The e-commerce sector saw huge news recently: Shopify announced at its annual conference that it’s expanding from an e-commerce platform to a full suite of solutions for its audience of retailers. Already an industry leader for enabling online purchasing, Shopify is now essentially targeting every part of the e-commerce “value add” infrastructure – meaning this transformation has major implications for the entire online retail space.
Specifically, Shopify introduced the Shopify Fulfillment Network that will allow retailers to partner with a dedicated network of distribution centers in order to get their products to customers quickly. While solutions existed for individual merchants to do this before, the cost was almost always going to be prohibitive for all but the largest sellers. Now, thanks to Shopify’s scale, small and medium businesses will be able to get their products to customers faster, cheaper, and with customizations that help enhance the customer experience.
Which segments does this move affect and how?
If you’re a retailer, Shopify’s announcement is great news. There are estimates out there that Shopify’s combined reach across all sellers would make it the third largest e-commerce site behind Amazon and eBay. With that kind of scale, they are in position to execute this next offering well. And while there are plenty of existing third-party logistics providers retailers could use (Fulfillment by Amazon, UPS, FedEx, etc), Shopify is already plugged directly into retailers’ existing systems and will offer additional value adds that others can’t or won’t currently deliver. And since Shopify Fulfillment Network will support merchants who ship anywhere from 10-10,000 packages a day, this program will be available to some pretty small sellers.
For custom box makers like WestRock and Pratt Retail, this move presents a fresh challenge in a vertical where they previously saw huge opportunity. Shopify will now be able to offer custom packaging to merchants using Shopify Fulfillment Network, which will make the entire buying journey from purchasing to unboxing more connected for the customer and positioning the retailers as premium options. As these packaging companies are actively targeting e-commerce retailers, Shopify’s introduction of custom box options to go along with their existing selling, reporting, and now logistics offerings poses a real threat.
For Amazon, Shopify’s move presents more formidable competition in the ever-evolving world of online retail. Shopify will connect merchants with 3PLs who can fulfill packages in a similar timeframe as Amazon Prime, but with more customization options available to the merchant.
One way to think about this is that Amazon and Shopify are trying to lead the evolution of retail with two distinctly different strategies.
Amazon, through product selection initially but increasingly through value-add offerings like 2-day shipping, photo storage, and streaming video, has built up a massive audience of consumers. They use this scale as a bargaining chip against retailers, similar to how Walmart traditionally operated. As a company selling products, you feel like you have to go where the customers are, and with online retail that means Amazon.
Shopify, through an easy-to-use e-commerce platform that has evolved into a full suite of retail solutions like point-of-sale, online payments, and now fulfillment logistics, has built up a massive audience of sellers. Their bet is that by helping merchants offer more of the services that customers have grown to expect (payment options, fast fulfillment, premium unboxing, etc), those merchants will grow significantly thanks to the connection they’re able to maintain with a customer in a direct sales relationship.
Rather than building up a big following of consumers and then designing products that appeal to them (think Kylie Cosmetics or Rhianna’s Fenty), Shopify has built a huge following of businesses and are now innovating on new ways to provide value and extract revenue from them. And since Shopify owns the full cart, unlike some of the other e-commerce platforms, they own all of the data about customers, purchases, and velocity that they can use to identify more opportunities for these kind of solution expansions going forward.