I had originally not planned to write about Shopify this week, but the team brought out some really interesting insights about Shopify's fulfillment strategy, comparing it with the data we have. It makes for a great read, if I may say so myself.
In Jan 2022 Shopify terminated or reduced the scope of its work with several warehouse and fulfillment partners marking a potential shift in strategy. Partners are not happy.
Find here the top 100,000+ stores that use Shopify in US.
So far, it makes for a compelling case. Shopify needs to make money from merchants that are growing. Payments and fulfillment are cash sinks for merchants. It makes sense for Shopify to vertically expand. It makes sense to consolidate its position as the platform for DTC brands and also level up against Amazon. But, how compelling is the SFN offering in reality?
We dug through our data for you.
So the challenge for SFN is not just launching a fulfillment service but one that is compelling enough for its own customers to switch. With nearly 50% of that target set already giving a better shipping experience for shoppers than what Shopify can offer, it's going to be a herculean task for Shopify to close the gap and then offer some more.
But, that's not where this ends. Shopify competes with Amazon and Amazon has MCF.
Amazon, the fulfillment leader that sets benchmarks for the industry, offers Multi-Channel Fulfillment (MCF) with deliveries as quick as next-day for orders outside of Amazon, including eCommerce businesses that run on, say, Shopify.
Fulfillment and Payments ought to be the revenue drivers for Shopify as new merchant signups slow down. Shopify has not been able to scale up on SFN since 2019. It has lost most of its team. It is again planning a large capex for the next two years on a leaner self-operated network and narrower target market (DTC self-shippers) most of whom are already offering one-day delivery and may find Amazon MCF better.
There are almost 200,000 independent eCommerce sellers that also sell on Amazon. For them, Shopify is not a compelling option.
Amazon is already having a mature offering with MCF that Shopify hopes to catch up within the next two years. The DTC market is experiencing a bad year with the public companies drastically underperforming and having lost billions in market cap in 2022. If rising facebook ad prices, worsening admeasurement, soaring shipping costs, and smaller-than-anticipated customer bases aren't enough to eat into revenue, and margins, we have not yet seen a fall in discretionary spending in top categories It's only a matter of time. Will the customer base wait for Shopify to get SFN right or not risk customer churn and stick to safer options like MCF or whomever they do same-day and next-day shipping already with?
Did Shopify miss a trick by bringing fulfillment in-house too soon?
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