Boxed retail business rides B2B wave

Business-to-business (B2B) customers have stirred up new momentum for online bulk-products retailer Boxed Inc. as it heads into the new year, according to CEO Chieh Huang.

The New York-based e-tailer, which went public just over a year ago, also has sharpened promotions to spur sales in its core business-to-consumer (B2C) retail business and is driving expansion in its Boxed Up loyalty program and Boxed Market fresh grocery fast-delivery arm, Huang said in an interview with Winsight Grocery Business.

For the third quarter ended Sept. 30, its most recently completed reporting period, Boxed said retail net revenue rose 8.9% year over year to $41.6 million, fueled by increased order frequency plus a higher mix of B2B customer orders. Meanwhile, retail segment gross profit surged 88.8%, with gross margins up 503 basis points to 11.9%. Boxed attributed the gains to momentum in B2B and Boxed Market, transportation and packaging cost savings and ongoing price optimization, the latter leveraging technology from the company’s Spresso software and services business unit.

The growth reflected some robust consumer trends in the quarter: Retail net revenue per active customer (RPAC) jumped 38.4% to $93, and average order value (AOV) climbed 21.9% to $150. Gross merchandise value (GMV) edged up 8.3% to $49 million in Q3, driven by B2B customer GMV growth of 37.1% as well as increases in Boxed Market’s customer base.

Boxed’s Q3 retail gains continued similar trends in the first half of the fiscal year.

Boxed is known for generating big customer baskets, with an average of eight items for a value of around $100 per order. / Photo courtesy: Boxed

Return of B2B customers

“We’re seeing B2B come back,” Huang said. “Before COVID started, we were almost 25% B2B in 2019. And when you look at the B2B business now, we disclose that it’s 10% better margin than our B2C business. The average order values on that customer set are also three times bigger. They’re stickier customers. So as you see more B2B comprising our overall business, you’re going to see that almost arithmetical shift in margin because it’s just a larger percentage at a higher margin these days.”

Smarter promotions have played a key role on the B2C sales side, Huang noted, adding that homegrown technology has helped Boxed deliver the right pricing to the right customer.

“What we like to say is we eat our own dog food, in the sense that the technology solutions we now sell, we also use internally,” he explained. “For example, all of our first-party SKUs are now run through our machine learning-driven pricing optimization module as the customer sees the price. So the price doesn’t only go up; it may go down as well. It’s trying to optimize the price for the customer and for that basket. There’s really less and less human intervention, and it’s doing its job like. It doesn’t account for all the 88% [Q3 gross profit growth]. But, certainly, that tool contributed to some of it.”

Boxed provides warehouse club-style shopping—including groceries, pantry items, household staples, health and beauty aids, office supplies, private label, and organic and green products—through its website and mobile app. Consumers and businesses can buy club-sized packages with free two-day delivery in the continental U.S. on purchases of over $49 (or $79, depending on location), without the membership fees of traditional warehouse clubs. Members of the Boxed Up loyalty program get free shipping for a $19.98 order minimum.

The company also offers Boxed Express, an on-demand delivery service for perishables, and in late 2021, entered the rapid grocery delivery arena via its first acquisition: New York City e-grocer MaxDelivery. That service was rebranded as Boxed Market in the 2022 second quarter.

Boxed generates big customer baskets, with an average of eight items for a value of about $100 per order, and the Boxed Up paid subscriber base provides a loyal, recurring revenue stream. Boxed’s B2B customers range from small and midsize businesses to Fortune 100 enterprises, and its technology stack—encompassing the customer-facing front-end, back-end operational software and homegrown automation robotics for fulfillment—is licensed to other businesses.

Through Boxed, consumers and businesses can purchase club-sized products without the membership fees of traditional warehouse clubs. / Photo courtesy of Boxed

Loyalty program brings high upside

A recent Boxed investor presentation illustrated the importance of B2B, Boxed Up and Boxed Market to the company’s growth. Through Q2, for a B2C customer not participating in Boxed Up, year-over-year GMV growth was 7% and GMV per active retail customer was $169. But the cumulative effect of B2B, Boxed Up and Boxed Market produced 56% GMV growth and $460 GMV per active retail customer.

Efforts to bring B2B customers into a loyalty membership are under way.

“We’re still tweaking the formula,” Huang said of the Boxed Up loyalty program, currently offered only to B2C customers. “It has gotten great uptake. Last we reported, it was about 20% of our revenue these days, of customers of either membership revenue or amount of spend. We have additional upside there in the sense that B2B customers are not yet eligible for Boxed Up. We’re doing the hard work of surveying these customers and seeing what they would want in a B2B membership.”

Besides free shipping for orders of $19.98 and up, Boxed Up members receive 2% cash back on every order and perks such as special discounts, promotions, giveaways, gifts with purchase, and exclusive experiences. Membership costs $49 annually.

“Right now, only B2C customers are eligible. A Boxed Up customer from a behavior standpoint—how much they buy, how frequently they buy, etc.—from a spend perspective looks a lot more like a B2B customer than a B2C customer,” Huang said. “I think once they have put down the money, in their minds they are committed to the service. They tend to think of us at close to the top of the list for a lot of their daily needs. So I think you’re seeing that as a good tailwind. Though that customer is not spending as much as a B2B customer, it’s not far off either.”

Fast delivery service branches out

Expansion of Boxed Market beyond Manhattan also is expected to provide a lift, as the rapid delivery service—under an hour—generates high average order values. In October, Boxed Market launched in New York’s Westchester County, including a fulfillment center in Elmsford, New York, followed in November by its debut in the New York City borough of Brooklyn, with a warehouse near the Barclays Center arena. The Manhattan fulfillment center is near Times Square. Delivery is by bicycle couriers in the urban markets of Manhattan and Brooklyn but by car in Westchester, a largely suburban area just north of Manhattan. Different than Boxed’s core wholesale service, Boxed Market serves up a selection of about 10,000 retail-size products, including fresh and frozen foods.

“The reason why we acquired MaxDelivery and renamed it Boxed Market, is because on its surface, a lot of folks conflated it with some of the 15- to 20-minute ultra-fast delivery services. But what you are actually buying is that we don’t guarantee 15 minutes [for delivery]; we strive to do within an hour. In general, we’re able to do that,” Huang said. “But this is a full-basket shop. This isn’t your local convenience store or bodega. Customers are spending—we disclosed for the first time—over $100 per average shop. That really starts to sound like the Boxed wholesale business. So if you’re able to batch two to three deliveries into a single car or onto a single bike, then you’re talking real gross margin and you can make money off this business.”

Boxed offers a curated selection of what customers need most, including groceries, pantry items, household staples, health and beauty aids, office supplies, private label, organic and green products. / Photo courtesy: Boxed

Looking ahead to next year, Boxed also envisions limited walk-in and click-and-collect functionality for Boxed Market fulfillment centers, as well as an array of grab-and-go items for customers seeking on-the-spot convenience. Thus, some locations would allow customers to shop alongside Boxed Market personal shoppers.

“Sometimes you’re like, ‘I pass by their warehouse on the way home anyway. As long as I don’t have to walk the aisles, I’ll just walk in and pick it up, save a few bucks and walk home with it.’  Allowing that, I think, will further enable us to be where that shopper is,” Huang said.

“If you zoom out a bit, we’ll be one of the few companies that has all different formats,” he added. “We have small dark stores, small shoppable or buy-online-pick-up-in-store facilities via dark stores and, eventually, as some of those dark stores become shoppable stores, we’ll have everything from that to big fulfillment center selling wholesale, as well as third-party marketplace. If you check on the Boxed side, you’ll see more and more general merchandise being sold as well. So we’ll be one of those companies in America with truly multiple formats.”

Tech business seeks bigger pipeline

The other linchpin of Boxed’s growth strategy is its high-margin software and services business, renamed as Spresso in the second quarter. The company’s advanced e-commerce platform, leveraging artificial intelligence technology, offers retailers and other businesses an end-to-end software stack for storefront, marketplace, B2B, advertising and fulfillment functionality. More recently, those capabilities became available as modules, including the pricing optimization tool that Boxed uses itself.

“Breaking it up into those modules will give us a wider customer funnel, we believe,” said Huang. “And then also we’ve begun to explore and announce customers outside our typical realm of grocery.” That includes Spresso’s first U.S. client, Jeffers Pet, one of the nation’s largest privately-owned animal health supply companies, which is deploying a number of modules. Boxed also is expanding its tech partnership with Asian retailer AEON Co. Ltd. into more regions and seeking new customers across the globe.

Building up a steadier pipeline of Spresso business will not just help Boxed drive margin growth but also bring more stability for investors. For the software and services unit, Boxed can report revenue only in quarters when deployments and implementation work were performed, which has led to such variations as less than $0.1 million in net revenue for Q3 and Q2 but over $2.2 million for Q1.

Huang said Boxed also will soon announce plans to shore up its financing. In October and November, the company received delisting warnings from the New York Stock Exchange due to its stock price and market capitalization. To rectify the situation, Boxed has said it will mull various options, including a reverse stock split, subject to shareholder approval.

“When you look at the trends, the KPIs and the cohorts, we’re putting out positive news. Given a challenging environment, I still think we’re executing as a team,” Huang said. “I think the biggest thing that we need help from is a different environment. It’s a difficult environment for e-commerce companies, and for technology companies an even more difficult environment. If we can continue to execute, continue to grow the B2B in the high-margin businesses and sign more software customers, on the other side of this recession or market downtrend, I think we’ll be OK.”