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Supply Chain News: eCommerce Platform Shopify to Invest Big to Build Out Fulfillment Network

 

Stock Price Falls 26% after Announcing Plans to Spend $1 Billion on Fulfillment Centers in 2023 and 2024

 
Feb. 21, 2022

 

SCDigest Editorial Staff

Shopify, the Canadian ecommerce software platform that enables companies of all sizes to sell over the web, further detailed its previously announced strategy to build out a fulfillment network to shorten the time it takes for its customers to deliver to their customers.

Supply Chain Digest Says...

Analyst Bhavin Shah of Deutsche Bank wrote that “we see greater risk of merely $1 billion in capex being insufficient to compete with industry leaders such as Amazon.”


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During Shopify’s earnings call last Wednesday, company president Harley Finkelstein said in effect that Shopify must Amazon-ify its business, according to an article on the NASDAQ exchange’s web site.

On the call, Shopify detailed its plans to significantly expand what it calls the Shopify Fulfillment Network. And like Amazon’s Fulfillment by Amazon (FBA) available to its marketplace customers, Shopify says it will greatly increase its role carrying inventory and pick packing and shipping products from its ecommerce platform customers.

Shopify said that starting in 2023, it will invest about $1 billion over two years to significantly expand the number of mostly company-owned warehouses it manages. The objective, Shopify said: provide its customers the ability to offer two-day or less delivery to over 90% of the US population.

To get a feel for the scope of the challenge, Amazon now offers same-day delivery in more than 90 metro markets. And Amazon now has some 172 million Prime members in the US alone, according to estimates from Consumer Intelligence Research Partners. They get same day or one day delivery service for free after paying the annual membership fee.

That billion dollar investment over two years by Shopify will be about 10 times its average annual investment in distribution over the past three years.

““We are excited to update you today on what we’ve learned, how far we’ve come, and especially on where we’re heading as we move out of the prototype phase and into the build phase,” Finkelstein said on the call. He added that Shopify will consolidate its network into larger fulfillment centers and unify warehouse management that it’s been building and testing over the past 18 months”

Finkelstein also said the network of centers won’t be entirely Shopify owned, with a plan to match Shopify warehouses with 3PL partner facilities.

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Shopify said it ended 2021 with revenue of $4.6 billion, up 57% from the previous year and nearly triple its sales in 2019.

Investors apparently did not like Shopify’s strategy and especially its hefty investment plans. The stock fell 26% the day after the news, continuing a steep fall in its share price since the start of the year. Shopify’s value has been cut in half in just three months, though it is still worth close to $90 billion.

Reacting to the news, analyst Bhavin Shah of Deutsche Bank wrote that “we see greater risk of merely $1 billion in capex being insufficient to compete with industry leaders such as Amazon.”

Having seen explosive growth and market cap as a software platform with little need to invest in brick and mortar facilities, “Shopify is stepping into a very expensive game, the Wall Street Journal commented after the earnings call.

 

What do you think of Shopify's fulfillment plans? Let us know your thoughts at the Feedback button below (email) or in the Feedback section.



 
 
   

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