Shopify Inc. will spend more than $1-billion over the next few years to build a network of warehouses to store and ship the products of its merchant clients, adding to the company’s attempts to become a global alternative to Amazon.com Inc. for entrepreneurs.
In the past several years, Shopify executives have been trying to expand from managing payments for online retailers to offering a wider range of services, including shipping and cash advances. The new service, called the Shopify Fulfillment Network, will provide warehouse space for clients’ products near areas of high demand, and pack and ship the orders.
Shopify partners with developers who make apps for its platform, and the company said is now partnering with existing warehouses, although it has not ruled out opening its own facilities in regions where it can’t find the right partners. It will begin with seven warehouses serving the continental United States, in states such as California and New Jersey; Shopify itself has already used the network to ship point-of-sale hardware to physical-retail merchants in recent months.
By launching a network of warehouses, known among digital retailers as “fulfilment centres,” Shopify is adapting a key tool of its mega-retail adversaries for some of its 820,000 merchants, and opening a new revenue stream. The company says it will use the artificial-intelligence technique of machine learning to examine sales records and predict how much of a given product merchants should send to a given warehouse at a given time so they no longer have to ship individual orders, reducing their costs.
Shopify founder and chief executive officer Tobi Lutke said in an interview that his team had been mulling the idea for as long as 10 years, but “we just didn’t have the capital … . There are large capital differences between warehousing and software." He said the network is Shopify growing with its entrepreneurs.
“Shopify is simply the software I wish I had found when I started Snowdevil,” the online snowboard shop that preceded the e-commerce platform, Mr. Lutke said. “And the fulfilment network is a thing that, if it would have existed, I would have never stopped Snowdevil. Because [packing and shipping] is the thing that took so much of my time.”
U.S. merchants can apply for early access to the warehouses and shipping services; they will be charged a monthly fee based on the square-footage their merchandise takes up, and fees for each item shipped. Chief product officer Craig Miller said on Wednesday at the company’s annual Shopify Unite conference in Toronto that it has reduced delivery time and increased order accuracy for early users and its own point-of-sale software. Soon, Mr. Miller said on stage, “we should be able to deliver to 99 per cent of continental USA within two days or less.”
Meanwhile, Amazon has been rapidly expanding its own warehouse and fulfilment network for merchants that list on its website, with more than 75 across North America, including in British Columbia, Alberta and Ontario. Established shippers such as FedEx have fulfilment services, too, as do newer ventures such as Chicago-based Shipbob and Belgian-owned Radial.
The company’s Toronto-listed stock jumped 6.8 per cent to $434.95 on Wednesday’s news.
But while Shopify isn’t necessarily the first, it hopes to provide fulfilment services to the widest range of merchants. Mr. Miller said other companies could seek out the biggest customers, rather than smaller merchants who might ship only a few items a day.
Joe Cicman, a senior analyst covering digital transformation and e-commerce with the market research company Forrester, said it was “very on-brand” for Shopify to set up a network. “This is something that could only be done by someone at the scale of Shopify,” he said in an interview at the conference. “I don’t think there’s anyone else in the ecosystem who could credibly or logistically pull this off.”
U.S. merchants who ship between 10 and 10,000 packages a day will be the first eligible to use the network; Mr. Miller said Shopify hopes to soon expand to merchants who ship between three and 30,000 packages daily.
The company also unveiled other new and revised services. It has updated its Shopify Plus platform for merchants with US$1-million or more in annual revenue to give clients better insight into key business metrics. And it has redesigned its online store customizations, including allowing product displays using video and 3-D models.
Shopify also said it would make multicurrency transactions available to all clients, noting that cross-border shoppers account for 35 per cent of all of its stores’ traffic. It also added more multilingual functions; in April, the company announced that more than 100,000 of its merchants used its services in languages other than English just a year after it added multilingual capabilities.
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