Shopify begins unifying the fulfillment network with Deliverr

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diving letter:

  • 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 in a third-quarter earnings call last week. The process is expected to be completed in the first quarter.
  • The capabilities of the combined network can span a Shopify merchant’s entire supply chain and allow Shopify to operate hubs that “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 dealers stocked there.
  • “This unified network will allow Shopify to operate a small number of regional hubs that will perform multiple functions, including cross-docking, multichannel distribution, inventory balancing, and some local fulfillment,” Finkelstein added.

Dive insight:

Shopify has invested heavily in strengthening its fulfillment network, betting that robust logistics capabilities will help the platform’s merchants thrive as e-commerce demand slows. The company believes its network has the potential to be “the de facto fulfillment solution” among independent merchants in the CPG and apparel industries, according to Finkelstein.

“If done right, fast and reliable fulfillment can significantly increase cart size, conversion rate and order value, and turn shoppers into repeat customers,” he said.

Based on the numbers

10x

The quarterly increase in the number of merchants holding inventory in the first combined Shopify and Deliverr facility, according to a third-quarter presentation.

75%

The YoY growth of merchant inventory received in Deliverr crossdocks.

80%

The quarter-over-quarter growth of merchants using more than one of Shopify’s logistics services across all three stages of the supply chain.

450%

The year-over-year increase in orders fulfilled by FMS, Shopify’s inventory management software, in both Shopify and partner-operated facilities.

2 out of 3

The rate of domestic packages delivered within two business days through Shopify’s fulfillment network in September.

Though merchant activity has increased within Shopify’s fulfillment network, amid inflationary pressures and slower e-commerce growth, driving more consumer spending won’t be easy.

Shopify reduced its headcount by about 10% in July as e-commerce spending slowed from its heights early in the pandemic. Though third-quarter revenue rose 22% year over year, the company still posted a net loss of $158.4 million.

“After the expansion [Shopify] In anticipation of a rapid and sustained structural expansion of the e-commerce market that has not materialized, we have recalibrated to meet the new reality,” said an October securities filing.

Shopify also has to address the additional costs of its $2.1 billion deal with Deliverr. Rick Watson, CEO and founder of RMW Commerce Consulting, wrote in a LinkedIn post that much of the increase in Shopify’s operating expenses in the third quarter was likely due to the acquisition. Meanwhile, gross profit as a percentage of total revenue fell.

“Not the formula for entering economic uncertainty,” Watson wrote. “It’s hard not to predict a major reorganization once they integrate Deliverr. These trends clearly can’t last forever.”

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