fabric’s micro-fulfillment centers could lower last-mile emissions significantly.”
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