October 11, 2013, 2:12 PM

E-commerce shipping service ShopRunner raises more than $200 million

Chinese e-retailer leader Alibaba led the funding round.

Lead Photo

Scott Thompson

ShopRunner, the two-day delivery service that competes with Amazon.com Inc.’s Prime, has raised at least $200 million in a funding round led by Alibaba Group Holding Ltd., China’s leading e-commerce company.

American Express Co. also took part in the funding round, although ShopRunner CEO Scott Thompson would not detail the specific amounts either company contributed. Nor would he comment on a report that eBay Inc. sold its ShopRunner stake. EBay provided no immediate comment. The online marketplace’s eBay Now same-day delivery service recently expanded to more devices and cities. ShopRunner is owned by Kynetic LLC, a company launched by Michael Rubin, the founder of e-commerce technology provider GSI Commerce, which developed ShopRunner.

For $79 a year—the same price as Prime—ShopRunner members receive two-day shipping on orders from ShopRunner participating merchants, which include Toys ‘R’ Us Inc. (No. 30 in the Internet Retailer Top 500 Guide), Blue Nile Inc. (No. 74) and eBags Inc. (No. 149).

ShopRunner has more than 80 participating retailers and at least 1 million members, Thompson tells Internet Retailer today. He expects ShopRunner will have about 100 retailers by year’s end; The Neiman-Marcus Group Inc. (No. 39) is expected to be one of those new retailers. ShopRunner typically takes a fee of 2% to 5% on orders made by its members.

The new funding for ShopRunner will go toward such areas as hiring more sales employees and engineers, including those focused on mobile, Thompson says.

“Alibaba and American Express recognize ShopRunner as a disruptive model which will have a significant role in U.S. e-commerce market,” Thompson says. “This funding will help accelerate ShopRunner’s growth and enable us to continue to build great online shopping experiences for our members and deliver value for our rapidly growing retailer network. ShopRunner is in a unique position to shape the future of online shopping.”

Alibaba made the investment as it moves toward an initial public offering in the United States. Alibaba operates China’s dominant online retail marketplaces, Taobao and Tmall, and is No. 1 in the Internet Retailer Asia 500. Alibaba recently led a $50 million investment round in U.S.-based mobile app search engine Quixey.

Thomspon would not talk about the reasons behind Alibaba’s investment or how much Alibaba put in for this funding round. Alibaba was not immediately available for comment.

The ShopRunner investment comes as other e-commerce operators test and expand their same-day delivery efforts. In September, for instance, Google Inc. expanded its Google Shopping Express service and launched a mobile app for the same-day delivery service. Retailers participating in Google Shopping Express include Staples Inc., No. 2 in the Internet Retailer Top 500 Guide; Office Depot Inc., No. 7; Target Corp., No. 18; Toys ‘R’ Us Inc., No. 30; and Walgreen Co., No. 36.

The investment for ShopRunner reportedly values the company at about $600 million. “It’s great for ShopRunner that they have such a high valuation,” says Sucharita Mulpuru-Kodali, an e-commerce analyst for Forrester Research Inc. “Their biggest challenge is that it’s a for-profit business model and Amazon Prime, by my estimates, is a money-losing model.”

Amazon in the second quarter reported that spending on fulfillment increased 35.5% to $1.837 billion from $1.356 billion. According to an estimate earlier this year from private equity firm Robert W. Baird & Co., Amazon.com has made at least 19 million items eligible for Prime, up 10% from the first quarter of 2012. Besides those Prime-eligible items—Baird estimates that 10% of products sold on Amazon qualify for Prime—Prime members have access to at least 25,000 streamed TV and film titles.

Estimates have put the number of Prime members at up to 10 million.

 

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