A year ago, I noticed a quirky advertisement on the subway during my morning commute. It was about a company I had never heard of before: Boxed. Their proposition was very simple. Buy everything you need in bulk on your phone. No membership, no problem. As a busy New Yorker who relied primarily on public transportation, Costco and BJ’s were completely out of reach for me. Boxed was the ultimate solution, offering household products in bulk at discount prices. My package arrived the next day and included a hand-written thank you note.
Boxed was launched in August 2013 by Chieh Huang on iTunes. Huang began his career as a social game developer and sold his first company, Astro Ape, to Zynga in 2011. He launched Boxed within three months of leaving Zynga with a team of 10 engineers. Starting with one warehouse in New Jersey, Boxed promised overnight delivery to New York, Philadelphia, Boston and Washington D.C. and two day delivery in 48 states. They have since expanded to three distribution centers and continuously deliver high quality bulk goods in two days or less. True to its software development roots, Boxed is not just a mobile app; it is an innovative application of technology to a tried and true business model.
The Boxed business model is quite simple: purchase goods direct from manufacturers and distribute to consumers at a relatively cheap price. A quick comparison search on Boxed and Amazon shows the significant savings for customers. While a 12 pack of Kleenex sells for $31.80 on Amazon Prime, it is only $17 on Boxed. But that doesn’t mean that Boxed doesn’t also make a profit. By cutting out intermediaries, Boxed captures more of the value. Boxed also limits its SKUs to products that have higher margins and can be shipped easily. By choosing the right product mix, Boxed generates enough profit from product mark-up and does not have to charge annual membership fees— which can run as high as $110 at traditional retailers.
Arguably, the true value that Boxed delivers to its customers is convenience and time savings. Boxed advertises itself as the company for customers don’t have the time or the means to shop at a big box retailer. Originally, Boxed targeted men in urban communities, expecting a lot of demand for items like bulk whey protein. Surprisingly, and yet not surprisingly, Boxed received the most interest from busy moms who prefer to spend the weekend with their children than at a Costco. The value of saving time and money along with the convenience of free two day delivery allows Boxed to compete with services like Amazon Prime and local retailers, particularly for non-urgent essentials.
In order to deliver consistent value to its customers Boxed has to be well stocked, lean, and fast. They optimize their operating model by making decisions about their warehouse locations, product offering, use of technology.
Warehouses Boxed leases three fulfillment centers in New Jersey, Las Vegas, and, most recently, Atlanta. The location of each warehouse maximizes access to consumers and enables very fast shipping. 89% of packages arrive in two days or less, with overnight shipping possible in several urban locations like New York City and Las Vegas. Shipping is also outsourced to UPS so that Boxed, unlike Amazon, does not have to manage a fleet of delivery trucks.
Product Line When Boxed initially launched, it limited its product line to ~700 SKUs to optimize warehouse space. This is significantly smaller than Costco, whose SKUs number in the thousands. With the recent rollout of Boxed “Express”, an Instacart competitor, the number of SKUs has increased but the overall product offering remains limited. The balance between providing enough variety and managing the product mix efficiently is intentionally maintained.
Technology Although Boxed is in the business of delivering groceries, the software is the core of its operations and its main differentiator. To optimize inventory management, Huang and his team developed a proprietary warehouse management system in-house. Workers also experiment with technology, using wearables like Google Glass, and iPads on wheels, to find merchandise and pick customer orders. Please watch the video below for more examples.
Boxed is ahead of the curve, becoming the first e-commerce-only big box retailer. It has caught the attention of several venture capital investors, successfully raising $30m from top players like Greycroft Partners and GGV Capital. Most recently, Alibaba is considering an $80mn investment into the company. If the deal is successful, it can unlock even more value for the company. As a satisfied customer, I am looking forward to seeing this company develop as one of the biggest tech disrupters in a brick-and-mortar industry.
So in conclusion: