Dive Brief:
- Shopify has begun unifying its fulfillment network with Deliverr, the e-commerce fulfillment and order storage provider it acquired in July, President Harley Finkelstein said on a Q3 earnings call last week. The process is expected to be completed in Q1.
- The combined network's capabilities can span a Shopify merchant's full supply chain and allow Shopify to operate hubs that "will absorb as much complexity as possible for the rest of the network," Finkelstein said. The first combined facility in Atlanta has already seen a sharp increase in the number of merchants holding inventory there.
- "This unified network will enable Shopify to operate a small number of regional hubs that will serve several functions, including cross-docking, multichannel distribution, inventory balancing and some local fulfillment," Finkelstein added.
Dive Insight:
Shopify has invested heavily into strengthening its fulfillment network, betting that robust logistics capabilities will help the platform's merchants grow in the face of softening e-commerce demand. The company believes its network has the opportunity to be "the de facto fulfillment solution" among independent merchants in the CPG and apparel sectors, according to Finkelstein.
"When done right, fast and reliable fulfillment can significantly increase cart size, conversion rate, order value and turn buyers into repeat customers," he said.
Although merchant activity within Shopify's fulfillment network has increased, driving more consumer spending won't be easy amid inflationary pressures and slower e-commerce growth.
Shopify cut its employee headcount by about 10% in July as e-commerce spending cooled off from its heights early in the pandemic. Although Q3 revenue increased 22% YoY, the company still posted a net loss of $158.4 million.
"After expanding [Shopify] in anticipation of rapid and sustained structural ecommerce market expansion, which has not materialized, we recalibrated to meet the new reality," according to an October securities filing.
Shopify will also need to adjust for the added expenses introduced via the $2.1 billion Deliverr deal. Rick Watson, CEO and founder of RMW Commerce Consulting, wrote in a LinkedIn post that much of the growth in Shopify's Q3 operating expenses likely stemmed from the acquisition. Meanwhile, gross profit as a percentage of total revenues fell.
"Not the formula for entering economic uncertainty," Watson wrote. "Hard not to predict a major restructuring coming as they integrate Deliverr. Clearly these trends cannot continue indefinitely."
