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Fabric, a New York–based micro-fulfillment company focused on robotics technology for last-mile operations, has cut staff and named a new chief executive. The startup confirmed the changes to TC, essentially saying that it has seen the writing on the customer wall and is making some strategic changes.

Today, the company officially announced its intentions to move in the direction of being a platform rather than a service. As a result, not everything with the new plan is positive: founding CEO Elram Goren was replaced by COO Avi (Jack) Jacoby 2 weeks ago, and the outfit told its 300-person staff Wednesday that 40% of them would be laid off.

Fabric builds hardware and software for customer warehouses to automate the processes of selecting, moving around and packing items. We last covered the company in 2021 when it raised $200 million in Series C funding with some top investors behind it, including Temasek, which led both the C and Series B rounds. The company raised over $330 million in total and its valuation was over $1 billion.

In the past year, however, the company’s customers began asking for different offerings than Fabric was currently providing, namely they wanted more of a platform offering than a service offering. Fabric’s current service is providing the real estate, deployment, commission, label and all of the services to maintain it.

Shifting to a platform offering puts more in the hands of the customer, Jacoby told TC. He joined the company in 2018 as chief of staff and rose to the ranks of CEO of the Israel market. In 2020, he became Fabric’s chief operating officer.

“Most of our customers told us they prefer to operate our system on their premises and with their own teams,” he said. “They would like to retain direct relations with the end customers and do not want anyone between the retailer and customer.”

Over the past 6 months, the company’s board of directors and leadership began looking at what that platform offering could look like. Jacoby explained that since starting the company 7 years ago, Goren had a “vision about building a network and providing a service to retailers.”

“Once the board decided it didn’t see a demand for that in the market, that led to Elram’s decision to step down,” he added. “I think after seven years, he was pushing in that one direction.”

Though Fabric’s customers were asking for something else, the company’s original network vision might not entirely be losing steam, according to Chris Domby, chief supply chain officer of Ware2Go, a UPS spinoff fulfillment startup for small businesses.

“While large retailers are creating their own micro-fulfillment networks based on their specific needs, as an emerging technology, this method is costly,” Domby said via email. “We’re seeing the emergence of micro-fulfillment-as-a-service offerings, which are allowing small businesses to access micro-fulfillment networks they otherwise wouldn’t be able to afford.”

Regarding the layoffs, Jacoby explained that as a service company, Fabric was providing the real estate, deployment, commissioning and once operational, the label and services.

Now that it won’t be doing all of that, the employees who were let go fall into those categories, which include its R&D teams and are mainly based in Israel, but the layoffs were across the organization, he added.

The commercial teams were not impacted by the workforce reduction because the U.S. is still Fabric’s main market. Site operations, sales and marketing, product and finance were also not impacted.

“We are going to expand in the U.S., but it doesn’t make sense to shift R&D to the U.S.,” he added.

Impacted employees will be provided with a cash severance, extended benefits and job outplacement services, Jacoby said.

Though Jacoby says he is seeing the trend of a slowdown in e-commerce, it did not have an impact on the decision regarding the shift to a platform business. It was instead listening to customers and their need to shift to automation, owning their micro-fulfillment system and operating it themselves.

However, e-commerce has indeed been slowing down since the start of 2022. Forbes reported that Americans spent some $5.28 billion less online in April with part of the blame being placed on higher travel and gas prices that are cutting into people’s budgets for spending on goods.

Jacoby reiterated that Fabric has “years of runway, is in a very good situation” and was not under pressure to make the decision.

“We are just doing what we believe will position us better in the market,” he added. “What is happening to the market has nothing to do with it, and the company’s financial situation is very good. This decision needed to be taken now because we need the runway to position ourselves better as a platform player.”