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Shopify Reworks Fulfillment Strategy as it Looks to Help Merchants Compete

Shopify Inc.’s gone back to the drawing board on its fulfillment strategy with changes it says will help brands compete with larger retailers.

The Canadian e-commerce company said in a statement provided to Sourcing Journal that it plans to offer more details on what’s new for its Shopify Fulfillment Network (SFN) when it reports its fourth-quarter results Feb. 16.

“However, in the meantime, we can confirm we have communicated upcoming plans to our warehouse partners and merchants,” a company spokesperson said. “We will be making changes to SFN to help merchants compete with big-box retailers, such as prioritizing two-day shipping at affordable prices and access to easy returns for U.S. shoppers.”

The company’s stock has swayed back and forth the past few trading days, falling about 9 percent Friday amid a tech stock sell-off and a Business Insider report on the company severing some of its third-party logistics contracts, which would reduce its fulfillment capacity. Shares then bounced back Monday as the company sought to soothe concerns on capacity.

“We have sufficient capacity to meet the fulfillment needs of our merchants using SFN,” the spokesperson said. “Capacity will not be reduced, and we do not anticipate disruptions to our merchants’ fulfillment.”

The Shopify Fulfillment Network is a relatively new program for the company, which it rolled out in June 2019 for U.S. businesses. The purpose was to provide merchants with access to a warehouse system that could easily and quickly ship out orders once they are placed online.

The program is now offered to U.S. and Canadian businesses that meet certain criteria, such as a minimum of three orders daily.

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The company has said it has a goal of investing $1 billion into fulfillment over the next several years and Chief Financial Officer Amy Shapero confirmed that during the company’s third-quarter call with analysts in October.

The CFO confirmed at that time the company is “still in the product-market-fit phase, as we said we would be this year, heads down building the software and optimizing the network.”

Product market fit is another term used for when a company’s product has shown to hold enough value that it’s able to consistently retain customers.

“As we grow SFN, we will continue to apply what we have learned to optimize inventory and order fulfillment across the network as a whole,” Shopify’s spokesperson said.

The fulfillment changes, while confirmed details are scant, makes sense, Wedbush analyst Ygal Arounian pointed out in a note released over the weekend.

“The slower-than-expected roll out has been an indication that Shopify’s goal to partner with 3PLs was proving to not yet provide the type of market advantage it was hoping for,” Arounian wrote.

The analyst note went on to point out the complexities and challenges that come with 3PL integration into an e-commerce platform.

The analyst then estimated the feasibility of Shopify developing its own fulfillment network of around three to four warehouses at a cost of less than $100 million.

“Shopify owning and operating the full stack, will likely be a stronger and more seamless offering for merchants over time,” Arounian wrote, adding what could be perceived as a near-term setback ultimately gives it “needed control over the process over time.”

The fulfillment changes had the analyst cut the price target on the company’s stock from $1,500 to $1,296.