GXO Logistics is expanding its $300 million direct distribution network into the U.K.
Already available in the U.S. and Canada, GXO Direct is a shared space distribution network of more than 40 facilities designed to help businesses position inventory closer to target customers while cutting costs costs and transit times. Saks, home furnishings startup Floyd and pharmaceutical giant Bayer are among the companies using the platform in North America.
GXO Direct aims to lower shipping miles and carbon emissions by reducing the need for expedited air transportation, which surged in 2021 and early 2022 when bottlenecks roiled the supply chain.
“Now more than ever, businesses are looking for cost savings, flexibility and an experienced partner that will accelerate their growth, while delivering an exceptional customer experience,” said Bill Fraine, GXO chief commercial officer. “Whether a startup or a blue chip, companies want capacity, technology and expertise to fuel growth while minimizing operating costs. Every day, we meet that need with GXO Direct. It’s shared warehousing made easy.”
The expansion across the Atlantic has been in the works ever since GXO acquired U.K.-based Clipper Logistics in October 2022. With Clipper came a slew of new fashion clients including Asos, River Island, PrettyLittleThing, Superdry and John Lewis, as well as 50 new warehouses across Europe totaling 10 million square feet and employing 10,000.
“By combining the shared space warehousing of GXO and Clipper, we have formed one of the largest flexible warehouse solutions in the U.K.,” said Gavin Williams, managing director, U.K. and Ireland, GXO. “Our extensive on-demand warehousing provides the flexible space and premium services that customers are looking for in today’s market to rapidly launch new products or simply support their growth.”
In the U.K. and Ireland, Clare Davies, formerly chief operating officer of Clipper, will lead the new GXO Direct division.
GXO Direct in the U.K. includes 30 sites covering the entire market and serves companies of all sizes across nearly every sector, including home textiles seller Liberty’s of London, women’s apparel brand Sosandar, and Fujitsu.
“GXO Direct reflects the best of GXO and Clipper, pairing the expertise and global reach that allows brands to grow with an agile approach tailored to companies of any size, from the acorns to the oaks,” said Davies in a statement. “By removing cost and complexity, we make everything simpler, serving as a one-stop shop providing all the space, value added services and leading-edge technology that companies need to grow while exceeding their customers’ expectations.”
GXO Direct U.K. benefits and capabilities include on-demand services that can be scaled up or down so clients can prepare for seasonal spikes via “pay-as-you-grow” pricing and nationwide coverage. Companies can be onboarded by GXO’s team to go live in a warehouse in a matter of weeks.
Aside from the shared access to technology and lower workforce management costs, GXO partners can also leverage repair services to optimize returns for resale and ESG expertise to enhance sustainability.
In the U.K., the shared warehousing network also can grant customers access to GXO’s retail services, including Clicklink, a next-day delivery service option for B2B retailers offering consumer click-and-collect services. The network also enables customers to leverage services from GXO’s reverse logistics partner.
The expansion echoes recent comments from GXO chief investment officer Mark Manduca, who spoke at the UBS Global Consumer and Retail Conference on March 15.
Manduca noted that his company—which works with LVMH, Nike, Kering, Zara, JD Sports and most recently Spanx—commands 5 percent of the estimated $130 billion in outsourced logistics spend in North America and Europe.
“There’s opportunity for another $300 billion that’s currently in-sourced,” Manduca said during the conference. “Given our asset-light business model and continuous deployment of technology, there is vast runway for expansion.”
GXO Logistics, which was spun out of XPO Logistics in 2021 to focus on warehouse and contract logistics management, has bigger plans for the Direct network in Europe beyond the U.K.
In a fourth-quarter earnings call held in February, Fraine indicated that U.K. was just the start, and that GXO was “bringing that expertise to the European market.” The segment generated approximately $300 million in 2022, up 32 percent from 2021. In comparison, full-year revenue across the entire GXO Logistics business was $9.0 billion, up 13.3 percent year-over-year.
Fraine called the margins for GXO Direct “very strong” at 10.8 percent, compared to the overall GXO adjusted EBITDA margins of 8.1 percent.
Looking ahead, GXO expects its 2023 financial performance to slow down versus the aggressive growth it had in its first full year as a public company.
At its January investor day, GXO said it expected organic revenue growth of 6 percent to 8 percent, down from 2022’s 15.4 percent. Adjusted EBITDA will range between $700 million and $730 million, in line with last year’s $728 million total. The company forecasts approximately 30 percent of adjusted EBITDA to be converted into free cash flow.
Adjusted diluted earnings per share (EPS) is projected to be between $2.30 and $2.50, down from the adjusted diluted EPS of $2.85 in the year-ago period.
Despite the slight deceleration in 2023, the company is bullish on the future. GXO’s five-year business plan projects an organic revenue increase of 8 percent to 12 percent per year on average to an estimated $17 billion dollars in 2027. The firm also expects to increased its adjusted EBITDA to $1.6 billion in that same time frame.