The Blending of Brick-and-Mortar and Online and the Rise of ‘Dark Stores’

You're listening to retail refind, a market scale podcast with me, Melissa Gonzalez. Hello, everyone, and welcome to another episode of retail find markets podcast with your host, Melissa Gonzalez. Today, we have Steve wozniak, chief Commercial Officer at fabrique online, that Steve oversees fabrics, global sales, marketing, business development and customer success, business functions. He has worked in the retail, technology, software and fast business sectors for the past 30 years, including executive and senior management positions at PricewaterhouseCoopers Oracle as to our financials, clarus and more. He has also actively participated, prepared for and executed two ipos, raising over $200 million in the public market Steve holds a bachelor of science in engineering MBA from Virginia Polytechnic Institute, and State University. Steve, Thanks so much for being with us today. You're very welcome. Good morning. Good morning. Before we dive in further, can you tell our audience a little bit more about that? Sure so fabrique is all about on demand fulfillment. So what we have done is created a proprietary stack of software, most importantly software, robotics and operations and execution that allow our partners and our customers to be able to meet the needs of the click and have to have in our society. So it's all about shrinking down fulfillment and about getting it closer to your customers. It's about doing it fast, efficiently, most importantly, getting people their product the same day that they click to get it. And whether that be for groceries or general merchandisers, we're all about on demand e-commerce fulfillment. Amazing well, you guys are keeping busy then very credibly, incredibly busy. Tell you, I say you can't tie. One of my things always say you can't time timing. But most certainly this time we timed timing incredibly well. And while the code was a very traumatic event globally, it has absolutely sparked e-commerce and put us into a time machine thrusting this five years into the future. Oh, no, absolutely. Absolutely I mean, I think it's so many conversations around technology have been thrust it forward. Can you tell us a little bit more? You have a flexible deployment models to fit your client's needs. Can you tell us a little bit more about your platform model versus your service model, et cetera? Sure, sure. So a couple of the key tenets about micro fulfillment and why you're seeing it is a big trend. Number one is the traditional fulfillment centers in traditional automation is really designed and optimized for regional and large scale and batch based fulfillment. While that is good, when next week was OK. And it actually worked when today was OK, it doesn't fit the model for same day. That same day, you've got to shrink it down. You've got to get it close to the customers in order to do it fast, profitably, efficiently and at high velocity. To meet the demand, you've got to have automation. So Fabricius created a very flexible topology that can shrink down to small spaces and have the same unit economics as you do on large scale operations, meaning we can fit in existing real estate and help repurpose the existing real estate that is out there today, which is critical. And and the other thing is really looking at the market and how people are starting to adopt this technology is really two different ways. And it's all about the network, right? Whether it's either a private network, or a public network, it's all about the network and leveraging a network of locations close to customers. So grocers, for example, already have the network. It's called the store. They're closer to customers. So they can leverage our platform and put it in their store to an in-store back, a store. You click and collect and click and deliver from our platform and increase the amount of revenue that they can get per foot by up to a magnitude. So give the example of traditional grocery store for doing manual picking in store and forward about 100 orders a day without decimating the in-store experience and turning the store into a warehouse by dropping automation like fabric into that store adjacent to back up, you can easily get between $500,000 per day at that same location. So grocery is really looking at it's huge. It's absolutely huge. Yeah, it's interesting because when you talk about unit economics, when you think of grocery, it's definitely an industry where they really have to think of labor cost differently. Right because people going to the supermarket as consumers have been like the pick and Packers. Exactly right. You're you're right. We we have been the labor. We've been the labor and grocery. We we've been the delivery service in our grocery. And now everyone's expecting that to be done for free. So it's putting it on any market where the margins are slim to begin with in Hyper competitive and commodity based market. So that's where in. I would say it's almost a no brainer that they will ultimately, ultimately be moving to it's a labor arbitration, automation, increased revenue for groceries. And so I would call that that's more of a platform play where we'll be installing, you know, on their real estate and their real estate in their locations for specific use by then. Now, we may be providing it as a service, where they're buying capacity from us, but installing it on their location or cooperating it with them. So it's a couple of different models on that side to meet their financial and operational needs. Now, on the other side, general merchandise, which is just a massive market and lagging a little bit in same day. But we believe it's coming very, very soon is more is more used to. And there's two different flavors of that. One of the people that have their own retail stores and the other one is the direct to consumer market. So on a direct to consumer market, they're really looking at, in essence, the next generation three, the our third party logistics player where you're able to fulfill orders on demand. Same day. So, for example, in New York city, we've got a one fulfillment center coming online live right now. We've got a second one in process and we'll be able to fulfill over 10,000 orders per day out of a 10,000 square foot facility within a multi hour period to the greater New York area. That's just not something you can do from large regional fulfillment centers, and we can do it incredibly cost effectively. So that's done. That is done on more of a if you think of a cloud computing like approach where you're subscribing and purchasing capacity storage capacity and in essence, order fulfillment capacity from us. And what we're doing is we're keeping you close to your customers and your customers close to you. So we're protecting your brand called the anti Amazon if you want, where you're not having a marketplace in between you and your customer. And you can have a direct, intimate customer interaction similar to retail, but being done same day through internet procurement. OK, interesting. So a lot to talk through here, you know, we talked about labor and the impact there in grocery and then obviously, everybody's trying to shrink that last mile and what have you. What challenges have you seen and have you helped them fulfill it? When we see companies taking stores that have been closed. Now turn into dark stores and become centers of fulfillment. Absolutely, and that's typically the first step is to take existing store, either turn it into a dark store or pick from an existing store, and that's going to stay around. That's not going to go away. That'll be there. Waxy hit song is with me and my kids are on this planet. You're going to have picking from storage for fullfillment now where there is high velocity, high demand and high density consolidating that and automating that will absolutely happen now. And you will also see these dark warehouses that. Why are they going manual first? Well, it's quick. It's quick, and it's cheap. And they can. It's lower risk. Right so, hey, I can throw a bunch of Iraq's up and I can hire some employees and they can pick. And if, for some reason e-commerce may commerce volume goes down. I'm not as much of a capital risk, as I am in going down the path of automating that with my fruit, with a micro fulfillment, which is why the fabric. Model of service and being able to have an elastic supply to a third party like us versus building it yourself is becoming very popular. Just like people are really not building data centers themselves anymore. They're outsourcing. Matthew, to Google and Amazon and Microsoft. The same thing is going to happen for on demand fulfillment. You're going to see less and less owned by people and more and more, subscribe to. Right and it's they'll still be a mix out there, but more and more, subscribe to. So you absolutely bring it. We're starting to see a transformation of and leveraging of retail footprints to be able to provide the localness for e-commerce fulfillment. And then there's an evolution. It's not revolution, if not a disruption. I would even call it disruption where that will be dotcom giant vending machines. Right if you think of it as a giant vending machines, we're going to use giant vending machines are going to pop up all over the place. Oh, for sure. I don't know if you saw the article. I'm trying to think what supermarket it was. I believe it was. I'm pulling it up because I have to bring it up. Joel oska, which I don't. It's one of the Albertsons companies and they are piloting automated temperature controlled kiosk for pickup. Know the supermarket, right? Absolutely now they've got it. You've got to get that product into that car. So that's really replacing the lockers if you think about it. And it's allowing for 24 by 7 pickup areas. But that's really not replacing what I'll call the fulfillment or the picking or the actual process. So that's taking it one step further. We're actually seeing some of our customers looking at doing the giant vending machines tied, tied into automated dispenser systems where you go geofencing location on their apps. And when customers get within a mile or two of the store and directly. They're coming at the store and they get a click and collect, the giant vending machine kicks in as the order presented and prepared. And the customer will walk up to, in essence, an ATM like window, put in there, put in their user information or swipe your credit card and the product will come out to them without any human interaction whatsoever. So that you're going to see lots and lots of different iterations and versions of the app called the contactless pick up and the automated pick up. It's really a grocery store. They really and big box They really want to get as much labor out as possible because their margins are so slim. No, absolutely. It's interesting how they have to rethink that. I also you brought up geofencing with consumers. It's been so fascinating to we talk about the accelerated pace of adoption in the industry. But when you think of on the consumer side, our acceleration of adopting these things and, you know, if you ask people at fencing was a year ago, most people probably couldn't answer you. And now it's become like a norm. Right? you're exactly. Yeah Yeah. Well, it's actually, you know, I mean, I mean, yes, it's funny you say it's starting to proliferate into our world. I bought a car and it's got it. Has juu fencing built in for the garage door opener. Yeah and you get close to the house and it pops up. Do you want to open your garage door at your house, and you just click. Yeah, so it's, it's coming, it's coming all over the place. So it's people. I think where we're frightened of it because of the hey, you're tracking me to where I am. But when you, when you put it into the benefits that it's providing. You and lifestyle and convenience, I think, particularly now and next generation, particularly with the pandemic, is becoming more acceptable. Oh, no, absolutely. As long as you're providing value, right. Exactly you got to provide that. You can't just be tracking your tracks and you're looking over your shoulder for my benefit. It's got to be. Hey, what's the benefit for you? Yeah, we've done some more surveys because, you know, we design stores. And so we've been doing more surveys around what are your points of your pain points and your points of gratification around flexible fulfillment and curbside and focus. And for sure, top of the list was same day pick up and notifications. So, you know, it's now it's I think the consumer is dictating what they need, and we need to deliver on it. How do you see malls in this picture? How are we rethinking malls for post covid future. And then being hubs for shared fulfillment services? No, no, absolutely. I mean, we do see malls as part of this. And we're in active conversations with a number of different mall operators. And the malls are at it. Yeah, I mean, they're at a charging point, as you know, because there's, you know, the consumer shopping behaviors, change rates, become consumer buying behavior more than consumer shopping behavior. So I agree with you on some of your points with your theme about saying that you'll see you have less shopping events in the future, but more dollars spent her shopping event. So the malls need to leverage the fact that they do have great locations. They're they've got brands that are there and they actually provide services for those brands and extend the service for the brands. And one of them is, is they've got warehousing there where their excess inventory and storage. So we do see the fact that malls are going to be much more experiential, that you're going to see direct to consumer pop UPS in these malls, where people want to be able to touch their touch, smell, feel, trie, et cetera, products, but then actually leverage automation at the mall or a giant vending machine. So that you will go through that experience, say, OK, I want to buy this. And then when you leave the mall after your experience, you just go through a drive-through and all of your purchases are there waiting for you. And get dropped into your trunk and off you go. So no longer will I have to be a human hanger for my wife walking through a mall. We can enjoy that experience. And then upon leaving products, we wait waiting for us to pick up on the way out. I love that picture you painted. I'm like visualizing it in my head. And I have to work with my team on a rendering around that is substantially similar to me trying to get all the groceries in one trip. Right right now for sure. But you also kind of segue to the question I want to ask, too, like, how do you see this? Write the what you guys are helping in the industry and where it's going, closing the gap between brick and mortar experience and the online experience? Absolutely I mean, in the brands we're talking to, they want to continue to have that intimacy with their customers. And without having the physical retail there, it becomes more and more difficult to do so. And we're hearing from more and more people that they want to be able to have that direct relationship. So going through again, I hate to pick on Amazon. Amazon is doing well. And will continue doing well, is a dominant player. But for certain products out there and brands out there, you know, they want to go directly, not through a third party to have that, I'll say customer intimacy, everything ranging from the online shopping experience, the virtualization of that to on demand and same day delivery. And then the unpacking and that experience of getting that product to the delight of getting that product within a multi hour period of time from when you clicked online. So that's we're seeing on the e-commerce side the blending of that. And retail is really it's more from an inventory and inventory control perspective as well. So think about how many times you've gone out shopping and you look for something and they don't have the product that you want in the size that you would like. Right so that's a. Exactly so imagine if you went there. And that's OK. Right they had try on trying colors of chocolate and by the time you got home, the product was sitting there waiting for you. Right I mean, think about that. You think about that as a fantastic experience. Go to a store and look, you know, they have know, they have one color. But but every size of everything. And or samples. Right you're trying that on. OK, this is it. You go, OK, I'll have a brand new one waiting for you. Two hours at your door. Oh, awesome. I mean, to me, that be a fantastic experience. Yeah, I know for sure. I've had that big. It's not to throw anybody under the bus, but I'm a big fan of West Elm and stuff. But when it comes to the furniture industry in the pandemic that I would say that's one group where that's been a pain point there. They have delays in manufacturing. They've limited. But not only will they not, I'll see it in a catalog or online, then I go in the store. And then they don't have it. And then they charge me shipping and it's like different from furniture experience has been horrific. I do agree with you. But, you know, I think the automation and micro fulfillment and whether, again, whether it's manual, whether it's by my giant vending machine or others, it's going to be a massive market. There's going to be a will be a dominant player in the space, that there's going to be, you know, a bunch of other players in the space as it grows to where it is now. Dozens of these in the US having 100 to having thousands of these over the next five years. For sure. For sure. So you talked about things being so accelerated in the last 12 months. Because of the pandemic. Any surprises, learnings that you could share with the audience? You know, I think there's a couple of things. One is that when the pandemic hit, there is an extreme panic amongst the retailers and the manufacturers or the consumers about fulfilling orders. And what ended up happening was as opposed to a incredible acceleration of automation. There was a overnight acceleration of in-store picking. So the folks like the card and the likes of and all doordarshan, Uber and all these guys that are doing the in-store picking and delivery of that, they were able to scale very quickly and take advantage of that market, which in essence, put a slight pause on it and say, OK, OK, now, wow, OK, I'm meeting the demand and my customers somewhat. Now we're seeing a second wave come back and we're going, OK, this is great. But the unit economics are not wonderful. We've got to look at automation on where we have our high demand and where we can leverage automation to get our unit economics through labor arbitrage and speed and increase in revenue per square foot. And now we're seeing this whole. The second wave coming as an outcome of the fast. A fast and tactical play that fast, in fact, was always going to be there. That's always going to be there for the last mile. It's not going away. But in the density areas we're seeing now, a huge wave of OK, now I've got this figured out, Steve, how fast can we get these things in. So that the next big challenge for all of us in my space is how fast can we meet demand? So in other words, from the time someone says, I would like a giant vending machine to they have a giant vending machine fulfilling their orders, whether it be as a service through one of our multi centers that we're building throughout the network that we are building or whether it be leveraging your existing real estate. Yeah, no, absolutely, we've done a lot of work with them, with the clients, we one of our clients is Nordstrom, and we're been working with them on expanding their locals, which is pretty much on demand fulfillment. No product really sets there more than a few days when somebody's preorders it. But it is. Yeah, it is interesting. A lot of learnings have come from that absolute over this time. Yeah over this past year. So where are we going. You mean, you talked a little bit about it, right. Where you think this year is going. But what does it look like five years from now. What is fullfillment look like? So I think five years from now, you're going to see the destruction be executed upon in the fulfillment space where these traditional mega warehouses, it's not that they aren't going to go away, but they're going to be basically augmented by local fulfillment centers, which in essence has will become the retailer. If you think about if you're able to do a one to two hour fulfillment, that's virtually the same as you get in your car and going there. So I'm not saying it's going to be 100% of it, but there will be a 20% to 30% of retail is going to go through these local on one to two hour click. They have to have it now fulfillment cycle. So we see that blending of retail to a combination of physical, experiential and in-store purchasing with a large number of these giant vending machines that are automating the click to have to have it now need for e-commerce and being able to fulfill that within an hour or two. And we see that moving to a service. We see that moving to a flexible, on demand service layer. And we see the networks coming into play where dense areas will have tends to dozens of these fulfillment centers networked together and collaborating together to efficiently meet the order, demand and fulfill needs. Now, I completely agree. And all of this automation that you talk about, it's and you mentioned buying for shopping before. Right and I think what is happening is it's opening the opportunities for brands and retailers to deliver more on the shopping experience side. Right they could lean into more experiential moments and less transactional per se, and deliver these experiences that are a little bit more gratifying for consumers. You guys must also be collecting a tremendous amount of data, because I think that's also important when we talk about the math around four wall profitability and you know, that shifting mindset of maybe that's not totally how we think of the value of physical. It's an important touch point for learning and educating and experiencing and that human connection. And this gives another Avenue to track actual conversions and pickups and, you know, the monetization of it. Oh, absolutely. We at the core of it fabric is a software company. We've got the robotics are dumb as hell without our software. They are really they would just sit there and, you know, and so they are all remote control. And I would say, if you think of it that way. And we did it purposely, the only reason we built our robotic framework was when we started the company five years ago. There was nothing out there that was that could fit into topology and the flexibility that hit the unit economics for this kind of micro high, dense, automated fulfillment. So we built it. And so when really that data is core to us from an artificial intelligence perspective. And it drives how we increase the efficiency and effectiveness of our system. I'll give you one quick example. That pandemic hit and we have a center in Israel. So our development team is in Tel Aviv, Israel, and our headquarters in New York City. And this system was designed to do between five and 700 orders a day. Overnight, we had a demand for over 1,200 hours per day. So our engineers lock themselves in a room over the weekend and looked at all the algorithms of how we could speed up the robots just a little bit and how we could decrease the distance between the ground robots. I think of Mr Romney's running around product on the track. Bringing it to the picking station is humanoid robot picking stages. So how we could inject additional robots into a system that wasn't designed to handle that. And within a very short period of time, we were able to double the amount of volume that we were getting out of this tiny little micro fulfillment facility to meet the demand of our customers and increase the revenue that they got. Most importantly, increase the customer satisfaction. And we did that because we had all the data and we could look at the data and we could see, OK, here's the order patterns, here's the velocity, here's how things are purchased together. How do we make this giant vending machine more efficient? So we are constantly that. We've got close to 100 developers, software developers, and we are constantly looking at ways to increase the efficiency of our system. So with fabric, unlike the legacy based systems out there where you're buying a lift conveyor shuttle, that's just kind of go back and forth. And back and forth in a dumb manner. We are we're constantly improving a cloud based system, and that's part of the service we provide is constantly improved software, things like Tesla has. They have a constantly improving their car. We're doing the same thing in the Ford fulfillment. Amazing well, you guys have a lot of exciting years ahead of you, I think, because you're really sitting at the heart of where the industry is going. Yeah, absolutely. It's I wake up every day. And I've been doing it for a while. And I think I'm blessed and fortunate enough to be part of such a great company that is square in the bull's eye of the market demand and where the market is heading. And it's just every single day. It's a wonderful new experience for the company and for myself personally. No yeah, absolutely. I'll be watching. I'll be watching as you guys continue to evolve. I thank you so much for being on with us today and telling us a little bit more about Fabrick and your learnings and insights for the future. Everyone, again, this was Steve hornyak. He is the chief Commercial Officer at fabric. And we really appreciate you taking the time with us today. You guys, thank you very much. Have a great day.