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Logistics Gets Fashionable at GXO

Fashion’s push for a more tailored logistics strategy has become a boon for GXO Logistics

The third-party contract logistics provider based out of Greenwich, Conn. continues to amass a portfolio of blue-chip fashion and retail clients, with recent new contracts from LVMH and Nike adding to a business that also works with Kering, Dolce & Gabbana, Lacoste, JD Sports, Spanx, L’Oreal and Zara.  

The customer wins come off another growth quarter for GXO, a spinoff from XPO Logistics in August 2021.  

GXO this week said it capped its third quarter with $2.3 billion in revenue, reflecting a 16 percent increase from the year-ago period. Adjusted net income for the period totaled $89 million, up from $65 million in the third quarter of last year. 

The company is now in the midst of the peak shipping season as brands and retailers begin heavily marketing for holiday.  

“We’re already in peak season now,” GXO CEO Malcolm Wilson said Wednesday during the company’s quarterly earnings call. “We’ve already got our way through October that’s going in alignment with our planning what we expected.” 

He added to that by saying the business, while doing “very well,” is “going to be different than a year ago.” 

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He pointed to the factors defining the 2021 peak season: inventory shortages, product held up at the ports and labor scarcity.

“This year, it’s very different. So, our warehouses generally have good levels of inventory in them, and importantly labor is readily available,” he said. 

The company is in the midst of hiring some 22,000 globally not only for the holiday season, but also to fill new sites that will open in January. 

Bill Fraine, GXO’s chief commercial officer and a former head of sales at FedEx, put it another way in an interview with Sourcing Journal Wednesday.

“What we’re seeing is what I would call a smoother peak,” Fraine said. “And, what I mean by that is last year you had all these shortages…. At the same time, you had very, very high rates—inflating rates for employment. So it was hard to get employment, so that caused problems and challenges, too.”

Now, the incentives to hire are receding, according to Wilson.

Even as companies such as FedEx, seen as a bellwether for the economy, are seeing declining parcel volumes, GXO seems to be bucking the trend. 

The logistics firm reiterated its estimates for the full year in which it expects revenue to grow between 12 percent and 16 percent, with adjusted diluted earnings per share to be in the range of $2.70 to $2.90. 

The company’s nabbed $977 million in business so far this year and “we’ll definitely close more business in the fourth quarter,” Fraine said.

Added to the guidance is GXO’s U.K. regulatory clearance in October for its purchase of retail and fashion logistics company Clipper Logistics, marking the final hurdle in its $1.3 billion deal.  

Clipper touts a client list that includes Asos, Giorgio Armani, Harvey Nichols, H&M and Liberty. Its expertise lies in reverse logistics—a growing headache for the fashion industry—with a returns management system it calls Boomerang. That “click and collect” technology is seen as a “big opportunity” for GXO, Fraine pointed out. 

Facility automation is something GXO is adept at with its sites touting 30 percent to 32 percent automation, something that could potentially benefit the legacy Clipper buildings. 

Fraine said the two will now work on “learning the best of what Clipper does and the best of what GXO does” and begin integrating those learnings across the business. 

All in all, while Wilson told analysts signs point to a more challenging 2023 macro environment, he doesn’t see a recession on the horizon. 

“Our business isn’t behaving as if it’s in a recession,” Wilson said. “The consumers’ not behaving as if they’re in a recession, but what we are seeing is lots and lots of early signs of opportunities coming along into our pipeline, pre-pipeline of customers that need to transform their business.” 

Nike, a GXO customer, is among the fashion and retail companies turning to third-party logistics providers to firm up their supply chain strategies. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

A fashionable growth model

While GXO has a customer base that spans industries, fashion offers potential for growth. 

Sustainability and how warehouses and distribution centers fit into that conversation are “very important” among the fashion and retail companies Fraine has conversations with as they think about how logistics fits in with their greening efforts throughout the entire product cycle. 

Kering in May said its GXO-operated logistics hub in Trecate, Italy received Leadership in Energy and Environmental Design (LEED) Platinum certification—the highest in the U.S. Green Building Council’s certification program used across the commercial real estate industry. 

The facility has solar panels on the roof, outdoor green spaces and a water system that cuts usage about in half.

“Sustainability has been at the core of Kering’s strategy and roadmap for years,” Kering chief sustainability and institutional affairs officer Marie-Claire Daveu said in a statement at the time of the certification. “Obtaining this prestigious LEED certification is another testimony of how we act to adopt sustainability best practices at every stage of our processes, from the design of a product to its delivery.” 

Brands also turn to companies such as GXO to help them with their expansions because, without a smooth logistics strategy, delivery to stores or the end consumer could go awry—a ding when it comes to customer service and branding.  

“We were already talking about companies in Europe moving into the U.S., companies in the U.S. moving into Europe and what the strategy is,” Fraine said of discussions with fashion clients prior to current market conditions. 

While companies still have interest in that, he said, they are mindful of the direction of the economy.

“High fashion [in my opinion] is less obviously impacted by the economy. The demand is still going to be there,” Fraine said. “Other companies are just looking to see where consumers’ levels are and making sure they’re not overstocking, but they’re very bullish on the fact that if they came into the U.S. or Europe, they would have a market.” 

He pointed to one industry example of a company that made the decision to locate a warehouse in the Northeast to cover a larger portion of the population, while using GXO Direct to service the West Coast. 

GXO Direct is the company’s network of distribution hubs touted as an option for brands looking for flexible facilities options and fast fulfillment lead times. 

In other cases, the company is helping luxury conglomerates use the power of their many brands to cut costs on warehouses and distribution centers as they grow. In the past, Fraine said, many of these brands operated separately, taking up smaller pieces of real estate. With the growth of e-commerce and physical store expansion, the need to have product closer to the end consumer requires more warehouse space.

“They’re getting closer to their customer and dispersing, so they want to have product close to New York, close to Chicago, close to L.A. or the key markets in the United States, but they don’t want to have too much product,” Fraine said. “So what we’re working with them on is how we can take more than one brand, more than one maison, and put them in one site so they get the benefit of cost [optimization].”