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Shopify teases out fulfillment strategy after revenue surge

Canadian e-commerce company plans to scale its nascent U.S. Fulfillment Network in 2021, leveraging third-party warehouses and a robot-enabled platform from recent 6 River acquisition.

Shopify has more than 1 million merchants on its e-commerce platform. Photo: Shopify

Shopify (TSX: SHOP) plans to scale its U.S. fulfillment business in 2021 by leveraging unused third-party warehouse capacity and an automation platform from a recent acquisition, the Canadian e-commerce firm’s executives said while discussing third-quarter earnings.

Shopify reported US$390 million in revenue, a 45% increase from a year earlier, and a wider loss of $72.8 million or $0.64 per share on October 29. The company said the nascent Fulfillment Network (SFN) isn’t making a significant impact on financial results, but demand has been strong

“The demand for SFN is coming from both sides,” Chief Operating Officer Harley Finkelstein said. 

Shopify has seven fulfillment “nodes” in the United States, all operated by third-party warehouse providers. Finkelstein said Shopify plans to continue growing the network through third-party warehouses. 

“There are warehouses all over the U.S. that have spare capacity,” Finkelstein said.

Finkelstein suggested Shopify would only operate its own warehouse for research and development reasons.

Shopify’s acquisition of 6 River Systems, which provides an automated platform for warehouses, will help boost efficiency and capacity for the existing fulfillment centers and extend the network itself, Chief Financial Officer Amy Shapero said. 

Shopify will continue selling the robot-enabled systems to third parties, which in effect becomes a platform for the fulfillment business.

For existing centers, the company expects the robot-enabled system to improve efficiency by a factor two to three, Shapero said.

Even as Shopify pushes deeper into Amazon’s (NASDAQ: AMZN) territory by expanding from an e-commerce platform into fulfillment, CEO Tobi Lutke downplayed the competition. 

“Shopify and Amazon are partners,” Lutke said, noting that his company offers Amazon Pay, and that some Amazon transactions go through Shopify e-stores.  

Lutke suggested that Shopify’s e-commerce platform involved “products people really want,” while Amazon’s was more about products that people need.

Shopify also has no plans to begin offering one-day guaranteed delivery. 

“It’s an incredibly expensive thing to do. The ROI [return on investment] isn’t there,” he said.  

Nate Tabak

Nate Tabak is a Toronto-based journalist and producer who covers cybersecurity and cross-border trucking and logistics for FreightWaves. He spent seven years reporting stories in the Balkans and Eastern Europe as a reporter, producer and editor based in Kosovo. He previously worked at newspapers in the San Francisco Bay Area, including the San Jose Mercury News. He graduated from UC Berkeley, where he studied the history of American policing. Contact Nate at [email protected]