Consumers love buying products online because of the convenience of push-button shopping. But the transaction becomes more complicated when items have to be returned because they are the wrong size, they don’t work, or the buyers simply don’t like them.
FedEx, one of the leading package delivery companies serving the e-commerce customers, simplified the way it handles package returns by buying the third-party logistics (3PL) company Genco earlier this month, the company announced in a news release.
Genco – -which is based in Blawnox, Pennsylvania, just outside Pittsburgh — is a leading product life-cycle and reverse logistics solutions company that specializes in maximizing value and reducing costs of package returns. Although the terms of the purchase were not made public, Genco has annual operating revenues of $1.6 billion and operates more than 130 warehouses throughout North America.
The company has more than 11,000 employees, about 400 of whom work in the Pittsburgh area. It will become an independently operated subsidiary of FedEx once the deal is completed in the first quarter of 2015.
Already a Big Player in Package Returns
Genco already manages product returns for several major retailers, including Sears Holdings Corp. and handles warehousing and distribution, contract packaging and processing in returns, among other services.
No staff cuts are expected at either company and Genco’s CEO will remain in his position after the deal goes through.
Acquisition a ‘Win/Win’
Ryan Kelly, a spokesman for Genco, said the acquisition was a win/win for both companies because FedEx gets a third party to handle most of its package returns and Genco can use FedEx’s global platform to expand its scope.
“We have gotten requests before from our customer base, primarily Fortune 500 companies,” Kelly said. “They’ve been asking us to have global capabilities. This opens to door for us to be able to do more for our customers on a global scale.”
Combining Genco’s package returns expertise with FedEx’s network of carriers will allow the companies to capture a bigger share of the booming e-commerce market. Retailers have been looking for ways to lower the costs of returns because they absorb most of these costs as an incentive for customers who demand free returns policies.
Gives FedEx a New Profit Opportunity
FedEx can rely on Genco to handle its package return service, as well as delivery. But it also has another profit opportunity.
When products bought online are returned by consumers, they aren’t always sent back to the manufacturer. Instead, 3PL companies like Genco can re-sell these returned products in other markets, often at a higher price paid by the original consumer. Genco can then use FedEx to ship these returned goods their new buyers.
Analysts Like This Deal
Satish Jindel, president of SJ Consulting Group, said the purchase of Genco gives FedEx an upper hand in the lucrative e-commerce market.
“Acquire the company, keep the management in place, give them the brand name of FedEx and let the synergies flow,” Jindel said, adding that he would estimate that FedEx probably paid more than $2 billion for Genco.
Keith Schoonmaker, an analyst for Morningstar, said the acquisition allows FedEx to expand its services without having to make a huge investment in new infrastructure.
“It brings in a pretty significant chunk of asset-light business that doesn’t require bringing in airplanes or trucks,” he said.