After Shopify announced a record-breaking Black Friday and Cyber Monday holiday season for 2021 it would seem unusual for the stock price to tumble so quickly in January. Well, that is what is happening as at the time of writing the stock (SHOP) is down over 20% in the last 5 days. Even after their news that they would be partnering with the JD marketplace in China.
There are a number of potential reasons for this with some analysts expecting a pullback on predicted growth due to the Covid trends dissipating globally and more shoppers returning to bricks and mortar stores. However, it looks like much more likely was the news that Shopify has terminated contracts with several eCommerce fulfillment companies over the past week.
Is Shopify Turning Away From Fulfillment?
Shopify started their Fulfillment Network over two years ago in a move that many saw as them looking to compete with Amazon and the Amazon Fulfillment Network much loved by Amazon’s Prime subscribers.
According to Business Insider, they have spoken to four different executives at four different fulfillment companies who have all confirmed that Shopify has terminated contracts with them. Once actioned it is believed that their Fulfillment network will be operating at roughly half of its previous capacity of fulfillment services.
This has caused the market to question what is going on internally within Shopify with regards to its fulfillment network, which seems to have translated to uncertainty with the stock price amongst investors. Back in 2019, they had pledged to invest over $1 billion over the following five years to enable it to better compete with the infrastructure built out by Amazon.
The acquired 6 River Systems later in 2019 for $450 Million and had continued to make a series of updates to the network throughout 2021. Also last year Shopify did lose a number of key architects of the fulfillment network including the commercial lead who left for ShipHero.
A Shopify Fulfillment Pivot Seems Likely
At this time there is a lot of speculation surrounding what is happening with the Shopify Fulfillment Network but in my opinion, it seems incredibly unlikely that they are going to turn their back entirely on Fulfillment.
An email that has been obtained allegedly from a Shopify representative to an SFN merchant states how from March 21st, 2022, they will no longer be accepting ‘special requests’ as part of their service, which included services such as using branded boxes or placing branded inserts into packages.
So whilst in the short term, it sounds like Shopify is moving to a ‘bare bones’ style fulfillment service, we can’t forget that the eCommerce giants focus much more on the long term. Back in August, it was revealed that Shopify had just signed a lease for a 563,000 square foot warehouse just outside of Atlanta. For a company that doesn’t sell its own products, it doesn’t take a genius to work out what they would be needing a warehouse for.
A Shopify spokesperson has said that the company will share more details on its fulfillment network plans during its fourth-quarter earnings call coming in February.
“Our fulfillment and warehouse partners are a key part of how we’re building our coast-to-coast network,”
“We will continue to optimize our network and services as needed, allowing us to provide our merchants and their customers the best possible delivery experiences.”Shopify Spokesperson
Maybe the current stock price just represents a sale opportunity for those braver investors but it sounds like we will find out more in the next few weeks as to what Shopify plans for their fulfillment network going forward into 2022 and beyond.
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