Fabric cuts 40% of staff
Fabric recently announced it was laying off 40% of its staff and changing its business model (source). STIQ has tracked Fabric for a few years and this is our view of the announced changes:
Fabric was founded in Israel in 2015 under the name "Commonsense Robotics". In 2019, the company changed its name to Fabric (source).
(formerly known as)
The original business model appeared to target grocery customers with fulfilment equipment with Fabric operating as a vendor of material handling equipment.
A lack of traction among grocery customers may have led the company to announce the construction of its own-operated warehouse in tel Aviv in 2019 (source). This effectively turned Fabric into a 3PL operation, where it operated fulfilment centres and customers added product to the shelves/totes. Fabric would have managed the order fulfilment processes for grocers.
The company had raised $336m of publicly known funds to July, 2022 (source).
The 2019 funding round appeared to have laid down the money for Fabric who announced the construction of two Micro Fulfilment Centres (MFCs) in Manhattan in early 2020 (source).
Fabric & Partnerships
Walmart announced a kind of shortlist with three vendors in 2021 working on MFCs. The three vendors included Alert Innovation, Dematic and Fabric.
This was a major deal for Fabric and was used in plenty of PR. Some industry insiders wondered why Fabric was added to the list as they were then a service provider. (STIQ Note: Fabric's success with Walmart appeared to have been relatively muted and few deployments have been announced - note that Walmart works under strict NDAs)
Around the end of 2020, rumours started circulating that Instacart was looking for a warehouse automation equipment partner to power MFCs or fulfilment centres. Instacart appeared to have met pretty much every vendor in the market to talk about MFCs. At the time, it seemed that Instacart had very little in-house knowledge of warehouse automation and may have had a single person or very small team doing evaluations.
Video from Fabric's YouTube channel
STIQs view was that Instacart may have been scouting for a potential acquisition but they may have been put off by high valuations in the market at that point (even though Instacart paid $350m for Caper in 2H21 - source). Fabric's confidence in their valuation may have been very high following the Walmart partnership alongside rocketing online grocery penetration as a result of the pandemic.
In Jul 2021, Instacart and Fabric announced a partnership (source) apparently focused on rolling our MFCs in Florida together with Publix. This deal appeared to be exclusively targeted at fighting Kroger's expansion in the the Florida market with Ocado Solutions-powered online fulfilment centres (source).
In 2021, Fabric raised $200m at a $1bn+ valuation (source) backed by Temasek and others.
Readers should note that 2021 was a very hectic M&A year in the warehouse automation space. For example, in 1H21, SoftBank pushed up valuations in the sector a bit further with their $2.8bn AutoStore investment valuing that company at $7.7bn (source). AutoStore listed later in the year at $12.4bn valuation (source).
Around end of 2021 and early in 2022, most lockdowns in Europe and North America had stopped followed by a drop in online grocery growth.
In March 2022, Instacart announced a 40% cut in their valuation to $24bn (source) citing market turbulence.
In April 2022, Fabric announced the opening of their Dallas, Texas MFC (source) again apparently operated under the 3PL model.
In May 2022, Instacart filed paperwork to begin its IPO process (source).
In July 2022, Fabric announced they were laying off 40% of its headcount (source) and changing their business model to a vendor of equipment & software. The company also announced a new CEO.
The grocery 3PL business model
Its has been reasonably clear that Fabric's business model operating a 3PL set-up and producing the technology was not going to work in a market with very low online penetration. Persuading grocers to pay an external company for storage and fulfilment services was always going to be a huge ask in a sector famed for low margins.
To date, grocers have [in general] been very slow to adopt MFCs. Fabric's thinking might have been that the 3PL business model would make it easier for grocers to adopt the MFC model. However, online grocery is a funny business for grocers with cannibalisation of their core business and other supply chain side effects. Grocers are also very shy of additional costs and changes to their very streamlined processes.
At one point, Fabric was considered the leader in the MFC market
For all its potential, the Grocery MFC remains a relatively nascent segment.
Fabric: Changing the business model
The reason Fabric cut 40% of its staff numbers was alluded to in the press release, i.e. that potential customers were more interested in the hardware & the software rather than a fully operational third party fulfilment centre.
This makes sense.
However, Fabric faces an uphill challenge in the MFC space. Proving that its technology (using two robots) is better than the many competitors may be a tough ask in the current market.
One thing that could help Fabric is that many material handling/ warehouse automation companies quote long lead times to new customers. Fabric also have a few of their own warehouses already installed which can be useful for customer visits. Grocers also remain interested in experimenting with MFCs and new models for online grocery fulfilment.
But, the competitor lineup is hardcore and includes AutoStore, Exotec, Alert Innovation, Takeoff Technology (+ Knapp), Attabotics and the more established integrators, such as Dematic, TGW, Knapp, and many more... and don't forget that Ocado Solutions operates in this space as well.
Will Instacart's IPO change things?
Instacart will want to hype its future potential heading into an IPO process. Is Fabric a part of that and could Instacart buying Fabric at a somewhat discounted price (from the $1bn+ valuation) add value to the IPO?
Or was there a break in the relationship between Instacart & Fabric that led to the final nail and the complete change in business model and a new CEO?
Will this affect other warehouse automation companies?
Whilst access to funding will no doubt squeeze some of the companies in the sector and may also have exacerbated Fabric's cuts, it is unlikely that other companies will announce any similar cuts in the near future.
STIQs view is that the warehouse automation space remains very healthy. However, there are perhaps concerns re inflation, continued supply chain disruption and geopolitical issues combined with the type of segment companies compete in.
The Warehouse Automation space is large and includes forklifts, ASRS, software, mobile robots, sortation equipment, picking robots, etc. so whilst it can be generalised that the sector is healthy, there are definitely pockets of less growth or where traction is difficult at the momet.
Side note: There are two companies called Fabric >> Fabric, the robotics company (talked about above) and Fabric the headless commerce company. The latter Fabric (ecom software) is backed by SoftBank and others. The former, the robotics company, is backed by Temasek and others.
READ MORE ABOUT FABRIC & THE SECTOR
STIQ has published a few free reports where Fabric are mentioned:
- 2022 eGrocery Infrastructure report (free download, 64 pages)
- 2022 Goods to Person Solutions report (free download, 54 pages)
All STIQs reports include in-depth analysis based on 40-60 stakeholder interviews. We don't just say we have talked to some people (like many market research reports), we actually quote people & companies in our reports.