Costco (NASDAQ: COST), the Washington-based membership-only warehouse club, announced Tuesday it had acquired final-mile hauler and installation provider Innovel Solutions from Transform Holdco for $1 billion. Financier Eddie Lampert formed Transform Holdco a year ago, in February 2019, to acquire some of Sears' assets, following its bankruptcy. Transform also operates Kmart.
Innovel Solutions employs 1,500 people and operates 1,100 trucks, 11 distribution centers and more than 100 final-mile cross-docks. Costco has been an Innovel customer since 2015.
"Innovel has for decades provided Sears and, more recently, third parties with ‘final mile' delivery, complete installation and white-glove capabilities for ‘big and bulky' products across the United States and Puerto Rico," Costco said in announcing the acquisition. "Innovel's network offers coverage to nearly 90% of the U.S. and Puerto Rico."
The deal is the latest stage in the slow-motion unwinding of Transform Holdco's assets: After Lampert's original purchase of Sears and Kmart, he was operating 425 stores (223 Sears and 202 Kmarts). A further acquisition in June 2019 of Sears Hometown stores, which are independently owned and operated, brought the total to 839 stores.
Since then, a series of store closures has reduced the size of Transform's portfolio. Only about 182 stores remain from the original 425, while the number of Hometown stores has also fallen.
Costco paid for Innovel in cash; Transform said it would use the proceeds to pay down its remaining non-real estate debt (the acquisition of Sears and Kmart was financed by $950 million of debt).
Furniture and bulky items have been one of the hardest segments of household goods for e-commerce to penetrate because it's hard to evaluate comfort and quality online and delivery is less than painless, typically expensive with low visibility. Costco management said its acquisition of Innovel would help it accelerate e-commerce sales of "big and bulky" items.
Other large transportation companies have acquired final-mile capabilities to mixed results. Schneider National shut down its First To Final Mile delivery service in August 2019, citing poor results and cash burn. XPO Logistics acquired UX Specialized Logistics in 2015 but is considering spinning the business off as it pursues a new identity as a pure-play less-than-truckload carrier.
J.B. Hunt Transport Services (NASDAQ: JBHT), on the other hand, has leaned into final mile aggressively, first buying Special Logistics Dedicated in 2017, then Cory's First Choice Home Delivery in 2019, followed by RDI Last Mile on the last day of 2019.
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