Shopify is attempting to counteract a slowdown in demand for the goods that flow through its fulfillment network, by investing in and strengthening it's logistics capabilities.
This centers around “the vertical integration of logistics,” CEO Tobias Lütke said on a Q2 earnings call last week. The e-commerce platform has made a number of deals since launching its fulfillment network to ease the logistics burden on its sellers.
These fulfillment-focused agreements are part of a strategy in which Shopify looks to grab a larger share of the e-commerce market from competitors like Amazon, especially as consumer demand softens. Shopify experienced a net loss of $1.2 billion in Q2 after betting that e-commerce spending would outmatch that of physical retail for the long haul.
“We are keenly aware of what’s happening around us, we anticipate that inflation and the continued softness in consumer spending on goods will persist through the remainder of the year.” Shopify CFO Amy Shapero
When Shopify launched its fulfillment network in 2019, the company may have thought it could enter the logistics space with a capital-light model, said Tom Forte, managing director and senior research analyst at D.A. Davidson, in an interview.
“More recently, I think they’re realizing they need to spend more capital to have a more robust logistics effort,” Forte said.
The e-commerce company has been spent big lately to accelerate efforts to simplify distribution. Shopify spent $2.1 billion to acquire Deliverr last month, which will give the e-commerce platform a network of warehouse, carrier, and last mile partners to fulfill orders. Deliverr’s asset-light network provides “elastic warehouse capacity” that complements Shopify’s existing large warehouse hubs.
Deliverr will be able to address Shopify’s “vast majority” of gross merchandise volume, the dollar value of orders through Shopify’s platform, in North America, Shapero said. Hubs will unpack, scan and inspect inventory using software and machine learning as well as compare the inventory against metadata in Shopify’s back office. Based on expected buyer demand, Shopify can then route the goods to merchants’ distribution channels or forward-position inventory into direct-to-consumer fulfillment centers, President Harley Finkelstein said on the Q2 earnings call.
A separate acquisition is also helping Shopify expand its two-day delivery ambitions. The company has completed its rollout of a warehouse management system using fulfillment software from 6 River Systems, which it acquired in 2019. Now, 100% of Shopify Fulfillment Network orders are processed using the software.
“Orders with predicted delivery of 2 days or less have now increased from less than 2% prior to software updates to over 70% after the updates, and we are just getting started,” -- Harley Finkelstein, Shopify President
The combination of Deliverr’s software and 6 River Systems’ technology allows Shopify to “forward-position merchants’ inventory to support timely fulfillment with a minimal inventory commitment,” Finkelstein added. It could also help it grab a larger share of the e-commerce pie from competitors like Amazon.
Shopify’s supply chain milestones
Whilst the size and scale of Amazon's supply chain is unmatched, the hope for Shopify is that it can use it's technology to anticipate demand and reduce the distance traveled of products. Essentially, inventory optimization.