Hello Shopify, Goodbye Amazon?
Ecommerce is booming. And Shopify is along for the ride. The Canadian company has been lurking in the depths of the ecommerce lagoon while keeping a close eye on its main competition: Walmart and Amazon. As the years have passed, Shopify silently observed and took extensive notes on how their competition scaled their sites and expanded their operations. Now, we consider Shopify as an ecommerce giant. How did they pull it off?
Shopify has tapped into the niche sub-markets of ecommerce to create a unique and unprecedented rivalry with Walmart and Amazon. Despite Amazon and Walmart being larger companies, Shopify has leveraged personalization and customization at scale, social influencer selling, and a comprehensive SaaS platform to grow at a rapid pace.
Wall Street is loving Shopify too. Shopify’s market capitalization is at $138.33 billion at the time of this writing. That’s up more than 300 percent from last year. Shopify started 2020 trading a tad over $400 a share. Now, we are looking at a record high of $1,134 a share, or almost 3x as much. Shopify is on a rocketship.
Despite this, Shopify is still fighting an uphill battle. Amazon has 20,000 small and medium-sized businesses that make a million dollars or more in sales. In total, Amazon has 5 million third-party sellers, with an estimated 100,000 sellers hopping on-board every month. Walmart’s ecommerce business in the United States grew 97% in the company’s second fiscal quarter, amounting to more than $10 billion in sales, Walmart reported. On top of this, Walmart is releasing Walmart+ to compete with Amazon Prime.
One of the biggest differences Shopify has is their business model.
Amazon is an online marketplace. Selling through Amazon is like having a booth at a famous carnival. Thousands of people swarm in to browse and buy, even though most people aren’t specifically looking for your particular brand. You still make a lot of sales because of the ridiculous foot traffic.
On the flip side, selling with Shopify is more like renting a building to set up your business in. You have your own space and customers actually come by looking for your store once they know your brand. There’s more room to create a unique image, although it’s much harder building up your customer base.
Shopify also boasts about their comprehensive App Store. Startups and small business flock to platforms. Remember the classic Facebook game FarmVille from Zynga? User would sign up on Facebook just to play Farmville. One of the easiest ways for a startup to grow rapidly is by leaching on to an already booming platform. Platforms attract users, investors, and other business. That is why Shopify is on a rocketship.
Shopify watched Amazon vertically integrate their supply chain, and in response, launched Shopper Fulfillment Network. SFN is a $1 billion new project that will allow third-party merchants to deliver to 99% of the continental US within two days or less. Shopify is now acquiring warehouses in various parts around the U.S. and Canada. This is a costly strategic move to compete with Amazon’s precious supply chain.
Amazon is further into it’s vertical integration, which gives them a major advantage over Shopify. In Q2 2019 alone, Amazon spent $16 billion on shipping and fulfillment costs. Shopify will hope it’s machine learning and AI will provide a competitive advantage when utilized to optimize demand forecasting, inventory allocation across warehouses, and order routing.
Amazon made it unacceptable for shipping to take longer than 2 days. I expect more and more retailers and ecommerce brands to adopt to this new industry standard. Owning your own supply chain and vertically integrating requires a lot of capital. This is certainly a sign of growth for Shopify, and really propels them towards the likes of Amazon and Walmart.
Many merchants have expressed reservations when doing business on Amazon’s platform. One of their biggest causes for concern is white labeling. White labeling is when one product or service is sold and rebranded under another company’s brand. For example, Walmart uses Great Value and Amazon has their AmazonBasics brand. These products are typically the same as other brands, but almost always cheaper.
Summit Insights said: “With Shopify’s Fulfilment Network, we see merchants eagerly exploring this alternative to their worst retail nightmare.” A specific example includes consumer packaged goods. CPG brands have long been squeezed on the margin by Amazon and Walmart, and are increasingly being boxed out by their private label ambitions. Thus creating a big, unpenetrated opportunity for direct to consumer CPG brands.
With Shopify, you get your very own virtual storefront. You can customize your stores theme, discounts, checkout experience, and payments. But it doesn’t stop there. Companies that sign up for Shopper Fulfillment Network can have their own logo stamped on the box. This attention to detail is unheard of.
Shopify is “arming the rebels,” with a focus on small, independent businesses. By creating a merchant-first software product and constantly adapting to the fast-moving online shopping space, Shopify is catering towards entrepreneurs and small businesses owners.
To further leverage their unique position in the ecommerce space, Shopify has released a suite of retail hardware. They have three devices; The Shopify Tap & Chip Reader, Dock, and Retail Stand. Because Shopify already provides many merchants with payment, inventory, and shipping services, adding new POS terminals is a logical and smart next step. This will help small merchants transform in-store shopping experiences and level the playing field with their bigger competitors.
Shopify’s new point-of-sale technology came after a realization that brick-and-mortar and online shopping experiences were blurring. With direct-to-consumer brands becoming more willing to open physical retail stores, Shopify saw a clear opportunity. With this new hardware, Shopify is now competing with the likes of Square. This move enables Shopify to support small businesses from the start to the end of the customer journey.
Amazon, however, is no stranger to the hardware game. Amazon has a few physical stores: Books, 4-star, Go, and Pop-up. Let’s not forget the major acquisition of Whole Foods. Amazon doesn’t only have a massive online presence, but an ever growing retail presence. In addition, Amazon is testing it’s Dash Cart, a shopping cart that identifies and charges you for items you place inside the basket. With a physical store presence and ever growing “hardware” selection, Amazon is a force to reckon with.
Despite Amazon’s size, they can’t easily tap into micro-trends the way Shopify has. Shopify provides customization and personalization at scale. As their user base grows, this will remain a key part to their success. Shopify doesn’t compete with their sellers, but instead empowers them to make a splash in the market. Building a hardware suite proves they are seller driven, while Amazon is buyer-centric. Being a large company who is still nimble enough to tap into micro-trends is why Shopify is now Amazon’s largest competitor.
So, how will Amazon respond to Shopify’s advances?
Since capital isn’t a concern, I predict Amazon will eventually splash the cash on its online marketplace. They need to become more seller-centric if they want to continue to dominate the market share. TechCrunch reported that, “60 percent of merchants told Feedvisor in 2017 that they planned to diversify to other channels from Amazon.” A shift away from building for buyers would tell sellers that Amazon acknowledges the need for sellers to have a larger footprint on the site. A push towards storefronts would be a wise next step.
I don’t see Amazon stopping their white labeling practice anytime soon. Although it sucks for sellers, buyers love saving a few bucks. The branding is clever too. AmazonBasics doesn’t imply cheap, unlike Walmart’s GreatValue. Also, the name is attached to Amazon’s brand.
Amazon will continue to augment their existing hardware products. The next generation grocery store will be Amazon Go. Get ready to experience a frictionless checkout experience, robots instead of humans, and plenty of automation. This is reminiscent of the future of work. Oh, and if Amazon wanted their own line of hardware products, they could buy Square.
Amazon should take a closer look at how they are empowering their sellers. Ultimately, if the buyers are happy, they will always prioritize them. Jeff Bezos’s Amazon has the capital to compete with anything Shopify and friends throw at them. But don’t write off Shopify.
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