Shopify / AP Images
- Shopify rolled out the latest iteration of its e-commerce logistics service Thursday.
- Shopify is offering a "port to porch" logistics service for even the smallest merchants.
- The company says it will liberate small businesses. Experts say execution will be tough.
Shopify's foray into the physical side of e-commerce hasn't moved in a straight line. But the company says it has zeroed in on a strategy that will take it through the next decade.
"I think what we're building right now the world has never seen," Aaron Brown, CEO of the newly coined Shopify Logistics told Insider ahead of Thursday's official rollout of the company's latest progress.
Shopify Logistics is the umbrella under which the company will combine recent acquisitions, its own facilities, and a partnership with freight forwarder Flexport to offer a single service to handle nearly all of the logistics online sellers need. Brown described it as "liberating" entrepreneurs from the biggest headache in e-commerce.
"That liberation is what we believe will help a customer go from one sale a day to five sales a day to 100 sales a day," said Brown, who came to Shopify in 2017 from Amazon.
'Port to porch'
The "port to porch" service starts with Flexport, which has forged relationships with other e-commerce operations companies in the past and is now run by another Amazon alumni, Dave Clark.
Flexport will allow Shopify merchants to get "front of the line access," to space on container ships they'd struggle to get otherwise, Brown said. The goods will then be trucked to one of Shopify's warehouses, and the inventory will be spread around a network of warehouses powered by Deliverr, which Shopify acquired for $2.1 billion in 2022.
It's similar to what Shopify envisioned when it first announced a fulfillment network in 2019, before pulling back on that strategy and eventually launching its own facilities and acquiring Deliverr.
A robotics company Shopify acquired in 2019 is like "the machine in the background making everything work" in this plan, according to Brown.
"We now have one network so every time a new merchant joins SFN or uses the Deliver app if they want, they're actually going on to one common network," Brown said.
Inventory will flow into two or three Shopify-operated hubs, and Deliverr's technology will route it on from there, choosing the best location for storage and fulfillment, and assigning quantities of goods based on the sales the system expects.
Initially, Shopify-run warehouses may be packing individual orders, but the plan is to keep the share of total orders packed in Shopify's buildings decreasing, Brown said. That's been a key point of focus for investors since Amazon's fulfillment network buildout took many years and cost hundreds of billions of dollars and any attempt to replicate it would likely be a financial boondoggle.
'Liberating' online sellers from logistics
At the core of Shopify's logistics offering is "Shop Promise," a badge that gives shoppers custom expected delivery dates on merchants' stores and the Shop App. Shopify rolled the badge, a direct competitor to Amazon's Prime shipping program and its newer "Buy with Prime" feature, out last year and expanded it Thursday.
Using Shopify Fulfillment Network, sellers can get 2-day shipping on roughly two-thirds of packages, or they can use the badge and do their own shipping, as long as they deliver at the speed they promise, which must be faster than five days.
On top of fast delivery, supply chain services are also difficult for small sellers to get since freight and fulfillment companies generally prefer larger clients. The ideal scenario, said Brown, is Shopify merchants using the full suite of services and even starting new e-commerce businesses from scratch without ever having to learn to manage operations.
A totally hands-off experience for e-commerce sellers is something technology companies have been talking about providing for years, but few (if any) have delivered.
And the recent slowdown in e-commerce after the boom of the pandemic has brought many fulfillment businesses to reevaluate their smallest customers — even when their original mission was to bring quality fulfillment to small sellers.
Tiny sellers, tough profits
Shopify is promising fast shipping and easy importing to tiny customers with as little as one pallet or even 30 units of inventory, Brown said. There's a real need there, according to Jay B Sauceda, a partner in the early iterations of Shopify's fulfillment network who sold his family warehousing business to Cart.com in 2021.
Logistics services, he said, "inadvertently pull up the ladder on a lot of smaller and mid-market businesses who would arguably benefit the most from logistics providers."
A lot of e-commerce businesses with good products "flame out" because they simply can't hack the operations, Sauceda said. "The CEOs have to divert a lot of their energy to something that they're not great at doing and they don't love."
The hard part for Shopify, Sauceda said, will be making money while providing this access.
"If your belief as a company is to be merchant-obsessed as Shopify says, it's a really bold statement to take on a business that is very difficult to make profitable at all scales. It's really bold to put your money where your mouth is," Sauceda said.
Rick Watson, CEO of RMW Commerce Consulting and an expert in marketplace e-commerce, said the challenge of catering to small businesses will have to show up in the price.
"They can make the solution seamless and simple, but what they're not going to do is be the lowest cost provider as a brand grows," Watson said.
A Shopify spokesperson told Insider merchants will be able to pay for only what they use.
"Just as we've always done at Shopify, we're using our scale to our merchants' advantage – this time providing access to logistics services previously only available to larger retailers," the spokesperson said via email.