May 11, 2010, 2:32 PM

GSI Commerce expands its fulfillment services with purchase of VendorNet

VendorNet will help GSI fulfill online orders better for retail chain clients, including from store inventory.

GSI Commerce Inc. has acquired VendorNet, a provider of web-enabled supply chain technology, in a move that analysts say will help GSI fulfill online orders better for retail chain clients, including from store inventory. Terms of the deal were not disclosed.

The acquisition brings GSI, a provider of a wide range of technology and services for deploying and operating e-commerce sites, new capability to operate in a more multichannel environment and compete with faster fulfillment and delivery services, analysts as well as GSI executives say.

“VendorNet perfectly complements GSI’s strategic objectives and provides solutions that could reshape e-commerce for both retailers and consumers,” says Jim MacIntyre, chief of e-commerce technology at GSI. “Retailers today are consistently challenged to manage distributed inventory, achieve full data visibility across channels and deliver merchandise to consumers more rapidly.”

GSI’s objectives, he says, include helping retailers better manage their inventory—whether it’s in distribution centers dedicated to stores or the web channel, in stores, in third-party fulfillment houses or at drop-shippers—while also making it possible for them to deliver orders faster to consumers. Among the software modules in VendorNet’s Commerce Suite, for example, StoreNet Live enables retailers to fulfill online orders from in-store inventory, while Dropship Manager automates the forwarding of online orders to drop-shippers. With these systems in place, retailers can ship orders from locations with the best available inventory and in the closest proximity to customers for the fastest delivery, in some cases including same-day or next-day delivery, MacIntyre says. <p>

“Multichannel expertise is an increasingly critical part of retail growth strategies,” he adds. “Real-time, cross-channel inventory management should be a part of this strategy and should respond to growing consumer demand for quick product delivery. This acquisition centrally positions GSI to help our clients address these needs head on with proven solutions.”

Analysts say the VendorNet acquisition is a natural move for GSI. “The biggest challenge GSI has is that they operate the online channel as a distinct service for clients, some of which have a well-established store base,” says Nikki Baird, a managing partner of research and advisory firm RSR Research LLC. “GSI has already done some nice work to make their service support a more cross-channel environment—such as in-store product availability and store locators on e-commerce sites—but I see VendorNet really accelerating their capabilities in cross-channel fulfillment.”

Expediting fulfillment could also improve on GSI’s ability to launch a next-day delivery service to rival Amazon.com Inc.’s Amazon Prime service—a goal that GSI has targeted, according to stock analysts who follow GSI. But, at least for now, the VendorNet deal appears to mostly center on GSI’s ability to better serve its clients’ multichannel fulfillment needs, analysts say. “I imagine the primary motivation is for multichannel retailers to manage their inventory better across the web and bricks-and-mortar stores, which could ultimately have the benefit of faster order processing and delivery,” says Colin Sebastian, a stock analyst with Lazard Capital Markets.

Adds Baird: “I don’t see this as going after Amazon with speed of fulfillment so much as helping retailers that have stores differentiate themselves from online pure-plays by leveraging all of their assets together, and not just their online assets.”

Herman Leung, a stock analyst with Deutsche Bank, notes that VendorNet brings to GSI a network of 17,000 drop-shipping suppliers, while VendorNet’s StoreNet Live system can effectively turn a retail chain’s in-store inventory into a virtual warehouse available to the online channel. “This will help lower retailer’s transportation and delivery costs and get products to customers much faster,” he says. “It’s another tool to help GSI arm multichannel retailers to better compete against Amazon.com Inc.’s dominance in the overall online market.”

Indeed, Fiona Dias, GSI’s executive vice president of strategy and marketing, notes that VendorNet’s ability to leverage in-store inventory for online orders can greatly expand the volume of inventory that a retailer can make available to its online channel. “Most e-commerce sites only access the inventory in their one or two distribution centers, which may be just 10% of their overall inventory, so this can help them optimize as much as 10 times as much,” Dias says.

Moreover, she adds that by making shipments of products available from stores for online orders, online retailers with widespread store chains will have many more options for shipping within short time periods to customers not far from store locations. “This could even get into same-day delivery, a place where multichannel retailers can have a unique advantage over Amazon,” she says.

GSI expects to have VendorNet’s technology at least partially integrated with the GSI technology platform in time for this year’s holiday shopping season, Dias says.

RSR managing partner Paula Rosenblum notes that, over the long term, GSI is likely to either acquire or develop a store point-of-sale system—possibly in a software-as-a-service environment integrated with its e-commerce platform—to flush out its multichannel retail offerings. GSI declined to comment.

 

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